ABA Submits Recommendations for Housing Finance Reform

As part of the banking industry’s continuing response to President Trump’s executive order outlining “core principles” for financial regulation, ABA submitted two white papers to the Treasury Department today with recommendations for reforming current mortgage lending rules and regulations and the government-sponsored enterprises Fannie Mae and Freddie Mac.

ABA called for a full-scale review of current mortgage lending and servicing regulations, advocating for “careful fixes … to [ensure] that the laws are necessary, protective, effective, balanced and certain in their application.” Among the recommended changes were reforms to disclosure requirements, including the TILA-RESPA Integrated disclosure rules and the CFPB’s complex servicing rule.

In addition, the association made several recommendations that would expand responsible lending while maintaining consumer protections, such as allowing loans held in portfolio to qualify as Qualified Mortgages and raising the 43 percent debt-to-income standard for QM loans. Finally, ABA pointed out that many of the rules have caused confusion or uncertainties, particularly in regards to liability, and called on regulators to clarify existing rules and expand the availability of cure provisions across all mortgage-related regulations.

ABA also laid out nine principles for GSE reform, noting that “[t]he endpoint should be a reduced direct role of the federal government in mortgage finance.” As Congress considers the best way forward, ABA emphasized the importance of limiting the GSEs’ activities to a secondary market role of providing stability and liquidity to the primary mortgage market, and limiting taxpayer exposure to risk, while also ensuring equitable access to the secondary market for all lenders and the continuation of the To Be Announced market, allowing the sale of individual loans to the GSEs.

“A more robust private market for housing finance should be fostered and encouraged with an ultimate goal of a much smaller direct governmental role, and with that role focused on ensuring market stability, access to the capital markets for all originators, and as a safety valve in the event of market failure,” ABA said.