When the Consumer Financial Protection Bureau finalized its mortgage underwriting rule in 2013, it granted government-backed loans an exemption. Years later, the government-backed market appears to be enjoying the benefits, sparking a debate about whether the exemption should remain.
The CFPB rule essentially freed loans backed by the government-sponsored enterprises and other agencies from complying with a debt-to-income maximum imposed on other mortgages. Yet recent growth in loans with higher debt-to-income has prompted a debate over the exemption. The Trump administration says it gives government-backed loans an unfair advantage.
In its June report recommending changes to financial regulatory policy, the Treasury Department said higher-DTI loans that are allowed through the GSEs’ exemption and other federal guarantee programs, while other mortgages must stick to the CFPB’s strict limits, create “an asymmetry, and regulatory burden, for privately originated mortgages.” The Treasury report recommended that the CFPB should eliminate the exemption for GSEs. But it also suggested that all market participants could be eligible for more flexible DTI limits.
Read more in American Banker.