Joint Trades Comment Letter to HUD regarding QM Definitions

Dear Commissioner Galante:
The undersigned Associations are grateful for the important work of the Department of Housing and Urban Development (HUD) in developing a proposed rule to define a Qualified Mortgage (QM) for purposes of the Federal Housing Administration (FHA) Insured and Guaranteed Single Family Mortgage Program. Absent such a definition, we believe many consumers would be needlessly denied safe and affordable credit through FHA because their loans would exceed the threshold for safe harbor treatment under the Consumer Financial Protection Bureau (CFPB) Ability to Repay rule.
Nevertheless, we write today to urge that the safe harbor-rebuttable presumption distinction proposed by HUD for Title II FHA–insured loans be eliminated. We urge instead that all loans meeting FHA requirements should be treated as safe harbor QM loans.

As pointed out in its preamble to the proposal, HUD “reviewed its mortgage insurance and guarantee programs and determined that all of the single family residential mortgage and loan products offered by HUD are qualified mortgages, that is they exclude risky features and are designed so the borrower can repay the loan.” Despite this fact, HUD has proposed the same safe harbor and rebuttal presumption distinction as the CFPB, perhaps merely to mirror the CFPB’s decision.
Unlike the CFPB’s rule, however, which governs the wider market of prime and higher priced lending, HUD’s rule covers only FHA-insured loans. Accordingly, the establishment of a rebuttable presumption to protect borrowers with higher rates is unnecessary and will impose costs and reduce credit availability for the borrowers most in need of FHA credit.
The FHA underwriting process has been developed and refined over nearly 80 years to ensure consumers have access to safe mortgage loans that they have the ability to repay. Recently, FHA has taken steps to strengthen its underwriting standards to reduce the risk of borrowers’ default. Loans at all interest rates—and the process of originating, underwriting, and servicing them—are subject to strict oversight, control, and regulation by the federal government through HUD. All FHA-insured loans are fully-documented and have minimum down payment requirements. Virtually all are fixed rate, and adjustable rate loans are subject to tight adjustment limits to protect borrowers. Loans with credit scores under 620 have debt-to-income (DTI) requirements and now require manual underwriting to ensure an ability to repay.

To read the full Comment Letter, download the PDF.