In response to new lending regulation implemented by the Consumer Financial Protection Bureau, one leading industry group has called on Congress to impose the reforms in a way that disrupts the mortgage industry as little as possible.
In testimony to the House Financial Services Subcommittee, The National Association of Home Builders said it supports the "Know Before You Owe" project, but hopes the agency won't eliminate a housing finance system that provides adequate lines of credit for both consumers and real estate developers.
"NAHB urges the Consumer Financial Protection Bureau and policymakers to consider the long-term ramifications of these rules on the market, and not to place unnecessary restrictions on the housing market based solely on today’s economic conditions," said group vice chairman Rick Judson. "Overly restrictive rules will prevent willing, creditworthy borrowers from entering the housing market."
Under the Know Before You Owe Project, the CFPB released two new mortgage disclosure forms meant to give borrowers a better idea of the long- and short-term costs of homeownership. In addition, the initiative also plans to eliminate prepayment fees and balloon payments on high-cost mortgages.
However, NAHB isn't particularly concerned about these factors. Instead, the group addressed the concept of the "qualified mortgage," which was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Starting in 2010, QM requires banks to make a thorough assessment of a prospective borrower to determine if they will be able to pay off a mortgage over the years. Since the financial position of a borrower can change significantly over the lifespan of a home loan, this could prevent a number of otherwise qualified consumers from receiving lines of credit. This lack of availability could further dampen housing market and economic recovery.
This is particularly concerning to NAHB, as the group feels that QM could set the foundation for the future of the home financing industry, and the same requirements could be extended to all mortgages, including lines of credit for builders.
In response, NAHB recently joined the ranks of 32 other financial institutions and industry groups calling for a more relaxed policy on QM. Specifically, the collective would like to see greater liquidity in the marketplace and proper incentive provided for lenders to extend more loans to creditworthy borrowers.