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HOW PROSPECTIVE AND CURRENT HOMEOWNERS 

WILL BE HARMED BY THE CFPB’S 

QUALIFIED MORTGAGE RULE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

JANUARY 14, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–58 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

SEAN P. DUFFY, Wisconsin, Vice Chairman 

SPENCER BACHUS, Alabama 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

MARLIN A. STUTZMAN, Indiana 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

GREGORY W. MEEKS, New York, Ranking 

Member 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

NYDIA M. VELA ́ ZQUEZ, New York 

STEPHEN F. LYNCH, Massachusetts 

MICHAEL E. CAPUANO, Massachusetts 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

January 14, 2014 .............................................................................................. 1 

Appendix: 

January 14, 2014 .............................................................................................. 53 

WITNESSES 

TUESDAY, JANUARY 14, 2014 

Calhoun, Michael D., President, Center for Responsible Lending ...................... 16 

Emerson, Bill, Chief Executive Officer, Quicken Loans, Inc., on behalf of 

the Mortgage Bankers Association (MBA) ......................................................... 10 

Hartings, Jack, President and Chief Executive Officer, the Peoples Bank 

Co., on behalf of the Independent Community Bankers of America (ICBA) ... 9 

Spencer, Frank, President and Chief Executive Officer, Habitat for Humanity 

of Charlotte, NC ................................................................................................... 14 

Weickenand, Daniel, Chief Executive Officer, Orion Federal Credit Union, 

on behalf of the National Association of Federal Credit Unions (NAFCU) ..... 12 

APPENDIX 

Prepared statements: 

Calhoun, Michael D. ......................................................................................... 54 

Emerson, Bill .................................................................................................... 74 

Hartings, Jack .................................................................................................. 85 

Spencer, Frank ................................................................................................. 93 

Weickenand, Daniel .......................................................................................... 98 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the American Land Title Association ......................... 115 

Written statement of the Credit Union National Association ...................... 118 

Written statement of the Manufactured Housing Institute .......................... 134 

Written statement of the National Association of REALTORS® ................. 138 

Ellison, Hon. Keith: 

Written statement of the Consumer Federation of America before the 

New York State Department of Financial Services, dated December 

10, 2013 .......................................................................................................... 145 

Written statement of the National Association of Independent Land Title 

Agents ............................................................................................................ 167 

Written responses to questions submitted to Michael D. Calhoun .............. 174 

Written responses to questions submitted to Bill Emerson .......................... 180 

Written responses to questions submitted to Daniel Weickenand ............... 183 

Luetkemeyer, Hon. Blaine: 

Letter from the Consumer Financial Protection Bureau, dated December 

20, 2013 .......................................................................................................... 185 

Letter to the Consumer Financial Protection Bureau, dated December 

10, 2013 .......................................................................................................... 187 

Rothfus, Hon. Keith: 

Statements from participants in the Pittsburgh Roundtable held on November 12, 2013 ............................................................................................ 189 

(1) 

HOW PROSPECTIVE AND CURRENT 

HOMEOWNERS WILL BE HARMED BY 

THE CFPB’S QUALIFIED MORTGAGE RULE 

Tuesday, January 14, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:06 a.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Duffy, Bachus, 

McHenry, Campbell, Pearce, Posey, Westmoreland, Luetkemeyer, 

Stutzman, Pittenger, Barr, Cotton, Rothfus; Meeks, Maloney, Hinojosa, Scott, Green, Ellison, Lynch, Capuano, Murphy, and Heck. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representatives Fincher, Garrett, Huizenga; and 

Kildee. 

Chairwoman CAPITO. The subcommittee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

I am now going to recognize myself for the purpose of making an 

opening statement. Last January, the Consumer Financial Protection Bureau (CFPB) issued a series of rules that will fundamentally 

change the mortgage market in the United States. Over the last 

year, we have had numerous hearings in the Financial Institutions 

and Consumer Credit Subcommittee to learn more about the effects 

these rules will have on the availability of credit. 

Last November, I had the pleasure of joining Mr. Rothfus in 

Pittsburgh for a roundtable discussion with the community development organizations in the greater Pittsburgh area about the effect these rules will have on their ability to serve their consumers. 

Two things emerged from these committee hearings: one, that 

the new mortgage rules impair the ability of lenders to work with 

borrowers on an individual basis; and two, that low- to moderateincome borrowers stand to lose the most if lenders cannot write 

loans outside the qualified mortgage (QM) definition. 

This morning, we have a panel of witnesses who will further educate members of the subcommittee on how their constituents will 

be affected by this rule. We have three lenders who will discuss the 

difficulties in working with borrowers with credit profiles that fall 

outside the qualified mortgage definition. 

2 

In most cases, lenders will sit down with riskier borrowers—that 

is what we do in West Virginia—and craft a mortgage that is highly tailored to the borrower’s needs and risk profile. This type of relation is especially crucial in the rural areas, such as my district 

in West Virginia. No two borrowers have the same credit profile, 

and I fear that the one-size-fits-all approach to the CFPB mortgage 

rule will severely hamper the ability of community lenders to tailor 

products to their borrowers. 

I also fear that the very population that this rule seeks to protect, the low- to moderate-income borrower, is the population that 

will be most affected by these rules. This morning, we will learn 

about the difficulties that Habitat for Humanity will face in complying with this rule. 

The ability of charitable programs like Habitat and other entities 

who provide mortgages to underserved populations is critical to 

helping these borrowers realize their dreams of homeownership. 

This is another example of the consequences of removing underwriting discretion from the hands of lenders and borrowers and 

placing it in the hands of the bureaucracies in Washington. 

It is my hope that we can work together to find common-sense 

solutions, and to provide consumers with the transparency they deserve, without limiting the ability of lenders to work with borrowers on a case-by-case basis. 

I now yield time to the ranking member of the subcommittee, 

Mr. Meeks, for the purpose of making an opening statement. 

Mr. MEEKS. Thank you, Madam Chairwoman. And I certainly 

agree with you that today we hold a very important hearing, given 

that the QM rules were finally—became effective last Friday. I also 

think that we can all agree that this is one of the most important 

new financial reforms that have been passed in recent years. And 

I just wanted to also say thank you for being here today, this morning, knowing the serious issues that your constituents face in West 

Virginia dealing with their drinking water. 

I am pleased that the discussion has progressed from possibly delaying the QM rule to finally discussing their implementation and 

impacts. But I think that we also need to issue some words of caution that the rules just became effective a few days ago. And although we are here to talk about their impacts, we really don’t 

have the data yet to definitively argue what the effects of the new 

QM rules will be. 

In fact, it may take a few years to have the conclusive data. But 

I think that it is important to have these discussions, and to have 

them now, because this is very important to me. I probably would 

not be sitting here today if it wasn’t for the fact that my parents 

had the opportunity to own a home. We moved from public housing 

to buying a home, which was the American dream, at which time 

my parents were able to actually afford to provide me and my sisters with an education as a result of owning that home. 

And so, this is significant, and it is somewhat personal for me. 

And I personally have no doubt that there are impacts, significant 

impacts on prospective home buyers. After all, it was our intent to 

have new rules that fundamentally changed the old practices of the 

mortgage industry. And what I have to try to weigh, and I think 

what we all have to try to weigh, is to make sure that we don’t 

3 

eliminate the possibility of individuals like my parents owning a 

home, because that is how we move the American dream, and people have an opportunity to progress. 

At the same time, we cannot have a short memory, because we 

know from January 2007 to December 2011, 4 million American 

households lost their homes through completed foreclosures, and 

another 4.2 million were appended. And by 2010, U.S. home values 

dropped by an average of 30 percent from their 2006 peak, more 

than the 26 percent drop that occurred between 1928 and 1933 

during the Great Depression. And the fact that we lost a record 9 

million jobs between 2008 and 2009, roughly 6 percent of the workforce. 

This was devastating. And I look at a district like mine, still recovering, actually, from this devastation. They were the devastating consequences of an economic system that failed because of 

widespread predatory and fraudulent mortgage practices. And in 

the midst of all this, African Americans and Hispanics were disproportionately steered to these predatory loans. 

Studies by The Wall Street Journal and Fannie Mae both concluded that about 50 percent of African Americans and Hispanics 

were steered to subprime loans, even though they could qualify for 

prime loans. These groups were targeted by subprime lenders and 

brokers who received incentives for jacking up the interest rates. 

Wells Fargo, Bank of America, Citi, and Countrywide are among 

a list of large lenders that were sued for the lending practices that 

discriminated against minorities by steering them into high-interest subprime loans they eventually could not pay for. No other recent economic crisis better illustrates the saying that when America catches a cold, African Americans and Hispanics will get pneumonia. Today, the wealth gap between Blacks or Hispanics and 

Whites is the worst it has been since we started tracking these figures 3 decades ago. 

So let me make it really clear. This is one of the most fundamental pieces of legislation that was long overdue in this country, 

and its effective implementation is an important milestone that we 

can be proud of. And I look forward to working in a bipartisan 

manner, because this affects all Americans. I talk specifically in regard to how it disproportionately affected African Americans and 

Hispanics, but it affects every American, every poor American. 

In urban America, in rural America, this is something that we 

need to come together and work collectively on to resolve it, because, really, this is where the future of our country lies, and if we 

don’t give individuals the opportunity to have a better life by investing in the American dream and owning a home, then shame on 

all of us. 

I have been working very closely with my colleagues and the 

Chair, and I look forward to continuing to do so in a bipartisan 

manner so that we can make sure that we do the best things for 

America’s people. 

I yield back. 

Chairwoman CAPITO. I thank the gentleman. I would like to, 

without objection, enter into the record the flyer many of the folks 

in the audience have been passing out in the hall today. 

Without objection, it is so ordered. 

4 

[applause] 

I would now like to recognize Mr. Duffy for 2 minutes for an 

opening statement. 

Mr. DUFFY. Thank you, Madam Chairwoman. 

And I appreciate you holding this very important hearing. 

I understand the push, after the financial crisis, to have some 

form of a qualified mortgage rule when we are selling mortgages 

into the secondary market. That makes some sense. 

My concern, though, with this rule, is the way it has been written. A lot of small banks in Wisconsin, and a lot of credit unions 

in Wisconsin, who may not have any interest in selling these loans 

into the secondary market—these actually are loans they want to 

keep on the books, but those loans don’t fit within the qualified 

mortgage rule—aren’t going to make these loans. And the people 

who are left behind by this rule are minorities, are low-income, or 

moderate-income individuals, people who might not have a traditional income stream of a 9:00 to 5:00 job. They may be a small 

business owner who may have a cyclical income with that small 

business. 

It is these people who aren’t going to be able to live the American 

dream, which is part of buying a home. 

And so, I am interested in hearing from the panel today about 

how you are analyzing the QM rule, and how it is going to affect 

your lending practices. Because as I look back to my district—really work in our communities where our bankers are able to look at 

individuals in a number of different factors, and they take risk on 

them. And they give them loans. And oftentimes, those loans perform really well. 

But now we see big government making rules, bureaucrats in 

Washington making rules that are going to prohibit that young individual, who is just coming out of college, just starting a family, 

from actually buying a home. 

I would agree with Mr. Meeks that the pendulum was too far 

over before the 2008 crisis. But this rule swings the pendulum too 

far to the other side. We have to have a common-sense approach 

that is going to work for the American people no matter what kind 

of income stream you have. This just can’t work for high-income 

Americans. And this rule is tailored toward high-income earners. 

We have to make sure we are looking out for all Americans. 

I yield back. 

Chairwoman CAPITO. Thank you. I would like to recognize Mrs. 

Maloney for 2 minutes for the purpose of an opening statement. 

Mrs. MALONEY. I thank the chairlady and the ranking member 

for holding this important hearing. The qualified mortgage rule is 

one of the centerpieces that came out of the financial crisis. And 

it is supposed to ensure that borrowers are protected from the 

predatory lending practices that did so much damage to Americans. 

We have to remember, this country lost $16 trillion. Thousands 

of people lost their homes, and their jobs. We are still recovering 

from the longest recession in my lifetime, which most economists 

attribute to the mortgage crisis, and the predatory, risky loans that 

were pushed out to consumers. 

Now, what does this rule do? 

5 

It merely says that you cannot have risky features which can 

hurt consumers and the overall economy, such as saying interestonly payments, that is not a good thing to do. And it also says that 

negative amortization, where the total debt rises every month, that 

you can’t do that. And it says that the payments should not exceed 

43 percent of a borrower’s monthly income. Most economists say it 

shouldn’t be more than a third, and there are even exceptions to 

that. The rule came out on Friday, and the CFPB has already 

given a 2-year grace period to small lenders, community banks, and 

credit unions to see how they can monitor it, and see what the effect is. 

They have also said—and I am very pleased to hear this—that 

based on their data, they are open to making adjustments and 

changes. I think we all agree that we don’t want another financial 

crisis. And if we don’t learn from the one we already went through, 

then we probably will have another financial crisis. 

This rule is put in place to protect consumers, protect lenders, 

protect borrowers, protect banks, and protect our overall economy. 

And so, I look forward to monitoring it, seeing its impact, and making sure that it is fair to consumers and our overall economy. 

I yield back. 

Chairwoman CAPITO. Thank you. 

I recognize Mr. Bachus for 2 minutes. 

Mr. BACHUS. I thank the chairwoman. 

I got my Kiplinger letter about 4 days ago, and it predicts 10 

things for 2014. It was very similar to an article in The Economist 

that came out right after Christmas, and also in Bloomberg Business. They all predict the very same thing. 

Here is what it says: You will pay a higher rate for a mortgage, 

and mortgages will be harder to obtain because of tighter lending 

restrictions from the Consumer Financial Protection Bureau 

(CFPB). It also says something else, as a result, slower growth for 

housing, and housing is about an eighth of our economy. 

We are talking about home ownership, and Mr. Meeks told a 

story that really is an American story. I think the American dream 

is a job, not so much a home. Because if you don’t have a job, it 

is hard to have home ownership. But that is what every person in 

this country aspires to do is get a job, and then for themselves or 

their family, find a home. And leading up to 2008, we may have 

gone too far because we wanted everyone to have a home, because 

we found that if you own your own home, communities are safer, 

children do better in school, people buy in to the community, and 

it benefits society as a whole. 

I don’t know of anything more beneficial to a community than 

high rates of home ownership. And, yes, we had very lax underwriting standards. No one wants a repeat of 2008. 

But we don’t want to overregulate. We don’t want to go too far. 

We don’t want to—as physicians say, first, do no harm. And this 

rule does harm. It is going to deny people like Mr. Meeks or myself—I can remember when we— 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. BACHUS. —moved into our first home. It was a great day. 

And I don’t want to deny that to any American. 

Thank you. 

6 

Chairwoman CAPITO. Thank you. 

Mr. Green for 2 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman. 

I would like to associate myself with the comments of the ranking member. And I would like to add a bit to it. Because, in Congress, I have a piece of legislation for alternative credit scoring. 

I have a history of trying to make sure those persons who don’t 

have opportunities, acquire opportunities. This piece of legislation 

would consider light bill, gas bill, water bill, utilities, and other 

forms of credit that are not traditionally scored. And this will help 

a lot of people. 

I would also like to reflect for just a moment on what happened 

to cause us to get into this crisis. A lot of the people that we have 

been trying to help were given loans that were beyond what they 

qualified for. They qualified for a loan at 8 percent, with a yield 

spread premium, they got a loan of 10 percent, 12 percent. Or if 

they qualified for 5 percent, they got a loan for 10 percent. 

And they didn’t know. They did not know that they qualified for 

a 5 percent loan. 

Because there was a system in place that allowed the person who 

was qualifying you to get a bonus, a kickback, if he could qualify 

you for a loan at a lower rate, and then push you into a higherrate loan. That is dastardly. That is what this deal deals with. 

We have to deal with the things that have caused African Americans to lose a generation of wealth. We don’t want that. 

Dr. King was right. He said life is an inescapable network of mutuality tied to a single garment of destiny. What impacts one directly impacts all indirectly. 

That crisis that hit the African-American community, the minority communities, impacted the entire economy. It wasn’t just some 

people who were taken advantage of in the final analyses. 

So we have a duty to do all that we can to prevent this from happening again. 

I want to see the balance. I support these community banks. But 

I don’t want to see people taken advantage of. I yield back. 

Chairwoman CAPITO. The gentleman’s time has expired. 

[applause] 

If I could remind the audience, I am happy—and Mr. Green is 

hard to resist because he is very enthusiastic. But if I could ask 

you to respect the rules of the House, and refrain from expressing 

approval and disapproval, we will move the hearing on, I think 

quicker. And I thank you for your cooperation. Thank you. 

I would like to recognize Mr. Pittenger for 11⁄2 minutes, please. 

Mr. PITTENGER. Thank you, Madam Chairwoman, for yielding me 

the time for this important issue. 

As I travel throughout my 9th District in North Carolina, I meet 

with community bank leaders who tell me time and again of the 

struggles that they have with regulations pouring out of Washington, D.C., and their inability to address the real financial needs 

of their community. 

Every so often, we have seen that the government has become its 

own worst enemy. We saw that clearly from what happened with 

the inception of this entire housing demise, where the government 

7 

forced institutions to do certain things and now the government is 

saying, well, now we are requiring you to do certain things. 

The government seems to be the one who wants to dictate and 

micromanage to communities throughout the country. 

While regulators here in D.C. say that there won’t be a problem 

with this new rule, that is referred to as the qualified mortgage, 

we have found that may not be the case. We were also told that 

you can keep your health care if you would like to. 

We are finding that the community banks back in our districts 

are not going to lend outside of the QM rule, because of fear of litigation by the Feds. 

Diane Katz of the Heritage Foundation said that young adults 

and minorities will be the hardest hit by these rules. As first-time 

homeowners, they will be limited, with limited income and college 

debt, they will be pushing their debt-to-income ratio above qualified status. 

So, Madam Chairwoman, I thank you. I believe that we need to 

give this important consideration. 

Chairwoman CAPITO. Thank you. 

Mr. Lynch, for 2 minutes, for the purpose of an opening statement. 

Mr. LYNCH. Thank you, Madam Chairwoman. 

Despite the controversy that seems to be percolating here, today’s 

hearing deals with a very basic rule that is obviously necessary 

after the last crisis, and should be uncontroversial. 

And that rule simply states that to stop the predatory lending 

that fed the housing bubble, 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 and good faith determination that 

consumer has the ability to pay the loan. 

And that is it. That is what this hearing is about. 

The law also authorizes the CFPB to define the contours of a 

qualified mortgage or one that bears the hallmark of safe, responsible lending practices. 

Now, I understand there are some concerns from the banking 

and the mortgage lending industries about constricting access to 

credit. But the bottom line here is that the CFPB’s rule is supported by a lot of groups who were hurt very badly by that last crisis, a lot you may have heard from already, especially in minority 

neighborhoods in my district. 

Those people who had the most difficult time with the recent crisis are in support of this rule. And that includes the NAACP, the 

National Council of La Raza, the National Fair Housing Alliance, 

the Neighborhood Assistance Corporation of America (NACA), and 

the Center for Responsible Lending. 

They are all here with us today. And these groups support this 

rule that was put in to protect the people that they represent. 

The qualified mortgage definition may need some tweaking, no 

doubt about that, going forward. And if it does, I hope we can work 

in a way that the CFPB also supports. 

But I think the folks on this committee would do well to tone 

down the doomsday talk and rhetoric about the rule that is going 

to do enormous good for home buyers and will allow a lot of people 

to own a home. 

8 

I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Huizenga for 1 minute. 

Mr. HUIZENGA. Thank you, Madam Chairwoman. I appreciate 

you holding this hearing along with my good friend Mr. Meeks. 

As someone who has worked in the housing industry as a REALTOR®, this is very important to me, and more importantly to all 

of our constituents. 

We are here today to further discuss the impact of the qualified 

mortgage rule. Unfortunately, this is a flawed rule. I disagree with 

my colleague over there. 

And I, along with my friend, Ranking Member Meeks, introduced 

bipartisan legislation which would clarify the rule to ensure access 

to affordable mortgage credit for low- and moderate-income families 

and first-time home buyers. 

Today, I am especially pleased to introduce one of the witnesses 

who hails from the great State of Michigan, Mr. Bill Emerson. He 

is the CEO of Quicken Loans, based in Detroit. 

You may be familiar with the work being done in the private sector by companies like Quicken, and people like Bill and Dan Gilbert, to revitalize Detroit. And we all applaud that. 

Quicken Loans is the largest online and nonbanking mortgage 

lender in the Nation, employing 10,000 people. It has been voted 

one of the best companies to work for and has earned J.D. Power’s 

customer satisfaction awards for 4 years in a row. 

It is this kind of company and this kind of attitude that we need 

to help this—change this rule. 

So thank you very much. I yield back. 

Chairwoman CAPITO. Thank you. 

And with the remaining 30 seconds, I yield to Mr. Pearce. 

Mr. PEARCE. Thank you, Madam Chairwoman. 

I represent the southern district of New Mexico, which is one of 

the poorest directs in America, and I can tell you we are hurt by 

the QM rule. 

Fifty percent of the homes in my district are trailer houses, and 

QM automatically declares those high-cost loans and prohibits 

them, so that poor people have no access. 

So while we are told this rule needs to be there to protect the 

poor, it is hurting the poor in my district. We must solve this problem. I appreciate your having the panel here today. 

I yield back. 

Chairwoman CAPITO. Thank you. 

That concludes our opening statements. 

We now welcome our panel of distinguished witnesses. Each of 

you will be recognized for 5 minutes to give an oral presentation 

of your written statement. And without objection, each of your written statements will be made a part of the record. 

Our first witness, Mr. Jack Hartings, is the president and chief 

executive officer of The People’s Bank of Ohio, and he is testifying 

today on behalf of the Independent Community Bankers of America. 

Welcome. 

9 

STATEMENT OF JACK HARTINGS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE PEOPLES BANK CO., ON BEHALF OF 

THE INDEPENDENT COMMUNITY BANKERS OF AMERICA 

(ICBA) 

Mr. HARTINGS. Chairwoman Capito, Ranking Member Meeks, 

and members of the subcommittee, I am Jack Hartings, president 

and CEO of The People’s Bank Company, and vice chairman of the 

Independent Community Bankers of America. The People’s Bank Company is a $400 million asset bank in 

Coldwater, Ohio. And I am also a member of the CFPB’s Community Bank Advisory Council. 

I am pleased to represent the ICBA and the nearly 7,000 community banks at this important hearing. 

The CFPB’s new qualified mortgage (QM) rule has the potential 

to drive many community banks with fewer resources out of the 

mortgage market, curtail access to mortgage credit, and hamper 

the housing recovery. The QM rule, by providing a safe harbor for 

harsh liability, including a private right of action under the abilityto-repay rule, effectively draws a tight box around the types of 

loans that will be made by community banks. Banks like mine simply will not incur the risk of making non-QM loans. I will note a 

few examples. 

A start-up small business owner or farmer may have businessrelated debt on their credit report which will disqualify them under 

the QM’s 43 percent debt-to-income (DTI) limitation. Business formation should be encouraged, not punished, by unrealistic DTI limitation. Minority borrowers are more likely to exceed the DTI limitation, according to the recent Fed study of 2010 lending. While 

many of these underserved borrowers use Federal loan programs, 

the QM status for these programs is only temporary. 

The highly compensated individual may exceed the DTI limitation perhaps due to a second home or other types of debt and still 

have a high disposable income for mortgage payments. These individuals are critical to the housing market recovery. 

As a small creditor under the CFPB’s definition, my bank is not 

subject to DTI limitations. And I could serve these customers, but 

many other community banks do not have small creditor status. 

And I am very close to the 500 annual origination thresholds that 

would disqualify me as a small creditor. 

We believe that loans sold in the secondary market should not 

apply to the threshold, and request this committee’s support for 

that simple change. Even as a small creditor, I am significantly 

limited by QM here, and I may not be able to make some of the 

non-QM loans as a small creditor. 

Low-dollar loans are common in many parts of the country for 

purchase or refinance, but the QM closing fee cap is often a challenge in making these loans. Balloon loans, which are used to manage interest rate risk on loans that can’t be sold in the secondary 

market, are non-QM unless they are made by lenders in predominantly rural areas under the CFPB’s very narrow definition of 

‘‘rule’’ beginning in 2016. 

Loans that exceed the price trigger may still be QM, but carry 

weaker liability protections even when those loans align with the 

lender’s cost of funds, risk, and other factors. There are additional 

10 

examples of safe, legitimate loans that will fail the QM test even 

under the broader term available to small creditors. 

ICBA’s solution to the threat of QM, which is included in our 

Plan for Prosperity, is simple, easy to apply, and will preserve community bank lending. Safe harbor QM status should be granted to 

all community bank loans held in portfolio. A portfolio lender holds 

100 percent of the credit risk and has every incentive to thoroughly 

assess the borrower’s financial condition, ensure the loan is affordable, and work with troubled borrowers. 

Withholding safe harbor status for loans held in portfolio and exposing the lender to excessive litigation risk will not make loans 

safer, nor will it make underwriting more conservative. It will 

merely deter community bank lending. 

I would like to thank the members of this committee who have 

introduced bills that would provide QM status for community bank 

loans. These bills include the PATH Act, the CLEAR Relief Act, 

and the Portfolio Lending and Mortgage Access Act. 

I want to thank you again for the opportunity to testify. Thank 

you. 

[The prepared statement of Mr. Hartings can be found on page 

85 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness has been introduced by Mr. Huizenga. I would 

like to add my voice of support. I hear what is going on in Detroit, 

and I thank you for your company’s active participation. Mr. Bill 

Emerson is the chief executive officer of Quicken Loans, Incorporated. And he is testifying today on behalf of the Mortgage Bankers Association. Welcome. 

STATEMENT OF BILL EMERSON, CHIEF EXECUTIVE OFFICER, 

QUICKEN LOANS, INC., ON BEHALF OF THE MORTGAGE 

BANKERS ASSOCIATION (MBA) 

Mr. EMERSON. Thank you, Chairwoman Capito, Ranking Member 

Meeks, and Chairman Hensarling. This hearing could not be more 

timely. While most people rang in the new year 2 weeks ago, for 

those of us in the mortgage industry, the new year began last Friday. 

That is when a host of Dodd-Frank rules finally came online. 

None are more consequential, with the power to completely reshape 

the mortgage industry, than the ability-to-repay rule and its qualified mortgage standards. As the CEO of Quicken Loans, the Nation’s largest online and non-bank mortgage lender, it has been my 

responsible to chart our company’s course into the new regulatory 

regime. 

The Mortgage Bankers Association, of which I am honored to 

serve as the vice chair, has devoted enormous resources over the 

past year to helping companies like ours come into compliance. A 

common question we have received, and one I want to answer at 

the outset, is whether we plan to write non-QM loans. I can tell 

you categorically that Quicken Loans, like the overwhelming majority of lenders, will not lend outside the boundaries of QM. In fact, 

even if we wanted to, we wouldn’t be able to make non-QM loans 

because there is no discernible secondary market for them. The 

only place these loans can be kept is on a bank’s balance sheet. 

11 

Beyond that, the liability for originating non-QM is simply too 

great. Claimants can sue for actual and statutory damages, as well 

as a refund of their finance charges and attorneys’ fees, and there 

is no statute of limitations in foreclosure claims. By MBA’s calculations, protracted litigation for an average loan can exceed the cost 

of the loan itself. 

Given this uncertainty, at least for the foreseeable future, nonQM lending is likely to be limited to three narrow categories. First, 

there will be loans where there were unintended mistakes. That is, 

because of the complexity of the calculations, lenders will make 

loans they think to be QM only to find out they fail the test. MBA 

believes the CFPB should provide lenders with the ability to cure 

mistakes that cause a loan to fail to meet the QM test, just like 

exists under HOEPA. 

A second group will be higher-balance and nontraditional loans 

to wealthier borrowers. Because of their income and assets, default 

rates on jumbo loans are relatively low and some lenders, particularly the large depository institutions, will have the resources to 

keep those loans in their portfolio. 

And finally, a few lenders will be willing to make loans to riskier 

borrowers, but at significantly higher rates. Rate sheets we have 

seen suggest borrowers could pay an interest rate around 9 or 10 

percent for non-QM loans. The bottom line is that non-QM will be 

very limited and very expensive for all but the wealthiest borrowers. 

That is why it remains so important to continue to make adjustments to the QM rule. The CFPB deserves enormous credit for 

working with all stakeholders, lenders and consumer groups alike, 

in fashioning a rule we think is a substantial improvement over 

Dodd-Frank. We are also grateful that the Bureau is open to making additional revisions in the near future. Further amendments 

are essential to ensure that the QM rule promotes, rather than 

hinders, our tepid housing recovery. 

The key eligibility for QM is the 3 percent cap on points and fees. 

A major problem with the 3 percent cap will be its impact on borrowers who take out smaller loans, particularly in the $100,000 to 

$150,000 range. Because so many origination costs are fixed, a lot 

of these loans will trip the 3 percent cap and fall outside of the QM 

definition. 

That means consumers, particularly first-time homebuyers and 

families living in rural and underserved areas, will be priced out 

of the market. The Bureau has wide latitude to correct this problem and we urge it to do so. 

Additionally, the final rule picks winners and losers between affiliated and unaffiliated settlement service providers, even though 

their fees are subject to identical regulation. Having been in this 

industry for more than 20 years, I can tell you that rules that pick 

winners and losers ultimately harm consumers. 

At Quicken Loans, we have chosen to affiliate with title and 

other service providers to ensure our customers have the best loan 

experience and that there are no surprises at the closing table. As 

Congressman Huizenga noted, one of the reasons consumers 

awarded us the prestigious J.D. Power Award 4 years running is 

12 

because our affiliated arrangements have led to a smooth closing 

process. 

MBA urges the House to promptly pass H.R. 3211, the Mortgage 

Choice Act of 2013. I want to thank Congressman Huizenga, Ranking Member Meeks and so many other members of this subcommittee from both sides of the aisle who have introduced and 

pushed this important legislation. I also want to thank Chairman 

Hensarling for including these changes in his more comprehensive 

regulatory relief package. 

Madam Chairwoman, I think you will find that the MBA continues to be a willing partner in developing practical fixes to the 

QM rule. We truly want it to work for everyone: for lenders; for the 

consumers we serve; and for our economy. 

Thank you again for holding this important hearing. I look forward to your questions. 

[The prepared statement of Mr. Emerson can be found on page 

74 of the appendix.] 

Chairwoman CAPITO. I would like to recognize Mr. Fincher for 

the purpose of introducing our next witness. 

Mr. FINCHER. Thank you, Madam Chairwoman. 

I appreciate the opportunity to introduce Mr. Daniel J. 

Weickenand to the committee this morning. Since 2010, Mr. 

Weickenand has served as the president and chief executive officer 

of Orion Federal Credit Union in Memphis, Tennessee. Orion is the 

largest credit union in west Tennessee. 

I was pleased to host Mr. Weickenand at a credit union roundtable discussion back in November, which included the qualified 

mortgage rule. Today, Mr. Weickenand is here representing the 

National Association of Federal Credit Unions, where he serves as 

a boardmember. 

Madam Chairwoman, it is a pleasure to have Mr. Weickenand 

appear on this panel today, and I appreciate him taking the time 

to express his views about the qualified mortgage before the committee. 

Thank you. 

And I yield back. 

Chairwoman CAPITO. Thank you. 

Mr. Weickenand, you are recognized for 5 minutes. 

STATEMENT OF DANIEL WEICKENAND, CHIEF EXECUTIVE OFFICER, ORION FEDERAL CREDIT UNION, ON BEHALF OF THE 

NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS 

(NAFCU) 

Mr. WEICKENAND. Thank you. 

Good morning, Chairwoman Capito, Ranking Member Meeks, 

and members of the subcommittee. My name is Daniel 

Weickenand, and I am testifying this morning on behalf of NAFCU. 

I serve as CEO of Orion Federal Credit Union headquartered in 

Memphis, Tennessee. NAFCU and the entire credit union community appreciate the opportunity to discuss the CFPB’s ability-torepay rule and the impact the qualified mortgage standard will 

have on credit union lending. 

Credit unions did not cause the financial crisis and shouldn’t be 

subject to the regulations aimed at those entities that did. UnfortuVerDate Nov 24 2008 18:32 Aug 29, 2014 Jkt 088520 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\88520.TXT TERRI
13 

nately, that has not been the case thus far. As we are hearing from 

many of our credit union members, enough is enough when it 

comes to the tidal wave of new regulations. 

NAFCU supports efforts to ensure that consumers are not placed 

into mortgages they cannot afford. This was a long-standing practice of credit unions before the financial crisis, and it continues to 

be the case post-crisis. 

Credit unions have a history of making loans for their members 

who have the ability to repay. This was demonstrated by the quality of their loans during the financial crisis. While credit union 

loans generally do not have a problem meeting the ability-to-repay 

underwriting criteria, meeting the additional criteria to obtain a 

QM status and avoid the additional liability is not certain. 

Under the rule, the least risk to credit unions is to originate only 

QM loans. Limiting loans to solely QMs would reduce a legal risk 

and help ensure the loans are eligible for sale in the secondary 

market. The ability to sell loans will help credit unions manage interest rate and concentration risk. 

At Orion, we made a conscious decision at the onset of the financial crisis to double down on our efforts to return as much as possible to our members in the community in which we live. While 

some institutions may start charging a premium on their loans to 

account for the additional risk associated with non-QMs, we do not 

feel this is in the best interest of our credit union, our members, 

and our community. Consequently, due to the liability and liquidity 

concerns, we have decided to cease to offer non-QM loans at this 

time. I cannot tell you how difficult a decision this has been. Orion 

takes great care in placing our members with the right mortgage 

product, and the QM standard will inevitably force us to turn away 

many credit-worthy borrowers. 

For example, in 2010 we started a special Orion Home Run Program that allows qualifying participants to rent an unsold foreclosed home for a set period of time. During that rental period, the 

participant is expected to make timely payments, keep the home in 

good condition, and have a positive impact on their neighborhood. 

When the rental period lapses, the home can then be purchased 

outright for 70 percent of the tax value, with the previous rental 

payments applied as a downpayment, and guaranteed financing by 

us. Despite demonstrating the ability to repay, the program participants would not fit the QM standard, and therefore would not have 

the opportunity to become homeowners through Orion at this time. 

I have talked with many of my fellow credit union CEOs about 

the issue. Some may be cautiously going forward with non-QM 

loans, but they have indicated that they will be more stringent in 

making them. For Orion, approximately 11 percent of all of our 

mortgage loans in the past few years have been classified as nonQM. 

There are several changes to the QM standard that NAFCU is 

seeking. These areas are outlined in my written testimony, but include a fix to the points and fees issue, modifications to the small 

creditor exemption, consideration of 40-year loans to be QM, 

changes to the 43 percent debt-to-income ratio, and deeming all 

loans sold to the GSEs to be safe harbor loans. 

14 

NAFCU appreciates the CFPB looking for a good faith effort of 

compliance months after the rules take effect, however this will 

create ambiguity, and the CFPB must work closely with the NCUA 

to further clarify. 

In conclusion, credit unions have historically put their members 

into affordable mortgages and continue to do so today. The unique 

relationship between credit unions and their members allows credit 

unions to provide flexibility to give their members products that 

work for them on an individual basis. 

The restrictions of the new QM mortgage standards have eliminated this ability in many cases. Given the new liability and the 

additional costs that come with doing non-QM loans, many credit 

unions like mine have ceased or severely cut back on non-QM lending. 

Congressional action to provide relief on some of the QM standards would help further more congressional action on regulatory 

leave would help ease the growing burdens associated with new 

compliance standards. I thank you for the opportunity to appear 

today, and I welcome any questions you may have. 

[The prepared statement of Mr. Weickenand can be found on 

page 98 of the appendix.] 

Chairwoman CAPITO. Thank you. Our next witness is Mr. Frank 

Spencer, the president and CEO of Habitat for Humanity in Charlotte, North Carolina. 

Welcome, Mr. Spencer. 

STATEMENT OF FRANK SPENCER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, HABITAT FOR HUMANITY OF CHARLOTTE, NC 

Mr. SPENCER. Good morning, Madam Chairwoman, and Ranking 

Member Meeks. 

I am Frank Spencer, president and CEO of Habitat for Humanity 

of Charlotte. I am here today in support of legislation to address 

several unintended consequences of mortgage regulation reform 

that threaten the continuing work of many habitat affiliates. 

I have submitted my full written testimony for the record, and 

I appreciate the opportunity to share a brief overview of a few challenges being faced by our affiliate, and other habitat affiliates, in 

our collective efforts to comply with new mortgage regulations. 

Habitat Charlotte builds new houses, rehabilitates vacant properties, repairs houses, operates a $4 million retail outlet, recycles 

1,200 tons of steel per year, and currently services approximately 

780 non-interest-bearing mortgages for its partner families. Habitat Charlotte has served 1,200 families in its 30 years, and is supported by 85 employees, and over 5,000 volunteers annually. 

Habitat greatly appreciates the commitment Congress has made 

to stable and productive housing markets as the Nation continues 

to recover from the foreclosure crisis, and economic recession. The 

success of the Habitat ownership model is, in fact, predicated on 

market stability, and the long-term appreciation of real estate values. 

Habitat understands and fully supports efforts to protect consumers and the American taxpayer from predatory lending 

schemes that undermine the stability of U.S. housing markets. 

15 

Habitat opposes neither the qualified mortgage standard specifically, nor the Dodd-Frank law more generally. 

Habitat is seeking legislative relief only after having exhausted 

all other options. 

The cost of compliance with the new mortgage regulations has 

been significant. As the largest affiliate in North Carolina, we are 

the only one to employ a licensed mortgage originator in the State. 

She has spent most of the last year becoming trained on the new 

standards, auditing our processes to ensure compliance, and organizing our staff to prepare for implementation this January. 

Jill further works to guide other Habitat affiliates through seminars and meetings and has devoted well over 1,000 hours to this 

process. This is only on the origination side of the process. We have 

expended equal, if not greater, effort preparing for the requirements of the servicing component of these new regulations. 

I can assure you that the compliance costs for most affiliates has 

been high, and every dollar spent on compliance is one that is not 

spent meeting local housing needs. 

Habitat affiliates have worked hard to comply with the thousands of regulatory changes, but there are a few regulations that 

endanger an affiliate’s capacity to serve partner families without 

providing our homeowners or the taxpayer any protection. 

Habitat greatly appreciates Representative Meadows introducing 

legislation, H.R. 3529, the Protecting Habitat Homeownership Act, 

to provide relief from these regulations. These few provisions focus 

on monthly documentation of fees and interest, rarely relevant in 

a Habitat context, ability-to-repay requirements that fail to recognize the long history of success of the Habitat model, which provides home ownership opportunities to individuals who do not qualify for traditional mortgage products, and appraisal regulations 

that could threaten Habitat affiliates’ ability to continue to accept 

donated appraisals. 

With critical housing needs continuing to increase, Habitat resources can be better spent on serving families than on complying 

with regulations that ultimately provide protection neither to our 

partner families nor to the taxpayer. 

I would like to say a few words about the ability-to-repay standards in particular. As drafted, these regulations have the unintended consequence of discouraging Habitat affiliates from working 

together to improve mortgage products. We in Charlotte used to 

service mortgages for other affiliates, but the loan limitation numbers prevent us from assuring compliance. 

In conclusion, Habitat for Humanity of Charlotte is in compliance 

with the law. However, knowing the human and financial investment we have made, it is equally clear to me that many of our affiliates cannot adequately make the same investment. Over half of 

the housing built in North Carolina comes from small and rural affiliates. Habitat offers a hand up, not a handout. And we hope that 

we can eliminate any inadvertent impediments to that approach. 

[The prepared statement of Mr. Spencer can be found on page 93 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our final witness is Mr. Michael D. Calhoun, president of the 

Center for Responsible Lending. 

16 

Welcome. 

STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Thank you, Chairwoman Capito, and Ranking 

Member Meeks. It is an honor to testify before this subcommittee, 

and an honor to be on this panel, particularly with Mr. Spencer 

from Habitat for Humanity. 

I have served more than a decade as a member of the Finance 

Committee for my local Habitat in North Carolina. My brother is 

a 25-year veteran of Habitat and currently serves as a project director in Florida for the Habitat affiliate on the East Coast there. 

It is also very appropriate that Habitat is here today, because it 

really brings us full circle. A lot of these mortgage provisions—as 

people know, North Carolina was the first State that adopted provisions to stop predatory mortgages. And Habitat played a key role 

in that. 

In the late 1990s, our affiliate, Self-Help Credit Union, which has provided over $6 billion in financing for first-time home buyers, 

found that borrowers we had been putting into home loans were 

coming back to us on the brink of foreclosure. We looked at the 

loans that they were getting, and they had extraordinarily high interest rates and extraordinarily high fees, and we knew these borrowers’ credit histories and they were far beyond that for which 

these borrowers qualified. 

So, we undertook research to find out were they just targeting 

our borrowers? Was this a limited phenomenon? 

We searched deeds in the record books across the State, and one 

of the things we found was that among the lenders being targeted 

by these predatory lenders were Habitat for Humanity borrowers. 

And indeed, 15 percent to 20 percent of Habitat borrowers had 

been refinanced out of their zero interest rate mortgages into 

subprime mortgages that were taking them—stripping their home 

equity with high fees and leading them to foreclosure. 

As a response—and you will hear more of this perhaps in the 

question and answer—Habitat adopted a protection by putting on 

soft second mortgages that would protect that home equity from 

these people who were targeted. And this wasn’t isolated. As a 

lender, we had companies offer to sell us target sheets of borrowers 

in our geographic area who were having financial difficulties, but 

had a lot of financial equity in their home. 

So that is how we ended up these 15 years later, with a lot of 

pain in between, with a QM standard. And for those who doubt 

that predatory lending is still out there, this is an e-mail that came 

across my desk recently from a subprime lender today. The subject 

line reads, ‘‘This is the return of subprime lending.’’ The text goes 

on to say, ‘‘This program is right there next to the old subprime 

of our memories.’’ They promise to take the program nationwide by 

the end of last year. 

So, subprime is back and ready there again. 

A second reason we need the QM rule more broadly is that the 

mortgage market is inherently a boom-and-bust market. And I 

apologize for the small size of this, but if you look at the real price 

of homes over the years, it is not steady. It goes consistently up to 

17 

high peaks and bottoms, and the problem is that on those roads up 

to the peak, lending standards erode badly. 

And if you are a lender, it is hard for you to say, I am not going 

to join in with the others, because you see all of your business go 

elsewhere. So, that is why a rule was needed. And to the CFPB’s 

credit, they chose to adopt a rule that was broad, bright-lined, and 

limited liability at the bequest of industry, which we support, and 

they further have adopted important measures to make it a twotier model with key protections for smaller lenders. 

For example, they can charge an extra 2 full percentage points 

of rate, which we supported, and still be a qualified mortgage with 

a safe harbor. 

To be clear, though, how broad this box is, any loan that qualifies 

for FHA, that is a 43 percent baseline debt to income. And remember that is before tax 43 percent. And with compensating factors, 

it can go up to 50 percent. You can have a loan that takes twothirds of a borrowers’ income and still meets the ablility-to-repay 

standard. 

And we believe at this state in the market, that is the right approach. 

On fees, the three-point limit does not include a lot of standard 

fees. The average fees charged on loans—according to Freddie Mac 

as of last week—was seven-tenths of one point for origination 

points and discount points. So, we are talking more than 3 times 

that. 

We are glad you are holding this hearing. We look forward to 

your questions, and as many members have said, we look forward 

to places where this rule needs massaging, it should be. But this 

is a broad rule that comes really close to what we need. 

[The prepared statement of Mr. Calhoun can be found on page 

54 of the appendix.] 

Chairwoman CAPITO. Thank you. I thank the witnesses. 

And I will recognize myself for 5 minutes to begin the questionand-answer period. 

I would like to say at the onset how I view this hearing in the 

context of where we are. I think the ranking member pointed out, 

as many others have, that the rules have only been in effect since 

Friday. 

But I see this as being like when you go to the doctor and you 

get a baseline on your blood levels and your mammogram and 

other things that show you where to go, so that when we have this 

hearing in another 6 months, we will be able to see where our 

baseline was and to see what effect this rule is really having. 

So I think this is a setting for the base to see from where the 

statistics can begin to grow. 

That is where I am on that. 

I would like to start with Mr. Emerson. At Quicken Loans, if you 

could just quickly tell me—and you and I have had this discussion. 

I don’t think there is a full appreciation of how broad and large 

your business is. So how many mortgages would you say you write 

in a year and what does your average customer look like in your 

average loan? 

Mr. EMERSON. Our average customer spans the scope of the 

country. We serve all 50 States. We serve every area. We serve 

18 

anybody out there who has the ability to qualify and the ablility 

to repay a mortgage. 

Chairwoman CAPITO. Right. 

Mr. EMERSON. In the calendar year of 2013, we originated $80 

billion worth of loans. Call that roughly 400,000 clients that we 

served in the year 2013. 

Chairwoman CAPITO. Have you quantified and looked at how 

many of those loans would fall beyond the QM standard? Have you 

looked at that yet in your portfolio from 2013? 

Mr. EMERSON. Yes, we looked at it. We looked at it from 2010, 

2011, and 2012, which arguably are some of the best performing 

loans ever written. And depending upon when we first looked at 

this and when the rules were initially put out, there was upwards 

of 30 percent to 40 percent of folks who wouldn’t qualify. And, as 

the CFPB continued to work and tweak, we think ultimately somewhere around 90 percent to 93 percent of the market will be served 

with the current rule in place, absent of course the affiliate fee 

issue that we are dealing with a 3 percent cap. 

But again, you have to realize that doesn’t include the patches 

put in place for Fannie Mae and Freddie Mac and for loans that 

run through those GSEs, which exist for 7 years or until they come 

out of conservatorship. When that happens, or when that shifts, 

now you have a different market and fewer people will qualify at 

that point as well. 

Chairwoman CAPITO. Right. Okay. 

Mr. Hartings, in your community bank, you mentioned to me 

when we first met, that you have a lot of agriculture. Certainly, I 

think, the agriculture community has one of those boom-and-bust 

cycles that Mr. Duffy was talking about. Some years are better 

than others. How do you see the QM rule influencing your ability 

to lend to those agricultural households? 

Mr. HARTINGS. It is obviously going to make it very difficult, 

Madam Chairwoman, especially in those bust years. When we look 

at our customers, they are long-term relationships. So we are looking at the last maybe 10, 15 years of their income often in the agriculture community, commodity prices or we have a disaster. 

So those individuals will probably be shut out of our lending, because we do not plan to do non-QM loans. And the other thing 

about those individuals who are farmers, they are young people 

who come up through the farms. A lot of times they carry a lot of 

debt because they are trying to help the family farm. They live at 

home, and don’t have much credit, but have shown the ability to 

save their downpayment on their own. We can look at their savings 

account. But in the secondary market, a lot of times they are looking for four trade lines. And they won’t come up with those four 

trade lines. So their only choice is a portfolio loan, something we 

can offer them. 

Chairwoman CAPITO. Thank you. 

Mr. Weickenand, we have a bank in West Virginia that has a 

very similar program, or some similarities with your Orion Home 

Run Program. And this kind of bleeds into Habitat for Humanity. 

You are really serving a population that, were it not for either the 

special provisions that you have or that Habitat has or that our 

bank in West Virginia has a trust that was set up to help people 

19 

with downpayments who—and interest who would never, ever be 

able to have a home—they are not going to be able to—they don’t 

feel comfortable with the way the QM is written that they are 

going to be able to fall into these QM with these charitable kind 

of programs to get home ownership to those who couldn’t enjoy it. 

So, will you be able to move forward with your program, or are 

you going to have to put a halt to it? 

Mr. WEICKENAND. It has been put on halt anyway, just because 

of the market itself. Foreclosures slowed down. And my first responsibility is to sell the home out in the open market. If I can’t, 

then the home rolls into this program. 

But the non-QM loans, just from a point is a—it is more of a balance sheet kind of thing that we have to manage, because between 

the concentration risk, interest risk, my ALM, I can only hold so 

much— 

Chairwoman CAPITO. Right. 

Mr. WEICKENAND. —mortgage paper. So taking that ability to resell these non-QMs to a secondary market is really indirectly going 

to affect, obviously, 10 percent over the last several years of our 

membership. 

Chairwoman CAPITO. All right. 

Mr. Meeks? 

Mr. MEEKS. Thank you, Madam Chairwoman. 

In my estimation, there are a number of issues that are concerning to me. 

First, we have gone from—historically from red lining, where African Americans, particularly, were denied loans, period, to the 

point where they were given loans that were no-doc loans or these 

adjustable rate loans, which was devastating in the financial crisis, 

because when I observed some, they were able to pay their mortgages for that first year. But after that first year, when the rates 

went up, they no longer could pay their mortgages. 

And the fact that some who qualified for prime loans were 

steered away from them and into another loan that was much more 

expensive. What happens, unfortunately, in this society sometimes 

is that individuals who are the poorest and need that helping hand 

are the ones who are taken advantage of. 

And it seems as though—not seems, it was a fact—that is what 

took place in the financial crisis from which we are recovering. 

Now, on the other hand, we have individuals, as you heard me 

talk about earlier, like my parents, who struggled to own a home. 

It was their dream. 

I don’t know today—I couldn’t tell you whether or not under 

these rules, they would have qualified for a loan. I know that they 

struggled. They had to take out extra money to make the downpayment. And it was something that was open with the banks, and the 

banks allowed it to happen. 

And I also know that if it wasn’t for a community bank that 

knew them and looked at their overall history to judge whether or 

not they would be able to pay that mortgage, they probably would 

have been turned down. But they looked at their entire history of 

how they paid their bills and what their income was. 

And so, it wasn’t a no-doc loan. They did the kind of investigation that was necessary to make sure that there was in fact inVerDate Nov 24 2008 18:32 Aug 29, 2014 Jkt 088520 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\88520.TXT TERRI
20 

come, and looked at their history to see how they prioritized, how 

they spent their money. 

So the question that presents itself now is whether or not we are 

creating, or have a system that can try to resolve, both of those 

issues, and that is why I think that this is difficult. 

So I guess I will throw my first question out to Mr. Calhoun. 

Because there are various reports which say that Blacks and 

Hispanics will have a harder time obtaining credit, or will mostly 

be given the higher-priced non-QM loans, now that the QM rules 

are effective, can you just clarify what would be the lending options 

or what lending options would still be available to low-income 

Americans who may not be able to meet the 43 percent debt-to-income limit? 

Mr. CALHOUN. Thank you. 

First of all, as noted, under the current rules that a loan can go 

beyond the 43 percent if it meets—any loan that would qualify for 

FHA insurance is per se a QM loan. And we urged, along with industry, that the CFPB allow for that extra capacity. We also, for 

smaller lenders, urged for exceptions. So, for example, your mortgage rates are about 4.5 percent today. For community banks, they 

can charge up to 8 percent interest today on loans. And that loan 

would still meet the qualified mortgage safe harbor level. That allows for a lot of extra features, risks to accommodate. 

And we think the CFPB should do that and that it has made a 

good faith effort. There may be places where they need to tweak 

it. 

For nonprofit programs, to be clear, the CFPB did set up a program, an exception for nonprofit programs. A concern has been 

whether these soft second mortgages count, because that could be 

a problem. I know the CFPB has talked with Habitat and tried to 

resolve that. 

Mr. MEEKS. Mr. Spencer, would you respond to that? What is 

your— 

Mr. SPENCER. Yes. We are already pushing up against that limit 

in terms of the number of mortgages that can be provided and have 

the exemption available to us. 

So our interest here is certainly narrow, in that we are looking 

for the exemptions provided in H.R. 3529 so that they become statutory as opposed to interpretive by the regulatory agencies. 

Our issue around this is that we are only doing qualified mortgages at Habitat Charlotte. 

So, the rule may have become effective January 10th, but we 

have been working on this for a full year. And the reason we do 

that, like many other Habitats, is that there are—I don’t want to 

use the term secondary market. We work with banks and other 

lending institutions to provide balanced sheet capital. We are concerned that they won’t take those loans as collateral if they are not 

qualified. 

And so, we now are only doing qualified mortgages, which potentially takes certain borrowers out of our pipeline. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Duffy? 

Mr. DUFFY. Thank you, Madam Chairwoman. 

21 

There is no doubt that before the 2008 crisis, there were loans 

that were written which probably shouldn’t have been written, and 

given to people who probably shouldn’t have qualified, no doubt. 

And I think today there are people who should qualify, after the 

QM rule, who now won’t be able to get a loan. The pendulum has 

swung, I think, too far over. 

We have heard a lot about predatory lending, and that did go on, 

no doubt. 

But to Mr. Meeks’ commentary and questions, you had a situation where his family—I don’t know if they would qualify for the 

QM rule or not—were able to go to a community bank or a credit 

union and work with them in a way that treated them fairly, and 

they were able to actually buy a home. 

And I am fearful that the way this rule is written, low-income 

and moderate-income minorities who had an opportunity previously 

to work with a community banker to get a mortgage to buy a house 

are the ones who are going to be left out. 

And I think that is what happens when you have big government 

come in and say, ‘‘We are going to set the rules. We are going to 

set the standards. We know what is best in small town, rural 

America. 

‘‘You, the small town community banker and your clients can’t 

figure out what is best for the both of you, even though you are 

going to hold that loan on your books.’’ 

I don’t think this rule serves our community well. It doesn’t serve 

low- and moderate-income individuals well, or minorities well. 

I guess—and maybe to that point, would—and maybe to our 

three bankers, would you say that those mortgages you hold on 

your books, those loans you hold on your books, and focusing on 

those who are low- to moderate-income borrowers, there are more 

lower- and moderate-income borrowers who would not meet the 

QM rule? Is that fair to say? 

Mr. Hartings? 

Mr. HARTINGS. That would be a fair statement. 

Mr. DUFFY. Mr. Emerson? 

Mr. EMERSON. Yes, I think when you evaluate the 3 percent test, 

and when you take a look at lower loan amounts, again, specifically 

in the ranges of $100,000 to $150,000, fixed costs are part of the 

origination process. And there are going to be folks who fall into 

that bucket, who will fall outside of the 3 percent test, therefore 

falling outside of the QM rule. 

Mr. DUFFY. Mr. Weickenand? 

Mr. WEICKENAND. Being from Memphis, I serve a community 

that is over 60 percent African American. And a lot of loans, like 

you said, 11 percent, affects a major part of these individuals. 

Now, my examiner procedures, based on this new rule, state 

prices on—our prices on QM mortgages adequately to address the 

additional risk, meaning, I don’t want to—it is just not going to 

serve my community if I have to charge somebody for basically a 

mortgage I would have given them last year differently because 

now there is this rule in place. 

Mr. DUFFY. And you are leading into my next question. So, if you 

find a lower-income borrower who doesn’t meet the QM standard, 

22 

are you going to make the loan and hold it on your books? Are you 

going to charge them a higher interest rate and higher fees? 

Mr. WEICKENAND. I would not charge them anything higher. The 

problem is on my balance sheet, I can only hold so much. So if I 

do say, ‘‘Okay, we are going to go full-bore into nonqualified mortgages,’’ there is a limited time I can do this. So, there are only a 

limited amount of individuals I can serve due to me managing my 

balance sheet risk. 

Mr. DUFFY. And I know it is a hard question, but you actually 

assess risk, right? And you have to charge for risk. And if you are 

not in a safe harbor, so you find someone who doesn’t qualify for— 

under QM, that is a greater risk to the bank. So you are going to 

have to charge more for that risk, right? I know you don’t want to 

say that, but I have to imagine you are going to charge more for 

the risk. 

Mr. WEICKENAND. It would probably be the interest rate risk 

during today’s interest rate environment, because of the interest 

rate you are going to provide them on the mortgage, knowing full 

well that within the next few years, rates are going to rise. 

Mr. DUFFY. And so, previously we were able to have—there was 

predatory lending and we now frown upon that, right? It was 

wrong. It was inappropriate. It was abusive. But now, under the 

QM rule, in essence we are saying, ‘‘Listen, it is okay; we know you 

are going to charge minorities, low-income and moderate-income 

people more because they are not going to meet the QM standard.’’ 

So, again, if you are wealthy, or you are middle-class, you are fine. 

That is why I have a hard time seeing how people can support 

this rule when the people who can work with the community bank 

and afford a home—who can work together and afford a mortgage, 

are going to be charged more for it now with this new rule. Am I 

wrong on this, Mr. Hartings? 

Mr. HARTINGS. No, I don’t think you are wrong at all. Although 

our bank is making a decision not to make non-QM. If I made a 

non-QM, I would have to look at things like the litigation risk. I 

would have to look at risk to my bond insurance, because my bond 

insurance is out there to protect me against lawsuits. And that is 

going to probably go up. 

I would look at things like my examinations. When examiners 

come in and look at my bank for safety and soundness, they are 

looking at loans that have lower credit scores. They are obviously 

going to look at non-QM loans, so I may be under higher scrutiny 

on the examination side of it. 

So, there is a cost. There is a much higher cost to making nonQM loans going forward. 

Mr. DUFFY. I appreciate everyone’s testimony. I yield back. 

Chairwoman CAPITO. Thank you. The gentleman’s time has expired. 

I would like to recognize the ranking member of the full Financial Services Committee, Ms. Waters, for 5 minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. I 

would like to thank you and our ranking member for holding this 

very important hearing. 

This has been an issue that we have all spent a lot of time on 

for good reasons. We have experienced a subprime meltdown that 

23 

caused a recession in this country. And it has been very painful for 

a lot of our constituents. And of course, it goes without saying that 

we want our constituents to be able to get mortgages. We absolutely support that. 

However, we don’t like the fact that too many constituents were 

taken advantage of in too many ways. They were sold mortgages 

that they could not afford. They didn’t know about the exotic products. Oftentimes, they didn’t know what they were getting into. 

They didn’t know what was going to happen when the devil came 

due on some of these loans. Mr. Meeks has referred to some of 

these exotic products, whether they are no-doc loans or no-interest 

loans, whatever. 

And so now we are at the point where we have to figure out how 

to make sure that our constituents have access to credit, and the 

community banks that we are all working to give support to have 

the ability to make these loans without having too much interference, too much involvement, as you would term it, by government, that you are able to make loans that work. 

So we want to help the community banks, but we certainly are 

going to protect our constituents and not allow our communities to 

be devastated again by foreclosures in the way that we have experienced. Now, having said that, we worked very hard with the 

CFPB in order to make sure that there was a difference between 

the community banks and the too-big-to-fail banks. And we had 

very special things that we did. I want to know why what we have 

done to differentiate between community banks and the too-big-tofail banks is not enough. 

And I think I will start by asking this question of Mr. Bill Emerson, chief executive officer of Quicken Loans, Incorporated, on behalf of the Mortgage Bankers Association. And before I get into the 

question, I would just like you to know I love your commercials. 

They are so cute. 

[laughter] 

Mr. EMERSON. Thank you very much. 

Ms. WATERS. And before you answer, I want you to know I am 

going to ask you this question if it is not the right answer: Who 

do you think I am, Quicken Loans? 

[laughter] 

Mr. EMERSON. Quicken Loans is an independent mortgage bank, 

so we are not in the typical community bank lending scenario. And 

back to Representative Duffy’s comments around the lending that 

goes along with that. 

As an independent mortgage bank, we don’t have a balance 

sheet. So at the end of the day, the loans that we are going to originate and the consumers that we are going to serve, we need to 

have a viable secondary market to be able to put that loan into. 

And without that viable secondary market for a non-QM loan, then 

independent mortgage bankers are not part of the process and 

therefore competition, frankly, falls a little bit by the wayside because you have lenders that can’t participate. 

So, I would have to defer on this one, Representative Waters, to 

the community bankers sitting at the table here to answer whether 

we should or shouldn’t go further. I can tell you from the MBA’s 

perspective, the way that we think about this, we clearly want to 

24 

make sure that we are helping as many people as we can. But we 

also don’t know that we should be setting up necessarily separate 

rules because we want some consistency for the consumer to know 

exactly who they are working with and with whom they are dealing. 

Ms. WATERS. We differentiated because we wanted to make sure 

that the community banks did not have the kind of regulations 

that you thought would be harmful to you. And what are you telling us? We didn’t do enough? 

Who are you saying that you want to answer the question? 

Yes, go right ahead. 

Mr. HARTINGS. I am a community banker. And I think what you 

realize under the QM rule is that we are trying to regulate the integrity of the product and not regulate the integrity of the institution. And I think the CFPB took a step in the right direction trying 

to create a tier. The issue is, I am a $400 million bank. And their 

tier is this: It says if you are less than $2 billion, and you originate 

less than 500 loans, you have the small creditor exception. 

In 2012, I generated 493 loans. So, I would like to grow. I would 

like to continue to serve my customer, but I am right at the edge 

of losing my status. So, really, the issue is a much broader exception. I think tiered regulatory modeling makes a lot of sense. I like 

to say—I had this quote in The Wall Street the other day, ‘‘Community banks weren’t the problem, but QM is the fix—it affects us 

anyhow, with everybody else, and we are kind of thrown under that 

blanket.’’ 

So it is really the amount of that exception that we see needs to 

be expanded to really be effective. Because at the end of the day, 

we want to see more consumers get loans, rather than less. And 

if this rule has the—actually contracts the lending instead of expanding it, then it is not doing its job. 

Chairwoman CAPITO. The gentlelady’s time has expired. 

Ms. WATERS. Thank you. 

Chairwoman CAPITO. Mr. Bachus? 

Mr. BACHUS. Thank you. 

Mr. Emerson, I am going to ask you this question. As you know, 

the current QM rule includes affiliated title insurance in the 3 percent points and fee trigger, but unaffiliated title insurance is not 

included. Since title insurance rates are filed by underwriters and 

have to be approved at the State level, or the State determines the 

title insurance rate for both types, is there any reason to differentiate between affiliated versus unaffiliated title insurance? And is 

there any benefit to the consumer if the title insurance is purchased by an unaffiliated title agent? 

Mr. EMERSON. The simple answer to that question is no, there 

is no reason to differentiate between those two on that basic piece 

of information around title insurance. If you look at the rule, unaffiliated title companies, all charges for the title company are excluded from the 3 percent fees. 

All of the fees for an affiliate are included. And what the industry has been looking at from an affiliated perspective is saying, 

take the title insurance, that one regulated piece which is the same 

as that filed by an underwriter at the State level—and a title agent 

must use that filed rate; they can’t take it higher, they can’t take 

25 

it lower—and exclude that from the 3 percent piece for affiliates, 

because by not doing so you are putting a different playing field together for an affiliated versus a non-affiliated title company. 

And when you think about a non-affiliated title company, they 

are working with the same lenders and the same people every day. 

They are getting business on a regular basis from those folks. And 

so, there is an advantage for them doing that. From an affiliated 

perspective, actually with—now with the CFPB, and the fact that 

you have to manage your venders, you have very tight controls over 

that. And so, I think, putting that in place, it makes zero sense at 

all to differentiate on title insurance and the affiliated-unaffiliated 

piece. 

Mr. BACHUS. Right, and of course, the rule does, which I agree 

doesn’t make any sense. 

Mr. Scott, back on May 21st said, ‘‘I mean to do so,’’ in other 

words, putting affiliated under the fee trigger reduces competition 

in the choice of title servicers and insurance providers. So, it just 

reduces choices. And I don’t see any reason why we ought to discriminate. I think that is one thing we ought to address. 

What effect does putting affiliated title insurance under the 3 

percent points and fee trigger how—what effect does that have on 

consumers? Particularly low-income consumers or— 

Mr. EMERSON. Sure. I think it affects them in two ways. The reason that we got involved with an affiliated title provider was to 

provide service to our client, to provide a seamless end-to-end solution. It had nothing to do with the ability for us to make more 

money on the transaction. Frankly, when you think about it, our 

title company actually works with other lenders. So, our title company has proven that they are competitive and they do a great job. 

The benefit to the consumer is an end-to-end seamless process. 

Where it hurts the consumer is that if you are working with a lender that has an affiliated title company and you include those fees 

into that, you are not going to qualify to deal with a lender that 

has an affiliated title company where you would qualify to deal 

with a lender that doesn’t have an affiliated title company. And as 

a result of that—again and that bucket was particularly between 

$100,000 and $150,000, less competition and less opportunity for 

folks to be able to get mortgages, because they are working with 

a lender that has an affiliated title company. 

Mr. BACHUS. I fail to see why they made that distinction. 

Mr. Calhoun, I agree with you. The problem is that sometimes 

it is high fees and high interest rates. Those are the two big problems and this doesn’t have any impact on that. In fact, it could 

lessen the fee. There are not a lot of HOEPA loans made, because 

of legal uncertainty. 

So my next question to Mr. Emerson or any of you is, aren’t we 

going to have the same problem with non-QM loans? There is no 

secondary market—no liquidity for HOEPA loans. We are going to 

find the same thing happening with these non-QM loans, and what 

impact will that have on low- and middle-income borrowers? 

Mr. CALHOUN. If I may answer with that, there have been a 

number of articles recently that have quoted lenders saying that 

they intend to do non-QM loans, and that over time they expect the 

secondary market to develop. The liability on a HOEPA loan is orVerDate Nov 24 2008 18:32 Aug 29, 2014 Jkt 088520 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\88520.TXT TERRI
26 

ders of magnitude higher than it is for a non-QM loan. The liability 

is actually very limited. 

Mr. BACHUS. Do we know that? Because we are dealing with a 

blank slate. We don’t know what people are going to rule. But, I 

can understand at some point you say it is clarified. It is only clarified after those loans are made. And they are going to charge higher interest rates if there is legal uncertainly. 

Chairwoman CAPITO. The gentleman’s time has expired. Mrs. 

Maloney? 

Mrs. MALONEY. Thank you. I appreciate all of your testimony 

today. 

And I understand your legitimate concerns of wanting to get borrowing and loans out to credit-worthy Americans. 

But we have to start somewhere. And this CFPB rule is a beginning point. And I might add, I think it is a long time in coming. 

It came out last Friday, and it has been almost 5 years since the 

financial crisis. The purpose of this rule is to prevent another financial crisis from happening. 

So I would like to ask every panelist for just a yes-or-no answer. 

Do you believe that the financial crisis merited serious reform of 

the mortgage industry, or should we have just left the industry just 

like it was with its no-doc loans? 

Do you think it merited reform? Yes or no? 

Starting with Mr. Hartings? 

Mr. HARTINGS. It would be a qualified yes. I would like to expand 

on that a little bit. 

Mrs. MALONEY. Okay, if you would like to put it in writing. Yes 

or no? Qualified, yes. 

Mr. EMERSON. Yes, qualified. 

Mr. WEICKENAND. Yes. 

Mr. SPENCER. Yes. 

Mrs. MALONEY. And we will accept your other answers in writing, but I want to get to a second question. 

If this rule had been in place, flawed as it is, would it have prevented the financial crisis—in your opinion—from which we are 

still suffering? 

Qualified yes or no? And put the long part in writing. 

Mr. Hartings? 

Mr. HARTINGS. I don’t know. I can’t answer that. 

Mr. EMERSON. I can’t do that either. 

Mr. WEICKENAND. I am with them. 

Mr. SPENCER. No. 

Mrs. MALONEY. You don’t believe it would? 

Mr. CALHOUN. Absolutely. Let me give you one example. 

Mrs. MALONEY. You will have to put it in writing— 

Mr. CALHOUN. With ability to repay, Countrywide said 70 percent of their loans would not have qualified. 

Mrs. MALONEY. Okay, but the answers, if they could come back 

in longer form to me, because I really want to get to this one. 

I think that what we are seeing is that there is a very fine line 

between what we want to accomplish. We want to prevent a future 

financial crisis, but we want hardworking credit-worthy Americans 

to have access. 

27 

I know wealthy people will always be able to get a loan. They 

could be leveraged very highly with all their assets. But hard working people oftentimes cannot get loans, as my colleague from New 

York pointed out so beautifully in his opening statement. 

I think that we share the same goal and principles, that we want 

to get this out, but we need to find this fine line. So what qualifications would you suggest to arrive at this careful balance, if you believe the balance that has come out from the CFPB is not the right 

balance? 

We will be able to study it over the future with data and their 

research and monitor it, but I would like to ask each of the panelists if there were other qualifications or another way that you 

think would have had the fine line of protecting our overall economy from abuse, financial crisis, but getting that loan out to the 

qualified, hardworking, moderate-income American? 

Mr. Hartings? 

Mr. HARTINGS. Yes, I would like to speak about tiered regulatory 

modeling, because as a community banker—I know Congressman 

Meeks talked about adjusted rate mortgages, and there was some 

really predatory lending made on adjustment rate mortgages. But 

we recently had to redo our disclosures due to the new changes in 

the mortgage rules. And I went back and 17 years ago I used a different adjustable rate index, and I still have 20 of those loans on 

the books. 

Now, if that was predatory, those people would probably have 

paid me off, but as a community banker, someone who keeps it on 

the portfolio, I can’t allow that kind of product to be out there. So, 

a tiered regulatory model, when you try to be this prescriptive on 

what a qualified mortgage is, you can create something that is very 

safe and sound, but it is going to be very exclusive and you really 

will want to be more inclusive. 

And I think the only way to do that is a tiered regulatory model 

for those in portfolio, or the smaller lenders, and I think that is the 

best solution. 

Mr. EMERSON. I would give you four things that should be done. 

Number one is, I think we should expand the QM safe harbor 

rule. Right now, it is rebuttable presumption, at 150 basis points 

over APOR. I think you should take it to between 200 and 250. I 

think you should increase the threshold for smaller loan amounts 

and have a sliding scale, and the MBA has attached a chart that 

would kind of define how that would work, and I think that would 

bring more folks into the program. 

We have already testified, I think that we have to have the ability to make fixes to mistakes that take place and the care that exists and help it today. And then, one of the things—and I think the 

CFPB has tried to do a very good job of giving guidance. But, a lot 

of that guidance is oral. And the more written guidance we can get, 

the more clarity will be out there and the more certainty for people 

to understand the rules. 

Chairwoman CAPITO. I think the gentlelady’s time has expired. 

I will let the next person go ahead and answer it while we get 

the clock reset. 

Mr. WEICKENAND. We have been doing qualified mortgages since 

I entered the industry. That is all we do. We do not put people in 

28 

situations where they cannot be qualified now. What I can say is 

for a qualified mortgage or a qualified auto or anything like that, 

I know that market in Memphis, and I can make those decisions. 

The rules themselves, based on not being able to sell to the secondary market, will hinder our ability to make some of those decisions. And I think that is a real problem. 

Chairwoman CAPITO. Thank you. 

Unfortunately, the two timers that many Members use to gauge 

their questions have for some reason ceased working. So I guess I 

am going to have to say, trust me, I will give you your 5 minutes. 

How does that sound? 

Our next questioner is Mr. McHenry. 

Mr. MCHENRY. Thank you, Madam Chairwoman. If you don’t 

mind, I will keep my own time. 

[laughter] 

Chairwoman CAPITO. I said, trust me, not you. 

Mr. MCHENRY. Oh. That is a better choice. So, thanks. 

Reclaiming my time, both seconds left. 

In June of—let me start this way. Is the panel familiar with the 

disparate impact regulations put forward by HUD earlier this year? 

Okay. Some of you are familiar with them. 

Mr. Calhoun, are you supportive of the regulations as HUD has 

promulgated them? 

Mr. CALHOUN. Yes. 

Mr. MCHENRY. Okay, all right. But in June of this year, a group 

of industry trade organizations representing the mortgage industry 

sent a letter to Director Cordray of the CFPB and Treasury Secretary Donovan, highlighting the regulatory conflicts that would result if CFPB’s QM regs, on one hand, and HUD’s disparate impact 

rules promulgated earlier this year under the Fair Housing Act. 

And the letter states, ‘‘These and other rules implementing 

Dodd-Frank, including those governing ability to repay and risk retention, will tighten credit standards through facially neutral requirements that may lead to disparate outcomes for some category 

of borrowers.’’ 

It goes on to claim that this lack of guidance will create uncertainty, resulting in higher prices to account for risk and less available credit for consumers. So, Mr. Calhoun, do you believe that this 

regulatory impact could have a negative impact on consumers? On 

the one hand, disparate impact standards, and on the other, QM, 

and perhaps restrict mortgage lending unnecessarily and result in 

lawsuits? 

Mr. CALHOUN. No, for two reasons. Historically, lenders who 

chose not to do subprime lending, obviously that had a disparate 

impact since half of all African-American loans were subprime. 

There were no actions, private or public, brought against them for 

that decision. 

And we have already had responses from the regulators saying 

that a lender’s choice of just doing QM loans will not be used 

against them in a disparate impact situation for that analysis. 

Mr. MCHENRY. Okay. Mr. Emerson, has your industry received 

assurances from the government that they are not going to pursue 

suits if you follow the box of QM, but disparate impact suits? 

29 

Mr. EMERSON. So, to get to that point, obviously I think our industry and the MBA strongly supports the Fair Housing Act. But 

what we have now come in context with is the CFPB and some regulators have come out and said what Mr. Calhoun indicated. 

But what we haven’t heard is we have not heard from HUD and 

we have not heard from the DOJ. And HUD is the group that promulgated that rule and the DOJ enforces it. 

And I think when you are thinking about the industry and where 

there is a bend in the industry and what has taken place through 

repurchase processes, as well as HUD OIG and DOJ actions, I 

think there is a lot of nervousness around that by not hearing from 

those two groups. 

So some guidance from those two groups would be tremendously 

helpful for the industry to know exactly where they stand on the 

disparate income issue. 

Mr. MCHENRY. Mr. Calhoun, do you agree? I see you nodding. 

Mr. CALHOUN. I agree that additional guidance would be helpful. 

Mr. MCHENRY. Okay. Certainly. 

And I certainly appreciate your organization, Mr. Calhoun’s, support for dealing with the added pressure of litigation as a result of 

QM. Those that follow the strict QM standards, they will not be 

pursued. And I certainly appreciate that. 

I know we have disagreements on the final construct and the impact it will have in the marketplace. 

But, Mr. Hartings, in terms of the Community Reinvestment Act, 

do you think it is possible for financial institutions, if they are 

doing mortgages, to meet their CRA requirements if they are only 

doing QM mortgages, or does it make it much more difficult? 

Mr. HARTINGS. It may be a wait-and-see. It certainly will make 

it more difficult—as you get to be a larger lender, you also have 

to have an investment test as well as a lending test. 

If it reduces your mortgage volume, certainly there are some safe 

harbor percentages that if you are below that, you may have to 

have more documentation. So I believe it would make it somewhat 

more difficult to receive a satisfactory CRA rating. 

Mr. MCHENRY. Okay. I certainly appreciate the witnesses’ testimony today. We obviously do have deep concerns. 

And this is really a deep concern not about the industry, but 

about your ability to provide products to my constituents who desperately need them. Especially those who are in moderately-priced 

homes where the question of points and fees in moderate-income 

areas, especially in my district, where because of the moderate income and the moderate price of the home, the points and fees have 

such a larger percentage, disproportionate to the cost of the loan. 

And we need to make sure we work through that. 

And with that, thank you, Madam Chairwoman. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Madam Chairwoman. 

I am very interested in hearing from the panelists about the possible effect of this rule on the continued health of the housing market, and in particular the continued involvement of community 

banks and credit unions in the mortgage business. 

30 

Credit unions and community banks in my congressional district 

in deep south Texas are essential to the local economy. 

My question to Mr. Calhoun: Not only do they provide competitively priced and fair mortgages, they contribute to local economic 

growth and community cohesion. So do you think that making 

banks and credit unions more attentive to underwriting nontraditional loans will help make the mortgage lending system healthier 

and safer? 

Mr. CALHOUN. Yes. And to be clear, we are very strong advocates 

of the community banks. I think in addition to the mortgage lending they do, they do about half of all small business lending, and 

the mortgage lending is needed to both serve mortgage borrowers 

and also to support the institutions for all the other reasons you 

have there. 

We have supported, as I say, the two-tier model with special provisions for community banks. There are places where we are on 

record and are still working to push further. 

For example, we think some of those loan caps are too restrictive 

both for the community banks and for the nonprofits. We do have 

concerns, though, about a complete portfolio exception. There are 

some banks where we have reviewed programs which have had 30 

percent and 40 percent foreclosure rates on portfolio loans under 

the old model of lending to people with lots of home equity. And 

we need to have some backstops for that. 

But community banks need special treatment, and we fully support that under the QM rule and in general with the regulatory approach. 

Mr. HINOJOSA. Under the QM rule, they tell me that many loans 

will not be made because they are below the 43 percent threshold 

that you spoke about that actually can go beyond 43 percent. 

So how do we let both the lenders and the borrowers get that is 

possible, up to about, say, 50 percent? How do we do that? 

Mr. CALHOUN. I think in two ways. First of all, there is the socalled patch that allows any loan that qualifies for GSE insurance, 

or FHA insurance does not have to be sold or insured by them. If 

it is eligible, even if it is kept on portfolio, that is, per se, a QM 

loan. It goes up to 50 percent. 

We have urged, and we did with a joint comment with industry 

that covered most of the mortgage market, that the CFPB should 

use their data collection and develop specific broad criteria that 

would allow these so-called compensating factors for responsible 

lending above 43 percent, particularly by small lenders. 

Mr. HINOJOSA. Okay. 

Mr. Weickenand, many African-American and Hispanic home 

buyers are steered into subprime loans when in fact they qualify 

for a prime loan. So can you remind us of the prevalence of this 

practice during the subprime crisis? And how will these new rules 

change that practice? 

Mr. WEICKENAND. I can’t really speak to what others were doing. 

I just know that what we do is to provide quality products at low 

cost to sort of raise the water a little, if you will, of our entire community, which makes everybody’s boat rise. 

We are very, very sensitive to trying to improve the lives and the 

livelihoods of all of our members in our community at large. 

31 

So, we don’t touch subprime. That is why we have a nonqualifying—the balance sheet limitations, plus the taste in my mouth of 

having to price these things differently, when last year I would not 

have to. So, I don’t want to do that to my members. 

Mr. HINOJOSA. Mr. Spencer, now that the QM rules are made effective, can you clarify for us what lending options are still available for low-income Americans who may not be able to meet the 43 

percent debt-to-income (DTI) limit? 

Mr. SPENCER. I can’t really speak to the broad options available, 

but I can speak to what we are having to do. Our fear is the following: If you look at our borrowers, they would be subprime except for the fact that we are providing no-interest loans. And so, 

they become qualifying mortgages, but the borrowers themselves 

could not qualify for a commercial mortgage under the same terms. 

And so, that is why we are asking for the relief in H.R. 3529 because we don’t believe this rule is intended to address the ministry 

we are pursuing. And we hope that bipartisan support will allow 

that rule to be enacted. 

Mr. HINOJOSA. My time has run out. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. HINOJOSA. I yield back. 

Chairwoman CAPITO. Thank you. 

Mr. Westmoreland? 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. 

I thank all of you all for being here today. I am a reformed homebuilder, I guess. And when you have somebody apply for a loan, if 

they are turned down for any reason or if the loan is not—typically, 

there are some explanations given for why the loan is turned down. 

And Mr. Hartings and Daniel, if you were to turn down somebody’s loan because it was not QM-compliant, what would you give 

as the explanation for having denied that loan? 

Mr. HARTINGS. It is a little different when you don’t have a product that is available to them. So what you would tell them is, we 

do not offer non-QM-qualified loans, so I can’t help you out. You 

do not have to file an adverse action if it is not a product that you 

are offering. 

But it is a shame. I offer what I call an HBA program, which is 

homebuyers assistance for those who have less than 20 percent 

down and I portfolio that loan. But I do it at a higher interest rate 

because I don’t charge them PMI insurance. And I have already 

scaled it back. I used to allow 5 percent down. We have scaled it 

back to now only 10 percent, because we were running into the 

higher-priced mortgage issue. 

That product may go away completely. I have been doing that for 

a little over 10 years and I have never had a foreclosure in that 

product because we use a lot of compensating factors. It is not just 

DTI. 

Mr. WESTMORELAND. Thank you. 

Daniel? 

Mr. WEICKENAND. It would be the same response. We wouldn’t 

offer that product to them at this time, and unfortunately couldn’t 

serve their needs. And that is— 

Mr. WESTMORELAND. Mr. Spencer, we hear from the other side 

of the aisle quite often that we need to pursue policies to have lowVerDate Nov 24 2008 18:32 Aug 29, 2014 Jkt 088520 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\88520.TXT TERRI
32 

and moderate-income people be able to obtain a loan. And I certainly agree with that. I was in the business, and I have seen what 

a difference owning a home makes in somebody’s life, much as the 

ranking member shared about moving out of the housing project 

into a home. So, I very much want to do that. 

Do you feel that the QM is going to hurt that goal? 

Mr. SPENCER. We believe that not just QM, but that the specific 

issues that H.R. 3529 addresses gives us certainty in being able to 

pursue serving these customers, these clients, these partner families. And that certainty is important because we are dependent 

upon raising dollars to do that. But we also finance parts of our 

balance sheet by having loans that can be pledged as collateral. 

Now, that is not the same as the secondary market that led to 

the housing crisis and the financial crisis. But it is an important 

aspect of how we assemble capital for affordable housing. And so, 

we have to have loans that are recognized and don’t create a liability for us or for a potential financial partner who might want to 

partner with us, like the Self-Help Credit Union has in the past, 

or community or large banks. 

Mr. WESTMORELAND. Could you describe for the committee who 

might be an individual who would be qualified or be somebody that 

you would make a loan available to who would now not be able to 

get that same loan? 

Mr. SPENCER. Our target market is people who, as a household, 

are between 30 and 60 percent of median income. And I am now 

speaking for the Charlotte affiliate, but this is generally true of 

Habitat more broadly. And to qualify, our folks have to have income, but they might have a medical debt that would throw them 

out of the QM measure. 

In the past, we have been able to work with them through financial counseling and, over time, help them pay that down. Whereas 

now, we are only doing QM loans to obtain the certainty that we 

need to be able to continue to move forward with our housing. 

Mr. WESTMORELAND. Thank you. 

And I yield back. 

Chairwoman CAPITO. Mr. Scott? 

Mr. SCOTT. Thank you, Madam Chairwoman. 

First, let me go to you, Mr. Calhoun. We have a bill, H.R. 3211, 

with which you are familiar. It has significant bipartisan support 

because it is a compromise. It is a compromise that was made to 

address many of your concerns and the concerns of other consumer 

groups. 

We have worked with Ranking Member Waters. We have worked 

with former Congressman Mel Watt for months. We have made 

noumerous worthwhile provisions. We have made changes. We 

have removed certain things that you objected to because we listened to you. We respect you. We know your work in the community. 

So, we have this new bill that has your input and the input of 

others. And what it represents now is the bare minimum that is 

needed to do the most crucial thing, which is to level the playing 

field enough so consumers can choose one-stop shopping. 

Are you happy with this bill now? Can we move forward? We appreciate your contributions to it. And are you supportive? 

33 

Mr. CALHOUN. Thank you for those comments and for your work 

with us. And I would like to say we have worked closely with Mr. 

Emerson in trying to hammer out something that would work for 

everything, not everyone’s first choice. 

We still have concerns on the title insurance for fears that this 

bill would actually create an unlevel playing field and it would 

harm consumers. And let me start with just one figure. The latest 

data on title insurance for 2012 is that over $11 billion of title insurance premiums were collected. During that same year, $765 million of claims were incurred, for a loss ratio of 6.8 percent. And 

that has been a typical loss ratio that they have had over the last 

10 years. 

Mr. SCOTT. Let us address that. That is a good concern, the title 

insurance. 

So, Mr. Emerson, let me ask you, you are with Quicken Loans. 

You do a lot of work on this. You probably could have effectively 

answered some of this. In fact, what effect does discriminating 

against affiliate title companies that Mr. Calhoun is pointing out, 

have on competition? 

Mr. EMERSON. Two things to that. 

Number one, to Mr. Calhoun’s point, we are not debating what 

the price of title insurance should or shouldn’t be. The discussion 

has been, is there an opportunity to have a level playing field 

around an affiliated and a nonaffiliated? Because each one of them 

will have the same amount of title insurance. The fee will be the 

same. And that has been what we are talking about, because there 

is no harm to the consumer in that particular situation. 

What it does for an institution like ours, in which client service 

is very important to us, is it takes us out of the game in a lot of 

cases, because we chose to affiliate with a title company to provide 

better client service, and there will be clients that we cannot help 

today, that we could have helped last Thursday. 

Mr. SCOTT. Will discriminating against affiliate title reduce the 

cost of the insurance? 

Mr. EMERSON. No, it won’t reduce the cost of the insurance one 

bit. 

Mr. SCOTT. Which consumers do you feel will be most affected by 

the reduced choices created by the 3 percent cap? 

Mr. EMERSON. We believe it is the same consumers who will be 

affected by the 3 percent cap anyway, and that is going to be the 

lower loan amount folks, the folks between $100,000 and $150,000, 

the folks who will be first-time home buyers, the folks who will 

help this economy come back from a housing perspective and they 

are the ones, just add on top of that one more fee and title insurance. 

Mr. SCOTT. And fine, let me go back to you, Mr. Calhoun. 

Title insurance is regulated at the State level, not the Federal 

level. I think that is important for us to understand. 

So if the title costs and regulations are done at the State level, 

shouldn’t you be working on legislation and regulation in the 

States to address your concerns rather than at the Federal level? 

Mr. CALHOUN. The regulation varies among the States. About 10 

of them don’t regulate the price. Others use very different procedures. 

34 

The concern is the difference between those two numbers I gave 

you goes for affiliated insurance largely to the lender, which gives 

them an advantage over other lenders because they are capturing 

that difference and the effect of that is to push title insurance rates 

going up. 

Title insurance rates should be going down with automation. But 

title insurance has become more expensive over the last decade for 

borrowers. There has not been the adjustment in a functioning 

market that you would expect. And borrowers are paying—we are 

talking about a fee that could be several thousand dollars on the 

typical home loan. 

This is real money to home buyers, and that is our big concern. 

As I said, we continue to work with Mr. Emerson and see if we can 

find something that works for lenders like him, but that don’t fuel 

this increasing cost of title insurance, which is already too high for 

homeowners. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Luetkemeyer? 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Recently, I met with a group of Missouri bankers who came to 

my office after they had been to visit some CFPB representatives 

over at their building. And my bankers were talking about the 

things that we are talking about this morning, the QM rule. And 

they were told by the CFPB representative that they were the 41st 

group to meet with them. 

Basically, the gist of the conversation at the end of it was, 

‘‘Thank you for coming. We know more about the effects of what 

is going to happen to the borrowers, the lenders, and the market 

than you do,’’ which is very concerning. 

So, as a result of that, myself and a number of my Missouri delegation members wrote to the Director and he responded back to us, 

and Madam Chairwoman, I would ask unanimous consent that 

those two letters be made a part of the record. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. LUETKEMEYER. And, in the letter, the Director indicates—he 

says, ‘‘The Bureau shares your concern that regulation should not 

place unnecessary burdens on community banks. We recognize 

that, with few exceptions, community banks and credit unions did 

not engage in the type of risky lending that led to the mortgage 

crisis.’’ 

We are glad to hear that the Director and see the Director believes where the problem was, and hopefully he will be willing to 

work with the committee and with the new legislation that comes 

out of this as a result of our hearings today, because it is pretty 

obvious that there are a lot of negative effects that are occurring 

here. 

Along that line, I would like to talk with the lenders here for a 

moment and sort of get some things clear. Mr. Hartings, Mr. 

Weickenand, and Mr. Spencer, I think all three of you have mentioned this morning that you are not going to be doing non-QM 

loans. Is that correct? 

Mr. HARTINGS. That is correct. 

Mr. LUETKEMEYER. And Mr. Emerson, I didn’t hear your— 

Mr. EMERSON. Yes, that is correct. 

35 

Mr. LUETKEMEYER. You are not going to be doing that either, Mr. 

Weickenand and Mr. Spencer, is that correct? 

Mr. WEICKENAND. Yes. 

Mr. SPENCER. That is correct. 

Mr. LUETKEMEYER. Okay. Why not? Give me a really quick answer, because I have this lady behind me who has a stop watch on 

me, and General Ronald Reagan once said, ‘‘Trust, but verify,’’ but 

since she is a really nice lady, I am not going to verify. I am going 

to trust her. But I do need to get done quickly here. 

Mr. HARTINGS. As a community banker, we like to keep things 

simple to be able to afford to do it in our setting. I don’t do higherpriced mortgages today for the same reason, because of the extra 

regulatory burden, the real fear of litigation, and what that means 

long term. 

I know we talked about this as marking it today and we will 

know 6 months from now or a year from now how it is really affected. But, my concern is those consumers who want to buy a 

house between the next 6 months or the next year, because they 

are going to be harmed if we are not right about this regulation. 

And I believe that it will restrict credit. 

Mr. LUETKEMEYER. Mr. Emerson, please? 

Mr. EMERSON. I agree with Mr. Hartings. And, I would add to 

that, by the very nature of QM and that is the loan that you should 

be making and there is a stigma that lending outside of QM is a 

loan that is not necessarily a good loan. You think about 

reputational risk, you think about re-purchase risk, you think 

about the liability associated with that and not to mention the fact, 

as I said in the testimony, that there isn’t a secondary market for 

a non-QM loan. 

So even if an independent mortgage bank wanted to originate 

that loan, which we don’t want to, you couldn’t because there is no 

place to effectively sell that loan. 

Mr. WEICKENAND. I would agree with the gentleman previously 

that, for us, the idea of charging more for a loan that I wouldn’t 

have charged differently from the previous year is just something 

I can’t stomach. Plus the fact that balance in my balance sheet, 

with the ALM concerns and things of that nature not being able 

to offload loans like I am today. It will impact—and according to 

my records for the last 3 years if you just assume it is 11 percent, 

which may not seem a lot unless you are part of that 11 percent. 

Mr. LUETKEMEYER. That is right. 

Mr. Spencer? 

Mr. SPENCER. We need certainty. 

We need to know that we are within the bounds and I can say 

that I am sitting here representing 278 other affiliates who signed 

the letter in support of H.R. 3529, and we hope that we can get 

that certainty rather than trying to sort out uncertainty in the regulations as we have heard earlier. 

Mr. LUETKEMEYER. Mr. Emerson, I think you hit on the point I 

was trying to get to here that is the heart of this matter. And that 

is, if it is a non-qualified loan, automatically there is a perception 

that there is a problem there or there is something that doesn’t fit 

into the box. And while before these rules, the bank had the flexibility to price a loan and look at the customer and be able to figure 

36 

out what was best not only for the customer, but what would work 

best for the bank. Now that flexibility has been taken away from 

them, and if it doesn’t fit in the box, it opens you up to this—the 

opposite of what can happen here is that if it doesn’t fit in now, 

all of a sudden it is a negative. 

There is an exposure—there is a risk there. 

And my concern is, have any of you talked to your regulators 

about the problem that this could have when they come in and regulate you? 

Is this the reason you stepped back? Because if a regulator comes 

in and sees you have a lot of non-QM loans, what are they going 

to do? They are going to assess that, I assume, against your capital 

or do you have an extra fund to sort of go back against for these 

funds or have you talked to them at all about this? 

Mr. HARTINGS. I have reached out to my regulators. It is kind of 

a wait and see today. I would like to comment on something a little 

different, what Mr. Emerson said, and he talked about the secondary market and not being able to portfolio these loans. 

That is the advantage of allowing community banks to portfolio 

these non-QM loans, and still have safe harbor. We would put 

these on our books if we had the safe harbor that went along with 

it. It is that litigation risk that is preventing us from continuing 

to make non-QM loans. 

Chairwoman CAPITO. We can do quick answers, because the gentleman’s time has expired. 

Mr. EMERSON. I don’t have anything to add to what we already 

added on my previous response. 

Mr. LUETKEMEYER. Okay. 

Mr. Weickenand, anything? 

Mr. WEICKENAND. No. 

Mr. LUETKEMEYER. Thank you, gentlemen. 

Chairwoman CAPITO. Thank you. 

Mr. Ellison? 

Mr. ELLISON. Thank you, Madam Chairwoman, and thank you 

Ranking Member Meeks, and I would like to thank all of the panelists as well for your hard work and the information you bring to 

this process. 

I would like to ask some questions of Mr. Emerson. 

Mr. Emerson, obviously Quicken does a lot of loans. Could you 

tell me what percent of the loans that you guys issue, what percentage of borrowers choose not to use Title Source or other title 

insurance firms affiliated with Quicken? 

Mr. EMERSON. I don’t have that at my ready. I would give you 

a range probably 5 percent of the time, 5 percent to 10 percent of 

the time. 

Mr. ELLISON. Thanks a lot. 

I did look at your testimony, and I thank you for providing it. 

On page 6 and 7 of your testimony, you stated that, ‘‘The rationale 

for excluding title insurance paid to affiliates from the calculation 

of points and fees is unclear.’’ I respectfully submit that I would 

disagree with that. Congress required the CFPB to exclude affiliated title insurance companies from the points and fees cap, explicitly. Why? To lower costs for borrowers and increase transparency 

in mortgage transactions. 

37 

Also, in your testimony you say that, ‘‘Studies have shown that 

when affiliates have been excluded from the market, title insurance 

charges have risen.’’ That is not what my research shows. I would 

be happy to be better educated on the subject. Could you identify 

which studies you are referring to? 

Mr. EMERSON. I am not sure exactly what you are referencing in 

the testimony. What I can tell you is from a title insurance perspective, I can appreciate the fact you disagree, but we just had the 

dialogue around and the regulation around title insurance. What 

we are not debating is any other title fees. We are not asking for 

closing fees or anything else associated with that. I think those are 

obviously— 

Mr. ELLISON. Thank you, sir. I do appreciate your answer. 

I was just hoping to look at those studies, because in your testimony you say, ‘‘Studies have shown that when affiliates have been 

excluded from the market, title insurance charges have risen.’’ 

I would like to read those studies, because if they are out there, 

I want to know more about the issue. 

But, let me also say that there has been—this question has been 

looked at. And, I would submit that the studies you are referring 

to either don’t say that or say something quite different and any 

way— 

Mr. EMERSON. That is so— 

Mr. ELLISON. Let me finish. I have also looked at a number of 

studies, including those by the Urban Institute, the GAO, and just 

last month the Consumer Federation of America, and the National 

Association of Independent Land Title Agents, calling for major reform in the title insurance industry. 

I actually would like to submit for the record some of the testimony of Bob Hunter from the Consumer Federation of America before the New York State Department of Financial Services on December 10, 2013. And I would also like to submit for the record the 

testimony of the National Association of Independent Land Title 

Agents before the National Association of Insurance Commissioners 

on December 16, 2013. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. ELLISON. Yes. 

And the CFA testimony asserts the title insurance system is 

highly concentrated, opaque, and results in reverse competition and 

raises cost to consumers. The one-stop shop system that has been 

praised in some quarters is in essence a noncompetitive and already overpriced marketplace, and for each title insurance payment 

a consumer makes, what I am curious to know is what percent of 

that fee from Title Source, or another affiliate, is provided back as 

commission on investment to Quicken? 

Mr. EMERSON. There are two things I will address. Quicken 

Loans receives nothing back from Title Source. Title Source is a 

completely independent company. And so, there is nothing that will 

transact back from that. And testifying on behalf of the MBA, we 

will be happy to provide you the information and the studies we 

looked at to come to those conclusions. 

Mr. ELLISON. I appreciate that, sir. So annually, I am curious to 

know how much Quicken Loans earn in revenue from—you said 

none from Title Source, so they should be a zero? 

38 

Mr. EMERSON. Yes, Title Source is an independent company. 

Mr. ELLISON. And Quicken doesn’t make any money from— 

Mr. EMERSON. Correct. 

Mr. ELLISON. Okay. 

The Consumer Affairs Web site shows that there are issues going 

on about Quicken Loans and also about 88 percent of the filings 

give Quicken the lowest satisfaction rating. 

For the record, I am troubled by the fact that the title insurance 

industry willingly allows referral sources to take pieces of title 

agencies as bounty for the referrals. I urge the chairwoman to invite land title agents to testify before this subcommittee. 

And Mr. Emerson, I want to thank you for your candid answers. 

This should be a truth-seeking process. I don’t have all of the answers. I don’t claim to. And you guys have some of them. So I appreciate you responding back, and I look forward to you sharing 

the information you have with me. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Without objection, I would like to submit for the record statements from the following organizations: the Credit Union National 

Association, the National Association of REALTORS®, the American Bankers Association, the Manufactured Housing Institute, and 

the American Land Title Association. 

Mr. Stutzman? 

Mr. STUTZMAN. Thank you, Madam Chairwoman. 

And thank you, gentlemen, for your testimony today and for your 

responses to a lot of good questions. I wanted to say thank you for 

what you intend to provide for constituents and for Americans 

across the country. 

I just find it unfortunate that in today’s economy, we are seeing 

Americans being squeezed harder and harder from every different 

direction, whether it is trying to get a home loan to buy either a 

new home or upgrade into another home or whether it is health 

care, whether it is their job seeing stagnant wages, this economy 

is not working for the American people. 

And listening to the testimony from you all today, obviously we 

hear that your customers and consumers across the country are in 

for another surprise. I would like to drill down into DTI a little bit, 

if you could give us some of your thoughts. 

I found it interesting that the CFPB sets the threshold for debt 

to income at 43 percent, but the Federal Reserve, as they were 

drafting ability-to-repay rules, did not require lenders to consider 

DTI. 

Mr. Hartings, I would like you to comment on it, and then if we 

could just move down the line fairly quickly, because I have another follow-up question to that. 

Mr. HARTINGS. Okay, I think there are two issues with DTI. 

First, setting a hard DTI limit, because it is lifestyle that depends on what you can live on and not 43 percent or 36 percent. 

So that is going to exclude some borrowers just because they can 

afford it with their lifestyle and the kind of homes they live in. 

And, the other item with DTI—I can’t remember what I was going 

to tell you right now, I will just pass on that one. 

Mr. STUTZMAN. All right, thank you. 

Mr. Emerson? 

39 

Mr. EMERSON. DTI is one calculation to look at. When you are 

evaluating the risk of a loan, you should be evaluating more than 

just the DTI. And I think as we evaluate DTI, we will see how that 

affects home buyers and first-time home buyers and how they are 

going to be able to qualify. 

Mr. STUTZMAN. Okay, thank you. And, Mr. Weickenand, if you 

could also maybe include a metric that you would use as a strong 

performance measure? 

Mr. WEICKENAND. We use DTI to determine what qualifies for us 

regardless of the type of loan. And I think it is very important to 

be used. However, again, what is being taken out of my hands is 

my personal knowledge of the person who is sitting in front of me 

applying for that mortgage loan. 

Mr. STUTZMAN. What threshold might be too dangerous for you? 

Mr. WEICKENAND. I can’t really even go there, because there are 

always outliers to every circumstance. You want to give people an 

opportunity to succeed. The idea of us—we are in the lending business, and I am here to try to help people improve their lives. So 

what may work for somebody may not work for another. 

Mr. STUTZMAN. Thank you. Mr. Spencer? 

Mr. SPENCER. As borrowers have lower incomes, those ratios actually need to go down to be conservative. 

And so, we actually work far below those standards. We try to 

stay at 30 percent, and so what is critical there is what else—how 

much absolute dollars is left to live on. So, we try to take a very 

conservative approach on that measure. 

Mr. STUTZMAN. Sure. All right, thank you. Mr. Calhoun, would 

you like to comment? 

Mr. CALHOUN. Yes, if I can add, the original rule did not have 

DTI. It had very general standards. It was at industry’s request 

that a bright-line standard was put in place, because that is essential to have the certainty needed to get secondary market capital 

in, and if you didn’t have the bright line, lenders were going to be 

very conservative, because they wouldn’t know where the line was. 

So I just want to make sure the record is clear. It was industry 

who asked for brighter-line standards including the MBA and that 

these are historically very high levels. These are FHA levels and 

I have not heard a clamor that FHA credit is too restrictive. I hear 

concerns people think it is too loose. 

Mr. STUTZMAN. I would like to ask this very quickly of the bankers. 

You said that none of you are going to be offering any non-QM 

loans. Have you heard of anybody in the industry that is going to 

be? 

Mr. HARTINGS. Most— 

Mr. WEICKENAND. Yes. Navy Federal will be. 

Mr. STUTZMAN. Navy Federal will be offering non-QM? 

Mr. WEICKENAND. Yes. 

Mr. EMERSON. I think you will find lenders in the marketplace 

that will provide non-QM loans to their retail bank clients or folks 

who are in their high net worth brackets. Yes, those loans will take 

place. 

Mr. HARTINGS. I don’t know many other community bankers that 

will do non-QM loans. 

40 

Mr. STUTZMAN. Thank you. I yield back. 

Mr. SPENCER. I think certain Habitat affiliates will do non-QM 

loans. 

Mr. STUTZMAN. Okay. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Green? 

Mr. GREEN. Thank you, Madam Chairwoman. 

I thank the witnesses for appearing, and I regret that I won’t be 

able to ask questions of all of the witnesses, but I do want to ask 

Mr. Hartings, you indicated that you have a $400 million institution, is that correct? 

Mr. HARTINGS. That is correct. 

Mr. GREEN. And how many first-lien loans per year? 

Mr. HARTINGS. It does vary from year to year, but in 2012 we did 

approximately—we did right at 493. In 2013, we probably did closer to 400. 

Mr. GREEN. And it is that 493 number that gives you some degree of consternation? 

Mr. HARTINGS. Yes, because of the small creditor exemption. 

Mr. GREEN. Which has a ceiling of 500? 

Mr. HARTINGS. You have two thresholds. Either you are a $2 billion institution, which would be about 5 times as large as I am, or 

500 first mortgage originations. 

Mr. GREEN. I see. So what you would like to see is the $500 cap 

lifted. Is that correct? 

Mr. HARTINGS. Yes. There are two ways to do that. Either raise 

the cap or currently it includes secondary market loans, which are 

already QM-qualified, and if we just looked at portfolio loans. In 

my last 2 years, approximately 20 to 30 percent of my loans are 

portfolio loans. The rest go to the secondary market, sold to either 

Freddie Mac or to the Federal Home Loan Bank. 

Mr. GREEN. Thank you. 

I am always interested in trying to find a way to help the smaller institutions. 

Mr. HARTINGS. Thank you. 

Mr. GREEN. Within your association, you indicated you have 

about 7,000 community banks. Is that right? 

Mr. HARTINGS. Our association has approximately 5,000 members, and there are approximately 7,000 community banks around 

the United States. 

Mr. GREEN. But you have about 5,000. How large is the largest 

in terms of assets? 

Mr. HARTINGS. That is really not my expertise to tell you—to 

know that question. But I could get back with you, if you would 

like. I could check with our association. 

Mr. GREEN. You are not aware of the size of your largest bank? 

Mr. HARTINGS. I don’t know that off the top of my head, sir, but 

I could find out for you. 

Mr. GREEN. Would it be more or less than $50 billion? 

Mr. HARTINGS. Probably less than $50 billion. 

Mr. GREEN. More or less than $40 billion? 

Mr. HARTINGS. It is $17 billion. I just got the answer for you. 

[laughter] 

Mr. GREEN. Okay. Thank you. 

41 

Mr. HARTINGS. That is what we like about community banking. 

It just cuts to the chase. 

Mr. GREEN. That is what I like about persistence. It is amazing 

how these things happen. $17 billion—can any size bank become an associate? 

Mr. HARTINGS. Again, you are asking me something about which 

I don’t know all the details. You certainly have to be a community 

bank. 

Mr. GREEN. This is what I am getting to, is the term ‘‘community 

bank.’’ We use it a lot, and I think that when I hear it, I may hear 

one thing. And when a colleague hears it, that colleague may hear 

an entirely different thing. So, just for assets alone—there may be 

other aspects of this—what is a community bank with reference to 

assets—the size? 

Mr. HARTINGS. I think to answer that, it is a little bit like trying 

to answer what is a qualified mortgage. There are extenuating circumstances, so I don’t know that I could answer it on assets— 

Mr. GREEN. I understand. If I may just, because my time is limited, the reason I am asking is because we continually hear talk 

about community banks and we have had testimony connoting that 

a community bank can be as much as $30 billion to $50 billion. 

And when I want to help community banks, I am trying to get a 

sense of the size bank that I am talking about such that I can help 

you. 

Mr. HARTINGS. I can tell you that our average member is ap- proximately $250 million. Again, our largest member is $17 billion, 

but I don’t have all the numbers in between there for you, sir. 

Mr. GREEN. All right. Let me quickly move to Mr. Calhoun. 

Mr. Calhoun, do you have some help that you can give me with 

reference to the size of a community bank? 

Mr. CALHOUN. I think it is fair to say that over 90 percent of them are below your $2 billion threshold in the CFPB rule, and so 

would be covered by the existing small lender provision. 

Mr. GREEN. So, $2 billion is your threshold? 

Mr. CALHOUN. I don’t think there is a precise definition, but that 

is the distribution the vast bulk of so-called community banks are 

below that. As you know, Dodd-Frank set the $10 billion— 

Mr. GREEN. I understand. I have 9 seconds. Yes or no? Above $30 

billion, is that a community bank? 

Mr. CALHOUN. I don’t consider that a community bank. 

Mr. GREEN. If you consider more than $30 billion or a $30 billion 

level a community bank, raise your hand. Anyone? 

Okay. I yield back. Thank you. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Rothfus? 

Mr. ROTHFUS. Thank you, Madam Chairwoman. 

Following up on your opening statement, Madam Chairwoman, 

with reference to the roundtable we had in Pittsburgh, I would like 

to ask unanimous consent to put into the record statements from 

participants in that roundtable. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. ROTHFUS. These individuals all expressed concern. This was 

November 12th we had the roundtable in Pittsburgh. They all expressed concern that as currently written, the QM rule will cause 

42 

harm to the housing market and make it much more difficult for 

working families in western Pennsylvania and around the Nation 

to buy homes. 

Congressman Westmoreland had asked some questions about 

who was going to be impacted. But my question, and I am going 

to ask this to Mr. Hartings, is if you don’t offer nonqualified mortgages, where might these working families turn for mortgage credit? 

Mr. HARTINGS. Certainly to competition that may not be residents in our areas, that may not know our area as well. Certainly, 

probably a higher price cost of that mortgage could be the result 

of that. I can’t tell you. I don’t know exactly who that will be, but 

it will surely shrink their opportunities. And these are people who 

need all the opportunities to get themselves qualified. 

Mr. ROTHFUS. Mr. Weickenand, do you have an opinion on where 

these individuals might turn for mortgage credit? 

Mr. WEICKENAND. No. I am sure some entrepreneurial type of individuals who will charge a premium on these things in a lot of 

ways will go into that market just trying to make money. 

Mr. ROTHFUS. In a speech on October 29, 2013, Senator Elizabeth Warren said that, ‘‘The potential liability associated with writing non-QM loans is relatively small. And in good times, lenders 

can compensate for those possible losses with higher rates or fees.’’ 

She added that, ‘‘We need to consider strengthening or 

supplementing the QM rule so that it provides an adequate check 

on overly risky lending, even during housing booms.’’ 

I am going to ask Mr. Emerson this question. Do you agree with 

Senator Warren’s assessment that the potential liability is relatively small? 

Mr. EMERSON. No, we don’t agree that the potential liability is 

small, unfortunately. We are going into new territory and I think 

ultimately time will tell what that is going to look like. But from 

a quantification perspective, in trying to understand the litigation 

risk associated with that, there is a distinct possibility that if you 

take that process all the way through, that the amount of costs associated with that loan is going to be greater than the principal 

balance of the loan that you lent. 

Mr. ROTHFUS. There has been some press lately about the 

shrinking number of financial institutions. The Wall Street Journal 

had an article in the last month which mentioned, I think, that we 

are now under 7,000. 

Mr. Hartings, in your testimony, you stated that community 

banks like yours simply do not have the legal resources to manage 

the risks that accompany nonqualified mortgages. How many QMrelated lawsuits could a small community bank or credit union 

withstand before it is put out of business? 

Mr. HARTINGS. It could be one. As a community banker, most of 

our directors are local businessmen and farmers, agricultural individuals who live in our area. The one thing they want is they want 

to serve the community, but they don’t want a fear of litigation. So 

that fear of litigation to our reputation, one may be enough. That 

is a hard number to answer at this point in time. 

43 

Mr. ROTHFUS. Mr. Weickenand, do you have an opinion on how 

many QM-related lawsuits a typical credit union could handle before it would be put out of business? 

Mr. WEICKENAND. I will give you an example of where we were 

part of a class action lawsuit on something we didn’t do. It was a 

process and a payments, share drafts and things of that nature. We 

were accused of manipulating it to drive up fees. We didn’t do that. 

It cost us between $50,000 and $100,000 to prove we were innocent. 

And so, that is just a case where we actually were allowed to get 

out of a case. I can’t imagine if we did a nonqualified mortgage and 

they had something to hold us to. That would be a very dangerous 

situation. 

Mr. ROTHFUS. Mr. Spencer, you mentioned that you had engaged 

a consultant to walk through some of the qualified mortgage rules. 

I think her name was Jill, and you talked about 1,000 hours that 

she had done to date. 

Mr. SPENCER. She is actually on staff. 

Mr. ROTHFUS. She is on staff. Can you quantify in dollars what 

it is costing your organization to comply with this rule? 

Mr. SPENCER. We estimate that we have invested both human 

and financial resources of $40,000 to $50,000 over the last 12 

months. And to put that in perspective for our operation, we could 

let you sponsor a house for $70,000. So, that is one house we didn’t 

build. 

Mr. ROTHFUS. Thank you. 

I yield back. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Murphy? 

Mr. MURPHY. Thank you, Madam Chairwoman. 

And thank you all for being here. Thanks for your time. 

Mr. Spencer, I just first want to thank you for everything that 

you do and everything that your organization does for your community and really all of our communities. 

I also want to take a second just to thank Mrs. Capito and Ms. 

Waters and Mr. Meadows for working together on a bipartisan bill 

to improve the legislation so you can continue to do what you do. 

Obviously, no legislation out of this place is perfect, so we have 

a lot of work to do to improve it. And we will continue trying to 

do that. 

I wanted you to just take a second to explain to everybody what 

makes organizations like yourself, Habitat, different from others, 

so provisions like DTI and servicing limits are not needed to protect consumers. 

Mr. SPENCER. We were created, Habitat came into being with the 

mission of eliminating poverty housing worldwide. It was bold. 

What we do in our individual communities is work with families. 

We provide financial counseling. We can’t cover costs out of fees because we don’t charge them. We can’t cover expenses out of interest 

because we don’t charge that either. 

And so, what we do is we work with our local communities to assemble resources so that we can provide these deserving families 

with non-interest-bearing mortgages. 

44 

Because we believe strongly that these families need a hand up, 

not a handout, we don’t give away houses. And so, we work very 

closely to make sure that our families have both the support and 

the capacity to repay the mortgages. And overwhelmingly, they do. 

We just don’t want to be caught up inadvertently in a bill that was 

not aimed at this kind of housing ministry to begin with. 

Mr. MURPHY. Okay, great. Thank you for that. 

Mr. Hartings, Mr. Emerson, and Mr. Weickenand, the three of 

you, it sounds like the CFPB amendments are continuing to improve QM and it sounds like you all are happy with it. 

But my question is timing. With some of the new clarifications 

as late as last fall, does that timing put you—do you feel like you 

need an extension to ensure that you get it right, or do you think 

that would just put you at a disadvantage? 

Mr. HARTINGS. We are a small shop. I have 68 full-time equivalent employees, and I have 7 offices that we have to manage. We 

have kind of all hands on deck today from our mortgage lenders, 

our commercial lenders all trying to figure out everything we need 

to do with the new mortgage regulations. 

More time would be very helpful, because we also have to see 

how our software vendors—although they may put in fixes, we 

want to make sure how that integrates into—we have multiple 

software vendors that certainly have to integrate into each other. 

So all of those take a lot of time. And the massive amount of 

changes with this legislation has really put us—it is difficult doing 

anything else except trying to comply with QM and the mortgage 

regulations along with it. 

Mr. MURPHY. Do you think that holds true for basically all community bankers? 

Mr. HARTINGS. Yes, I believe it does. 

Mr. MURPHY. Thank you. 

Mr. WEICKENAND. I would agree. 

With the confusion that is out there, trying to communicate and 

educate your employees on the changes and then trying to communicate to the members who come in the door, can lead to a lot of 

disruption and confusion. 

Mr. MURPHY. Thank you. 

Mr. EMERSON. The amendments are out, the rule is out there, so 

from that perspective, there is not much we can do from a time. 

Obviously, there is a lot of work that goes into the technology 

build and everything associated with getting the systems right, not 

only internally but you are relying—a lot of lenders are relying on 

third-party vendors to make sure that they have it correct. 

So I think the industry has done its level best to get to a place 

where they are trying to comply with the rule, with the QM rule. 

We appreciate Director Cordray’s statement that there is going 

to be some grace period, not—it is kind of not defined—of making 

sure that you are giving a good faith effort to comply and get it in 

there. 

But I think in hindsight, time, certainly a little bit more time 

would have been helpful. 

Mr. MURPHY. Thank you. 

Last question for Mr. Calhoun: If a lender originates a loan and 

is willing to keep it on the portfolio, from a policy standpoint, why 

45 

is it not safe to assume that lender has already determined the 

ability to repay? 

Mr. CALHOUN. So, the challenge is, we have a long history on 

this, that a lot of the past and even present subprime lenders were 

portfolio lenders, and they won one of two ways. If the loan paid, 

they collect the high fees and interest. 

And these loans, 90 percent of subprime loans, were refinancing, 

not first-time home loans. So they would target people who had equity in the home that would cover the losses if they had to foreclose. And that is one of the challenges. 

I think it raises the point—and let me be clear, we support the 

need for the clarity and the broader standards, a lot of which have 

been talked about today. 

But, for example, FHA is in its problems today with finances in 

large part because a nonprofit housing program, seller-assisted 

downpayments, was operated through nonprofits and produced over 

$15 billion of losses at 3 to 4 times the rate of their normal rate 

of business. 

So, we do need to draw these lines carefully. And I think the 

CFPB, with guidance from this committee, and the House and Congress can get us there. 

Mr. MURPHY. Thank you. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. CALHOUN. It does need to be done with a lot of care. 

Chairwoman CAPITO. Mr. Barr? 

Mr. BARR. I thank the chairwoman for the recognition and for 

holding this important hearing. 

And I thank the witnesses for their testimony. 

I think few would disagree that some kind of ability-to-repay 

analysis should obviously be part of the mortgage underwriting 

process. 

But what I am hearing from most of the witnesses here today is 

that the QM rule is really a government, one-size-fits-all solution 

that deprives mortgage lenders of the flexibility to make individualized judgments about the creditworthiness of a particular borrower, and that it, at the same time, deprives creditworthy borrowers from a range of products that might not fit within the 

CFPB’s bureaucratic credit box. 

And so, my question—my first question would be directed to Mr. 

Hartings. And I appreciate your advocacy of a potential solution to 

provide additional flexibility, specifically a bill that I introduced, 

the Portfolio Lending and Mortgage Access Act. 

And it kind of dovetails onto the comment from Mr. Calhoun that 

he didn’t think that portfolio lending would really remedy the problem of what caused the financial crisis. 

But it seems to me that one of the principal causes of the financial crisis was government policy that encouraged an originate-todistribute model and that if you had an incentive through an 

amendment to the QM rule that would encourage lenders like community banks to retain the risk on their portfolio, that you would 

actually prevent some of the problems that caused the financial crisis, and at the same time provide that flexibility for creditworthy 

borrowers who, again, wouldn’t necessarily fit into that bureaucratic credit box that is created by the CFPB. 

46 

So, if you could, Mr. Hartings, please elaborate on your support 

for this particular solution and maybe respond to Mr. Calhoun’s objections. 

Mr. HARTINGS. I can talk about my own experience. We went 

through the mortgage meltdown and we didn’t have a lot of issues 

because we couldn’t put our customers in a product, and I talked 

about adjustable rate mortgages before, that was going to put them 

in a subprime situation, actually create a foreclosure. 

And when you have it on your books, you have 100 percent of the 

risk. 

I look at it that I have always made qualified mortgages because 

everyone who comes into my institution, I try to qualify them. 

There are certainly always outliers. And I can’t prevent those. 

But let’s look at making the regulation; let’s look at our regulators. We do have prudential regulators. We have—in my case, I 

have the FDIC and the State of Ohio. 

If they find that I am doing something incorrectly, UDAP, is a 

great example, unfair and deceptive practices, can pull that in to 

take a look at those institutions. 

So I think we have to look at those regulators to be able to be 

able to control that situation maybe going forward, versus trying 

to regulate it. Because when you try to regulate it, if I was to write 

a QM rule today, it would exclude people. I couldn’t write it without excluding people. 

And so, unless you tier that regulation and say portfolio lenders, 

we are going to give you a tier to allow you to make those and take 

those responsibilities, I think it is a great solution. 

Mr. BARR. One other piece of legislation I have introduced that 

I would love the panel to comment on is H.R. 2672, the CFPB 

Rural Designation and Petition Correction Act. 

And one of the concerns I have with the QM rule as currently 

constructed is the impact it will have, particularly in rural communities. And, as you may know, in rural communities, access to balloon loans, for example, can be particularly important in the agricultural context and other places. 

These loans are going to away if they continue to be designated 

as non-QM, so what we want to make sure is that the CFPB’s designation of ‘‘rural’’ is accurate. This is a very simple piece of legislation, bipartisan, that would allow a community to petition the 

CFPB for a correction to be designated as rural if it truly is a rural 

community so that those mortgage lenders could originate balloon 

loans and fit within the QM safe harbor. 

My understanding is that Senator McConnell has introduced 

companion legislation in the Senate today, and I am appreciative 

of that. 

Could you all comment on that as a potential solution as well in 

terms of modifying the QM and providing responsible mortgage 

credit? 

Mr. HARTINGS. I know, our association, ICBA, does support your 

bill. I think any time you try to be that prescriptive on what a 

rural area is, it is difficult in the United States. So I like the idea 

of being able to petition to get into rural. 

47 

Mr. EMERSON. From the MBA’s perspective, we haven’t studied 

the rule yet. We are going to look at it, and we will get back to 

you and let you know what we think. 

Mr. BARR. My time has expired. I yield back. Thank you very 

much. 

Chairwoman CAPITO. Mr. Heck? 

Mr. HECK. Thank you, Madam Chairwoman. 

And I would like to add my expression of gratitude to each of you 

for spending your considerable amount of time here today. 

I would like clarification on a couple of points or some provocative responses to questions beginning with Mr. Calhoun’s assertion 

that there is a documented history, actually, of banks and credit 

unions making loans to people held in portfolio that did not go well. 

Mr. Calhoun, I do want to amend one thing you said when you 

laid it off to nonprofits. Actually, the bulk of the red ink at FHA 

is attributable to reverse mortgage defaults, a problem that has 

been fixed thanks to Congress and the President’s signature in August, in large part. 

But, this question fascinates me. And let me preface this by saying, I think it is beyond the pale for us to assert that every hair 

on the head of every proposed rule is inherently virtuous and perfect. I don’t think that is ever the case. And it is certainly not the 

case here. 

But, having said that, there is a clear and fundamental difference of opinion between, perhaps, Mr. Hartings and Mr. Calhoun on this issue of mortgages held in portfolio. 

Mr. Hartings, you asserted that we bear 100 percent of the risk. 

But frankly and with all due respect, that seems prima facie not 

to be true if there is substantial equity in a refinanced instrument, 

or if you are making this loan into a rapidly rising market and 

your fees and interest rates are sufficient that even in the eventual 

unfortunate headache circumstance of a foreclosure, your opportunity to re-coup is virtually assured. 

So, while I have sympathy for this issue, any time you draw a 

fine, bright line in reduced flexibility, you are going to exclude 

somebody who otherwise, on the basis of merits, might be warranted an opportunity. 

But sir, how do you counter the factual statement that you are 

not bearing 100 percent of the risk given market conditions and 

context? 

Mr. HARTINGS. I am a lender. I have my lender certificate. As a 

bank president, I have to make that decision if we are going to 

foreclose. And I also have to work through the courts and the customer on those. And I can tell you, that is absolutely the last thing 

I want to do in any situation. 

Mr. HECK. Excuse me. I take you at your word. And I believe 

you. 

Then why did it happen so often? 

Mr. HARTINGS. I think sometimes if you look at the types of products, they don’t pass the smell test. 

If it is an adjustable rate mortgage—again Congressman Meeks 

talked about the predatory lending in some of those situations. Interest-only loans can have a tendency to get a customer in trouble, 

because they are not paying back any equity. So, I don’t know. 

48 

There are always going to be those players. But, I look at the 

same situation of if you look at the mortgage crisis, it was really 

everybody figured out how to game the system—or, I shouldn’t say 

everybody, but the folks who got us in trouble—got them in trouble 

figured out that there is this no-doc loan out there. I know how to 

do that system. 

So when you make hard and fast rules and you think that is 

going to fix something, what it ends up doing is just the outliers 

figure out how to game the system again. So, that is what concerns 

me is, I can see that if I hold it on portfolio I know how I would 

look at these loans. I know the risk I take. And I know how I look 

at my customers accordingly. 

I don’t design products that are going to put them in trouble. Do 

they get in trouble from time to time? Absolutely. That happens everywhere in the economy. But, I can’t answer the outliers because 

I am not one of those. 

Mr. HECK. So as one of the newbies here, let me just lay off some 

of my frustration on the panel. 

I am frankly a little tired of finger pointing. It is all government 

which evidently has become a two syllable word. It is all on my 

side, predatory lenders or it is all borrowers made stupid decisions 

that they knew better than to make. 

The truth of the matter, as we all know, is that there is plenty 

of culpability to spread around. 

And I can either walk away from this kind of frustrated that we 

have amplified beyond measure the differences of opinion about 

how we might fix this proposed rule when in the wider scheme of 

the thing, we really are fixing a problem that was very, very material to our Nation’s economy, and our family’s well-being. And 

maybe I can walk away celebrating a little bit that the differences 

between us in the broader context, frankly, really aren’t that big, 

so let’s get to work and make it work. 

Thank you, Madam Chairwoman. I yield back the rest of my 

time. 

Chairwoman CAPITO. Mr. Kildee? 

Mr. KILDEE. Thank you, Madam Chairwoman, for allowing me to 

participate in this hearing as a non-member of the subcommittee. 

I have a particular interest in this subject so I have found it to be 

as helpful as I expected it would be. So, I certainly appreciate your 

willingness to allow me to join. 

And, in respect for time, I just have two subjects that I would 

like to quickly get some responses on. Many of the questions that 

I had planned to ask have been asked and I think answered quite 

adequately. 

Before I do that, though, I want to make a comment on Mr. 

Emerson and his company. And while I don’t represent Detroit, I 

represent Flint, which is—my district starts about 35 miles north 

of Detroit. I had a very good conversation with Mr. Gilbert last 

week. And I just want to say that while I suspect we agree on a 

lot of policy issues, even though we might not agree on all of them, 

I will say that Quicken, from the standpoint of corporate citizenship, is demonstrating what a company can do to not only do well 

in terms of your business plan and your business model and be a 

productive and profitable company, but to make sure that in doing 

49 

so, some of that profitability is actually shared in rebuilding the 

community that is the host to your company. 

And I know that other folks here in this room appreciate that as 

well. But as a person involved in urban policy for a long, long time, 

I just want to say that to you and convey to your company and to 

other members of your company that appreciation. 

Thank you. 

Mr. EMERSON. Thank you. We appreciate it. 

Mr. KILDEE. I wonder if perhaps Mr. Spencer—to be quick about 

this—could comment on some of the compensating factors that 

might actually open up home ownership, and lending possibilities, 

access to credit, particularly from the perspective of Habitat. 

Can you just tell me about the experience with your clients, your 

customers, and what you do to prepare those individuals who otherwise might not succeed? 

Setting aside the role of Habitat as a developer, but in preparing 

folks to be able to become homeowners through—particularly 

through home ownership counseling and how that has affected the 

success rate of your clients. 

Mr. SPENCER. Absolutely. Every Habitat homeowner goes 

through financial training—and actually more than just financial. 

If you have never grown up living in a home, there are things you 

don’t know about changing filters and fuse boxes, and we train everything from financial literacy through being a good neighbor and 

how to resolve disputes with your neighbor. So, we work on all of 

that. 

And then, we stay involved with the families. The result is that 

our overall foreclosure rate, although it does happen, is extremely 

low. I think it would be a number that most of our for-profit brethren might envy. So we run below—depending on the affiliate—2 

percent to 4 percent is about our failure rate, and so we try to 

avoid it. We are very successful at it. And overwhelmingly, more 

families have paid their loans in full by an order of magnitude than 

have ever been foreclosed on. 

Mr. KILDEE. Thank you for that. And thank you for being a very 

qualified set-up man for the follow-up question, and that is—and 

I would certainly invite Mr. Calhoun to comment, as well, but particularly for the three lenders—what do you think can be learned 

from the experience of Habitat, particularly if, as a compensating 

factor, we were able to somehow integrate housing counseling into 

the homeownership process generally? 

Given that experience, I don’t think there is anything particular 

about your clients that is distinguishable from many other folks 

who go directly through a traditional lending experience. Do you 

think that there is value in thinking about counseling as an integrated part of the mortgage origination closing servicing process? 

If you could, any of the three of you? 

Mr. WEICKENAND. Certainly, we do that already. But I think the 

example that Habitat shows is that giving people an opportunity, 

through your judgment and your processes, is not a bad thing, 

meaning that you are giving people an opportunity, to whom you 

normally would not give an opportunity, for homeownership and 

things of that nature. 

50 

Mr. CALHOUN. If I may add, we have proposed and supported 

that counseling could be one of those compensating factors to provide more room there. And I would say, just in general, one of the 

problems here is we are not writing the rule for the groups that 

you see here at this table today. These are the responsible lenders. 

The challenge is, how do you write a rule that protects both home 

borrowers and these responsible lenders from folks who drove the 

market in an unsustainable way, that caused our country so much 

harm? 

Mr. KILDEE. I think my time has expired. I will follow up. I 

thank you for your indulgence in allowing me to participate. 

Chairwoman CAPITO. Thank you. Mr. Lynch? 

Mr. LYNCH. Thank you, Madam Chairwoman. 

I do want to thank all of the panel members for your help today. 

I felt badly about coming back here and asking more questions, because I think you have probably suffered enough. 

But I want to say that one of the—to your credit, for community 

banks and credit unions, and, God knows, Habitat for Humanity, 

the reason that your programs, especially with the credit unions 

and the community banks, outperformed the big banks during the 

crisis is because you know your customer. You know the people to 

whom you are lending. And so, you have the ability to look beyond 

even these criteria that are being laid out in the QM rule. You can 

look at someone—and I was there, when I bought my first house, 

I am sure that I was on the margins. As an ironworker, I probably 

didn’t have the credit history that is being required here today in 

this rule, but thank God my banker knew I was a hard worker and 

so gave me a mortgage. 

Our difficulty here is trying to craft a rule that fits everyone. 

And so the way this works, the way it is set up to work by the 

CFPB is that small banks will still be able to make that loan that 

is on the margins. You will still be able to make that loan, even 

though it will be a non-QM loan. And to be honest with you, it 

makes you, the people who are best able to judge that risk, liable, 

if you are going to hold it in portfolio. 

The challenge for us is if we lower the bar in the rule, it will 

allow every bank to allow every customer who might have insufficient assets or insufficient income to get that loan. And we saw the 

consequences of that in the last housing crisis. So, that is the difficulty we have. 

But one thing I keep coming back to is this threat of liability. 

And, when I look at the ability-to-repay standards here, it requires 

you to look at if a person is currently or reasonably expected to 

earn certain income or have certain assets. It requires you to look 

at their current employment status, the monthly payment on the 

covered transaction. It requires you to look at the monthly payment 

on any simultaneous loan, the monthly payment for mortgage-related obligations, current debt obligations, and alimony, and child 

support. Those are all factors that I think should be considered 

when you are going to give someone a loan, rather than just someone’s credit history. 

So I don’t think that the requirements and the ability-to-repay 

rule is really unreasonable. And what I am hoping is that there are 

some instances that you have brought up where folks—we might 

51 

need to tweak the rule a little bit. But we are in a much better 

situation if you are making that decision on whether or not a person qualifies for a mortgage where you have the best information, 

and I don’t see a lot of lawsuits coming from people if you do that 

due diligence. I don’t get the threat of liability that comes with this 

rule. I don’t. I don’t see it. I don’t think lawyers are lining up. 

If you go through even a modicum of scrutiny to make sure a 

person has the ability to repay, I don’t think you are going to have 

a long line of lawsuits. I don’t see the litigation risk here that I 

think is being overstated in every single case. 

Mr. Calhoun, I would like to have your thoughts on that. 

Mr. CALHOUN. We have worked through 15 to 20 State laws 

where this was a major concern. And a lot of those, including North 

Carolina, have a lot more legal liability and a lot more signee liability than these do. Countrywide Mortgage initially said they 

wouldn’t make any loans in North Carolina because of the North 

Carolina law. We only wish they did stay in the State through its 

harm. 

But people found there have not been lawsuits, and this is tailored to make it extraordinarily difficult to bring a class-action lawsuit. And so that by itself is a major reduction. 

But the rating agencies have been looking at this and coming to 

similar conclusions, that there is liability there, but practically 

these are not cases that lawyers can make money on, and that is 

what lawyers look for— 

Mr. LYNCH. Exactly. 

Mr. CALHOUN. —in whether they decide whether to take a case. 

It is a borrower in default who just wants to try and stay in their 

home. It is hard for—there is no big contingent fee for the lawyer 

in these cases. 

Mr. LYNCH. Thank you. 

Madam Chairwoman, I yield back. 

Chairwoman CAPITO. The gentleman’s time has expired. 

And I would like to thank the witnesses. I think we have covered 

a lot of ground. We have a lot of common area. We have a lot of 

questions. And like I said, this sort of sets the bar. As we move forward, we will have another hearing—or at least more information 

as we move through this to see where we actually are. But I appreciate everyone’s patience and your information. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And without objection, this hearing is adjourned. 

[Whereupon, at 12:48 p.m., the hearing was adjourned.] 

(53) 

A P P E N D I X 

January 14, 2014 

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