The Consumer Financial Protection Bureau (CFPB) recently announced that it will end the infamous qualified mortgage patch, a big step that the Heritage Foundation’s Norbert Michel has been pushing for since 2014.
Under the current qualified mortgage rule, the CFPB requires that all mortgage borrowers maintain a debt-to income ratio below 43%. The qualified mortgage patch established an exception for mortgages backed by Fannie Mae and Freddie Mac, which are loans that are riskier than the standard set out in the Dodd-Frank Act, the law that was supposed to ensure there would not be another flood of risky home loans.
Michel, who directs Heritage’s Center for Data Analysis, writes in a recent Forbes commentary, “It might be difficult for people to fathom how federal policy could still be incentivizing risky loans given the disastrous 2008 meltdown, but the answer was clearly on display in a House hearing last December: Scores of special interest groups want their federal goodies.”
The housing lobby has pushed back against the CFPB for making this decision because it wants protection for these higher risk loans, but it is important for the bureau to use its special independent status to protect taxpayers from backing more high risk loans, Michel argues.
In a statement from the CFPB, Director Kathleen Kraninger said, “Loans backed by Fannie Mae and Freddie Mac make up a large portion of the U.S. mortgage market. The national mortgage market readjusting away from the Patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protection.”
Michel is hopeful that this new regulation will lead to a stronger housing market.
“This is a really big first step,” he says. “Fannie Mae and Freddie Mac have had an unfair advantage for over five years because of this loophole. We can’t make real reforms in the real estate market without this first step.”
After the announcement, Michel wrote in a Heritage commentary that taxpayers and prospective homeowners should thank Kraninger and her CFPB colleagues as well as Mark Calabria, director of the Federal Housing Finance Agency, and his colleagues for their collaboration to end the qualified mortgage patch to even the playing field for all consumers.
Now that the CPPB has jumped this hurdle, it can start working on reforming other rules that are also likely holding back private lenders, Michel says.