ABA Advocacy to Expand and Preserve Homeownership

Reforming “Ability to Repay” Regulations and “Qualified Mortgage” Standards

ABA supports responsible mortgage lending, including the CFPB's rules that require a lender to assess an applicant's ability to repay (ATR) before extending a mortgage to that applicant. However, the CFPB's ATR rules as originally formulated included some hard-and-fast standards that led banks and consumer and civil rights groups to be concerned about access to credit, particularly for underserved communities. For example, the ATR rule included a 43% debt-to-income (DTI) ratio cap and prescriptive requirements for verifying and calculating income, assets and debts that made it difficult to qualify many creditworthy minority borrowers who may have higher DTI ratios, be self-employed, and/or participate in the “gig” economy.

ABA successfully advocated for reforms to the rules to assure a framework that advances broader access to sustainable credit by expanding the concept of a ‘Qualified Mortgage” for all communities. A Qualified Mortgage is a mortgage with stable payments and other safeguards to protect the borrower – and the lender who makes such a loan is assumed to have met the ATR requirements.  Once implemented, these ABA-advocated changes – which were joined by a broad coalition of consumer advocates and civil rights organizations – will help more borrowers of all backgrounds and income levels prudently qualify for Qualified Mortgage Loans. For instance, although the final rule adopted by the CFPB in December 2020 requires a lender making a QM loan to consider and verify the consumer's DTI, it no longer prescribes a DTI cap.

Encouraging banks to offer special purpose credit programs to underserved communities

Fair lending laws prohibit all lenders from offering special terms or easier qualifying standards to any person or group based on race, national origin, and other demographic characteristics.  Thus, a lender generally cannot vary underwriting requirements or mortgage terms for people of color even to address racial homeownership gaps. The exception to this rule is a "special purpose credit program" (SPCP), which a lender may offer to a class of people to meet their special social needs, provided that the program meets CFPB regulations for such programs.  

Because CFPB's rules on these programs are vague, most lenders have shied away from offering SPCPs to address needs in their communities. ABA recently urged the CFPB to clarify the SPCP rules to allow banks to offer programs to increase homeownership opportunities for Blacks and other underserved groups. The CFPB issued an advisory opinion on December 21, 2020, which addresses regulatory ambiguities and offers lenders a safe harbor from liability for reverse discrimination if they offer programs that comply with the advisory opinion and rules.  We anticipate that the advisory opinion will allow more banks to offer special products or terms for minorities seeking homeownership, although it may take some time for researchers to see the impacts of these programs.

Improving access to credit for limited English proficient consumers

Consumers who are limited English proficient (LEP) may face barriers to accessing credit because financial disclosures and documents are generally not available in non-English languages.  Banks want to serve these LEP consumers; however, many are held back by lack of resources to fully translate all documents and employ staff who can consistently communicate in a variety of non-English languages.  These banks are concerned that if they can only offer some services in select languages, e.g., Spanish and English, they will be charged with treating other LEP consumers less favorably, and/or that they will be accused of having misled some consumers into relying on the bank to translate all documents and have interpreters available at closing and to address servicing issues over the life of the loan.  At ABA's urging, on January 13, the CFPB issued a statement designed to encourage financial institutions to serve LEP consumers, offering principles and guidelines to help banks decide whether and how to serve LEP consumers while mitigating the risk of fair lending or UDAAP concerns.  

Exploring innovation to increase access to credit

The mortgage industry’s ability to evaluate and approve applications efficiently depends on automated underwriting systems, which may be a bank’s own system or a guarantor/investor’s, e.g., Fannie Mae or Freddie Mac.  These systems rely in some part on the applicant’s history of paying their credit card, auto loan, and student loan bills.  However, people who have little or no experience with these forms of credit, including recent immigrants, may be disadvantaged as a result.  Fannie Mae, Freddie Mac, and many banks recognize that alternative data, e.g., the applicant’s history of paying rent or utility bills, can be used to evaluate their creditworthiness, but that process is manual and cumbersome and does not yield the scale necessary to meaningfully increase access to homeownership.  Banks, along with other stakeholders and policy makers, are studying ways to incorporate alternative payment data sources into automated systems without inadvertently causing disparate impacts on underserved communities.

ABA/Consumer Advocate Coalition Information & Borrower Awareness Campaign

ABA is a leading sponsor and participant in a recent information campaign to raise awareness of mortgage relief options available during the pandemic.  Although banks and servicers have provided forbearance relief to more than 3.5 million homeowners impacted by COVID-19, there are estimates that thousands of delinquent borrowers who are eligible for forbearance have not contacted their servicer. ABA and a broad coalition of financial services stakeholders – including mortgage servicers, trade associations, housing counseling agencies, and governmental agencies –launched a campaign to enable banks to advance consumer awareness regarding mortgage assistance for borrowers who are affected by the pandemic and may be eligible for forbearance assistance under CARES Act or other forms of mortgage payment relief. The campaign is designed to reach populations most affected by the pandemic, particularly minority borrowers.  The campaign also includes information for borrowers whose forbearance plans are ending and who need to contact their servicer to extend that form of payment relief or request additional assistance. The “Not OK? That’s Ok” toolkit offers free, professionally produced images and messages that may be downloaded and used in email, social media, and other customer communications.

Promoting Financial Knowledge

There is widespread agreement about the importance of financial competency. It is a critical factor in preparing consumers for homeownership and reducing disparities in wealth among underserved groups.  The ABA Foundation has developed a webpage designed to help consumers prepare for homeownership and to provide information about their mortgage options.

In addition, to equip bankers with tools, knowledge and resources they need to invest in affordable housing on a local level throughout the year, ABA Foundation offers an informational site.