U.S. regulators seek to reassure banks on mortgage rulesWASHINGTON - U.S. regulators on Friday said that as long as banks issue sound loans, their strategies for complying with new rules for mortgage lending would not raise supervisory concerns.
By: Reuters, INFORUM
WASHINGTON - U.S. regulators on Friday said that as long as banks issue sound loans, their strategies for complying with new rules for mortgage lending would not raise supervisory concerns.
The Federal Reserve, Federal Deposit Insurance Corp and other agencies said lenders can issue both "qualified" mortgages, which are the most basic loans, and non-qualified loans without risking safety-and-soundness violations.
The statement was meant to ease banks' fears about complying with new rules from the U.S. Consumer Financial Protection Bureau that require lenders to verify that borrowers can repay their mortgages.
Issuing qualified loans - which must have no risky features and go to borrowers with relatively little debt - gives banks some protection from lawsuits related to the ability-to-repay rule.
Banks worried their examiners might criticize them for making loans that did not fit that standard. Some also worried that if they only made basic loans, they would violate a different program meant to promote lending to low-income borrowers.
"The agencies continue to expect institutions to underwrite residential mortgage loans in a prudent fashion and address key risk areas in residential mortgage lending...regardless of whether a residential mortgage loan is a qualified mortgage or non-qualified mortgage," the statement said.
The consumer bureau's rules, required by the 2010 Dodd-Frank law, take effect in January, and banks are scrambling to comply. They have had numerous questions about how the rules line up with existing requirements for lenders.
In October, regulators issued a statement clarifying how the consumer bureau's new requirements would square with fair lending laws, another concern of banks.
Because the qualified mortgage definition was drawn broadly, many banks expect to primarily make qualified loans, at least at first.
Some of the bigger mortgage lenders, such as Wells Fargo, have said they may make non-qualified loans to certain clients.