Sixth, it addresses the likelihood of liability of ATR liability Third, it covers the civil liability to the CFPB for failing to verify ATR įourth, it covers private civil liability for ATR violations įifth, it covers the private civil damages for ATR violations Second, it covers the Qualified Mortgage safe harbor to the ATR requirement What matters is the lack of liquidity-meaning a secondary market-in non-QM loans, as lenders aren't going to want a lot of illiquid loans on their books, and that is a function of the GSEs' credit box, not CFPB regulation.īecause this post is REALLY long, here’s where it goes (yes, I feel like I'm doing one of those unwieldy 100+ page UFTA decisions, so I'm going to have a table of contents!):įirst, it gives the legal background on the Dodd-Frank Act ATR requirement Ultimately, I don't think ATR liability really matters in terms of availability of credit. I invite those who would calculate this differently to weigh in in the comments-it’s quite possible that there are factors I have overlooked here, as this is a really preliminary analysis. Even with rounding up, that's 25 basis points to recover additional credit losses, which is not a big impact on credit availability. Still, my back-of-the-envelope calculation suggests that it is quite low in terms of loss given default and could probably be priced in at around 10 basis points in additional cost for a portfolio with weighted average maturities (actual) of five years. (I note that all of this is my tentative readings of the statute we really don’t know how courts will interpret it, and others may see better readings than I do now.) Based on a preliminary analysis, I think this concern is overblown, and in this very long post I attempt to work through the potential liability for lenders that make non-Qualified Mortgages. I've blogged on aspect of QM before ( here, here, here, here, here, here, here, and here). There is a real concern that the Dodd-Frank Act’s mortgage reforms will reduce the availability of mortgage credit because lenders’ fear liability for making mortgage loans that fail to qualify as “Qualified Mortgages” (QM) and are thus potentially subject to an Ability-to-Repay (ATR) defense. For multifamily and construction and land development loans, a substantial net share of banks widened the spread on loan rates, lowered the loan-to-value ratio, increased debt service coverage, and decreased maximum loan size.One of the huge questions hanging over the mortgage market today is what will happen to access to credit for credit impaired or non-traditional borrowers. Banks also reported weaker demand for construction and land development loans, loans secured by multifamily properties, and loans secured by nonfarm nonresidential properties.īanks reported having tightened all the terms surveyed on all categories of CRE loans over the past year. While high, it was a large improvement from the 87.4% average in Q4 2022.īanks tightened standards for all types of commercial real estate loans, on net, though tightening was more widely reported by mid-sized banks than the largest firms. The net share of banks reporting weaker demand averaged 50.8% across loan categories. In contrast, GSE-eligible (+0.1 ppt) and government (+0.1 ppt) loans each saw a small increase in the net percent of banks reporting tighter standards in Q1 2023 than Q4 2022.ĭemand weakened for all RRE loan categories and home equity lines of credit (HELOCs). Banks also reported substantial tightening for non-QM non-jumbo, non-QM jumbo, QM jumbo, and QM non-jumbo non-GSE eligible RRE loans. Residential mortgage lending standards tightened the most for subprime loans as the net share of banks reporting tighter standards for these loans climbed from 14.3% to 33.3%. No banks expected their lending standards for most loans to ease over the remainder of 2023 and one-third expected more tightening. Demand for RRE and CRE loans weakened across all categories over the quarter. Lending Standards Tighten for Residential and Commercial Real Estate Loans in Q1 2023Īccording to the Federal Reserve Board’s April 2023 Senior Loan Officer Opinion Survey (SLOOS)-conducted for bank lending activity over the first quarter of 2023-banks reported that lending standards tightened for most residential real estate (RRE) and commercial real estate (CRE) loan categories.
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