WASHINGTON – Community bankers and Republican congressmen Tuesday predicted that new mortgage rules created under the Dodd-Frank Act will hurt both borrowers and bankers.
As required by the law, the Consumer Financial Protection Bureau drafted two rules, which went into effect last week, that say lenders must consider a consumer’s ability to repay a home loan and set standards for qualifying for a mortgage.
At a hearing Tuesday, the Subcommittee on Financial Institutions and Consumer Credit examined the potential impact of the rules, created as a way to prevent another housing bubble like the 2009 financial crisis.
Subcommittee Chairman Shelley Capito, R-W.Va., said the hearing would serve as a good comparison to determine longterm effects of the rules.
“The rule’s only been in effect since Friday,” Capito said. “When we have this hearing in another six months, we’ll be able to see what our baseline was and to see what effect this rule has really had.”
Frank Spencer, president of Habitat for Humanity, told the committee that the regulations will hurt borrowers.
“The ongoing success of Habitat’s self-help homeownership model – a unique approach to home building and mortgage lending that is thriving – merits federal support, not regulatory intervention that threatens its survival,” Spencer said.
He said the added paperwork burden to comply with the rules may force people and organizations like his out of home ownership.
Community bankers also criticized the rules, saying they are impediments to qualifying people for home loans.
“The (qualified mortgage) rule poses a daunting challenge,” said Jack Hartings of The Peoples Bank Co. in Coldwater, Ohio. “It will change the way that we lend, and reduce access to credit in our communities.”
However, others say the rules make sense. Nothing about the rules “should be controversial,” said Rep. Stephen Lynch, D-Mass., a member of the subcommittee.
“The Wall Street Reform Law states very simply that before a lender offers a mortgage to a consumer, they should first come to a reasonable good-faith determination that the consumer has the ability to pay,” Lynch said. “And that’s it.”
Over the next few months, the committee plans to further investigate the impacts of the new rule on Americans who are trying to buy their first homes or low- to moderate-income homebuyers, two groups likely to be harmed the most by the rules, said Rep. Sean Duffy, R-Wis., the vice chairman of the subcommittee.
“It’s these people who aren’t going to be able to live the American dream, which is part of buying home,” he said.
