CBA Concerns with Non-QM Loans


August 8, 2013


The Honorable Richard Cordray Director

Consumer Financial Protection Bureau 1700 G Street, NW

Washington, DC 20552


Re: Request for Guidance and Clarity on the Ability-to-Repay/Qualified  Mortgage Rules

Dear Director

I very much appreciate the recent time and attention you personally provided to the Consumer Bankers Association (CSA) in addressing certain issues of concerns we have with the Ability-to-Repay/Qualified  Mortgage rules.  This includes your recent meeting with the CBA Board of Directors, as well as a follow-up conference call between members of our Board and members of your senior team.  As we expressed during these meetings, our significant concerns are focused on our differing views as to whether there will be a robust non-QM mortgage lending market and the fair lending risks lenders may face by complying with the Ability-to-Repay/Qualified  Mortgage rules.


Down Payments

During our conference call with your senior team members, we gained further understanding as to the Consumer Financial Protection Bureau's (CFPB's) analysis that the liability risks of making non-QM loans would be approximately ten basis points.

However, during the discussion, we raised the issue of actual damages not being adequately addressed in this analysis.  Specifically, we raised the concern as to whether lenders would have to reimburse the borrower for the amount of the down­ payment as damages in an Ability-to-Repay lawsuit.  In our view, including the down­ payment and other actual damages in this analysis would result in liability risks far exceeding ten basis points.


On the call, the CFPB senior team opined there was no case law or other indication a borrower would be entitled to reimbursement of the down-payment.   However, our members continue to believe this is a serious issue.  For example, there may not be case law now establishing down-payments as damages in which borrowers are entitled, but there could be court cases in the future holding lenders liable for down-payments in these situations.


As a result of these concerns, the CFPB senior team agreed to review this issue further. We believe the preferable approach to resolve this would be for the CFPB to issue a clarification or revision to the Ability-to-Repay/QM rules, or the official staff commentary to these rules, to state down-payments are not "actual damages" borrowers are entitled to under the Ability-to-Repay/QM  rules.


Fair Lending

As we mentioned on a number of previous occasions, including our recent conference call with your senior team and with you personally, lenders are concerned compliance with the Ability-to-Repay/QM  rules will subject them to claims of discrimination under the "disparate impact" theory, in which lenders are liable for discrimination even if there was no intent.  The concern is compliance with these and the other mortgage rules issued by the CFPB this past January will tighten credit, which may then lead to possible "disparate" outcomes for protected classes.  CBA and other trade associations recently raised this issue with the CFPB and the Department of Housing and Urban Development (HUD) in a separate letter, dated June 4, 2013, following HUD's recent issuance of a rule applying the "disparate impact" theory to Fair Housing Act claims.


Given the uncertainty created by the HUD disparate impact rule and its intersection with the CFPB mortgage rules, we urge the CFPB to work with the other agencies to develop written guidance for the industry to clarify a lender will not be subject to disparate impact liability based on a lender's compliance with the CFPB mortgage rules issued this past January.  Alternatively, we request guidance that compliance with the CFPB's mortgage rules will qualify as a legitimate business justification lenders may use to defend against claims of disparate impact.


CBA Request


For the reasons outlined above, we request the CFPB immediately issue clarification or a revision to the Ability-to-Repay rules stating down payments are not considered "actual damages" and to also work with the other agencies in providing guidance clarifying a lender will not be subject to disparate impact liability based on compliance with CFPB mortgage rules.  Again, we appreciate the time and attention you and your team have provided in helping the industry work through these issues.  We look forward to your response to these matters, and please call me at (202) 552-6384 if you would like to discuss this further.

Executive Officer