Biden Administration Looking To Reverse Trump-Era Mortgage Policy

The Consumer Financial Protection Bureau sent out a statement this week claiming they would be reconsidering current mortgage standards in the US.

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The Biden administration has alluded to the possibility that they will be dismantling certain mortgage rules that were created during the final days of Donald Trump’s presidency. The Trump-era policy removed a lot of protections for those who were dependent on loans for their payments, as well as created the space for riskier loans to be dealt out; this left many industry leaders concerned because it was the same type of risky loans that led to the 2008 financial and housing crisis. 

The Consumer Financial Protection Bureau released a statement this week in which they claimed they would be “considering whether or not to revisit the rules that were issued in December back when Trump appointee Kathy Kraninger led the agency.” Kraninger stepped down last month per the request of President Joe Biden. 

The bureau is meant to protect consumers from abuse and predatory practices that exist within credit card, loan, and other financial service sectors. It was created back in 2011 during the Obama Administration. The Trump measures relate directly to residential loans for homeowners, specifically, rewriting certain protections that were created after the Great Recession a decade ago to prevent it from occurring again.

“It’s a big deal, the Trump-era measures are really really dangerous for consumers, and could lead to another economic disaster.”

Patricia McCoy, a professor at Boston College Law School, spoke to the media recently explaining how the Seasoned QM and General QM rules that Trump pushed are both types of qualified mortgages. “Qualified mortgage is a category that carries legal protections for lenders from consumer lawsuits. That may happen, for example, if borrowers can’t make monthly payments and lose their homes to foreclosure.”

The rules enacted by Trump are scheduled to phase in starting in March, and if undertaken, “the rulemaking process may ultimately change or rescind the rules,” according to McCoy, who also oversaw mortgage policy at the CFPB during the Obama administration when it was initially created. 

“If the current administration is signaling that they want to change the policy, they don’t do that lightly.” Some individuals, however, believe the rules should remain in place as Trump intended due to the fact that they could help banks and other “lenders innovate and extend more mortgages to underserved groups, like Black and Hispanis home buyers,” according to Robert Broeksmit, president and CEO of the Mortgage Bankers Association.

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“Consumer advocates are especially concerned by Trump’s Seasoned QM rule. It creates a new standard for a mortgage to be deemed ‘qualified.’”

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Having a qualified status is essential for home buyers and lenders because it’s basically a stamp of approval from the government that proves a lender determined a borrower is financially responsible and could afford whatever loan they’re seeking. Qualified status gives lenders legal protection in court and consumers have the peace of mind of knowing they took out a sustainable loan. 

According to the Center for Responsible Lending around 95% of mortgages in the US are qualified. “Prior to the Trump-era rewrite, a loan was generally deemed ‘qualified’ if a borrower’s debt load wasn’t too high, which would be more than 43% of their monthly income,” according to McCoy. A borrower’s ability to pay will determine if they receive a prime or subprime loan. 

“This is one of the foundational rules of reform coming out of the Great Recession. It goes right to the heart of what caused the financial crash. We think it’s too loose and creates some bad incentives to do some of the unsustainable ending we saw in the crisis. We don’t want to encourage high-failure lending,” said Mike Calhoun, president of the Center for Responsible Lending.

The Consumer Financial Protection Bureau and other sectors of the Biden Administration will be reconsidering these mortgage standards within the next week since March 1st is now only a couple of days away. It’s unclear whether these protections will be made and enforced.