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THE IMPACT OF DODD-FRANK’S HOME 

MORTGAGE REFORMS: CONSUMER 

AND MARKET PERSPECTIVES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JULY 11, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–144 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

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 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 11, 2012 ..................................................................................................... 1 

Appendix: 

July 11, 2012 ..................................................................................................... 47 

WITNESSES 

WEDNESDAY, JULY 11, 2012 

Bentsen, Hon. Kenneth E., Jr., Executive Vice President, Public Policy and 

Advocacy, the Securities Industry and Financial Markets Association 

(SIFMA) ................................................................................................................ 7 

Cohen, Alys, Staff Attorney, the National Consumer Law Center (NCLC) ........ 8 

Hodges, Tom, General Counsel, Clayton Homes, Inc., on behalf of the Manufactured Housing Institute (MHI) ....................................................................... 10 

Hudson, John Howland Pell, Chairman, Government Affairs, the National 

Association of Mortgage Brokers (NAMB) ......................................................... 11 

Judson, Rick, First Vice Chairman of the Board, the National Association 

of Home Builders (NAHB) ................................................................................... 13 

Louser, Scott, 2012 Vice President and Liaison, Government Affairs, the 

National Association of REALTORS® (NAR) .................................................... 15 

Stein, Eric, Senior Vice President, the Center for Responsible Lending (CRL) . 17 

Still, Debra, CMB, Chairman-Elect, the Mortgage Bankers Association 

(MBA) .................................................................................................................... 18 

APPENDIX 

Prepared statements: 

Bentsen, Hon. Kenneth E., Jr. ........................................................................ 48 

Cohen, Alys ....................................................................................................... 56 

Hodges, Tom ..................................................................................................... 76 

Hudson, John Howland Pell ............................................................................ 88 

Judson, Rick ...................................................................................................... 107 

Louser, Scott ..................................................................................................... 119 

Stein, Eric ......................................................................................................... 126 

Still, Debra ........................................................................................................ 149 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Written statement of the American Bankers Association (ABA) ................. 166 

Written statement of the Credit Union National Association (CUNA) ........ 175 

Written statement of Habitat for Humanity .................................................. 180 

Cohen, Alys: 

Additional information provided for the record in response to a question 

from Representative Huizenga .................................................................... 184 

(1) 

THE IMPACT OF DODD-FRANK’S HOME 

MORTGAGE REFORMS: CONSUMER 

AND MARKET PERSPECTIVES 

Wednesday, July 11, 2012 

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 a.m., in room 

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

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Royce, 

Hensarling, McHenry, Pearce, Luetkemeyer, Huizenga, Duffy, 

Canseco, Fincher; Maloney, Watt, Hinojosa, Baca, Miller of North 

Carolina, Lynch, and Carney. 

Also present: Representatives Miller of California and Green. 

Chairwoman CAPITO. The Subcommittee on Financial Institutions and Consumer Credit is called to order. I would like to welcome everybody here today. As you know, this morning’s hearing 

is the second installment in a series of Financial Services Committee hearings this month leading up to the 2-year anniversary of 

the Dodd-Frank Act. 

This morning, our subcommittee will examine the implementation of Title XIV of the Dodd-Frank Act, which establishes new 

standards for mortgage origination and imposes liability on the secondary mortgage market for mortgages that do not meet these 

standards. It sounds like it might be kind of a boring hearing, but 

I don’t think it will be. There is a lot of interest here, and it is 

going to cut across a lot of the economy, so it is extremely important that we get this right. 

The financial crisis of 2008 was caused partly by relaxed underwriting standards which led to a proliferation of riskier mortgages; 

we all know that. There is little doubt that some lenders departed 

from traditional underwriting standards in order to meet the demand for mortgages from consumers with subprime credit. 

The Dodd-Frank Act seeks to address these issues by establishing underwriting standards for all mortgage originations, focusing on the borrower’s ability to repay the loan. While I have no 

doubt the intent of this section is to protect consumers, which we 

all want to do, we must be sure that these rules are being implemented by the Federal financial regulators, and that they are 

structured in a manner that provides an adequate level of conVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
2 

sumer protection without restricting access to credit, particularly 

access to credit for those folks who maybe have less availability of 

credit to them as families. 

Although the authority to promulgate these rules began with the 

Federal Reserve, we all know that was transferred to the Consumer Financial Protection Bureau (CFPB) in July of 2011. In addition to establishing these new underwriting criteria, the CFPB 

must determine what legal protections will be afforded to the lenders whose loans meet the Qualified Mortgage (QM) criteria. 

They have two options: These loans can be determined to be— 

can be afforded a safe harbor that would preclude ability-to-repay 

lawsuits or lenders who originate loans that meet the criteria 

would enjoy a presumption that they have satisfied these requirements. However, the borrower can rebut the presumption if they 

have evidence that the loan did not meet the original criteria for 

a borrower to repay the loan. 

Earlier this year, CFPB Director Roger Cordray testified in front 

of this committee that there might need to be brighter lines or 

bright lines in defining the standards in order to mitigate the litigation. To this point, later this week Representative Sherman and 

I, along with over 90 of our colleagues, will be sending a letter to 

the CFPB urging them to adopt a strong safe harbor for mortgages 

that meet the underwriting criteria. We must ensure that the underwriting standards and the subsequent legal protections provide 

sufficient consumer protection but do not overly, as I said before, 

restrict credit. 

We all want consumers to have safely underwritten mortgages, 

however, we must ensure that these reforms do not increase the 

cost of mortgage credit, and therefore, restrict creditworthy borrowers from receiving their mortgages. If there is not sufficient 

legal certainty for these loans, the cost of credit could rise, and 

fewer mortgages could be issued. We want to make sure that the 

CFPB produces a workable rule, and we also want to see them do 

so in a timely fashion. 

One of the great challenges facing our economy is the amount of 

uncertainty we have here in Washington. The CFPB has already 

announced they will not produce the final rule on a Qualified Mortgage until this fall, and they have until January 21st of 2013 to 

produce the final rules. I would urge the CFPB, and they know I 

am urging them, this is not new to them to meet this deadline, so 

lenders and borrowers have the certainty necessary to move forward. This morning’s panel of witnesses will provide the subcommittee with an assessment of the current landscape and the effect the proposed rules will have on availability of credit. 

I would now like to recognize the ranking member, Carolyn 

Maloney from New York, for the purpose of making an opening 

statement. 

Mrs. MALONEY. I thank the chairwoman for calling this important hearing, and I welcome our distinguished panel, many of 

whom have testified before this Congress many times. I must acknowledge my former colleague and very good friend, Ken Bentsen, 

from the great State of Texas. It is good to see you again. You have 

been back here so many times testifying that I am beginning to 

3 

think you are still a Member of Congress. But it is always good to 

see you. 

We are now at that—2 years ago this month, we passed the important financial reform bill, and it brought many provisions that 

are important for the safety and soundness of our financial industry and institutions that will bring transparency to the over-thecounter derivatives market that will allow for the safe unwinding 

of a failing financial institution. But two reforms were particularly 

important to consumers. 

The first was the creation of the Consumer Financial Protection 

Bureau, which is a bureau that—and this is a first—will make taking care of consumers and looking at their concerns their top priority. Too often, it was the second priority, or the third, or not 

thought about at all. 

And the second was Title XIV of the Wall Street Reform Act that 

dealt with mortgage lending. It contributed, in many ways, to the 

financial crisis from early 2007 through the end of 2011. Approximately 10.9 million homes had started the foreclosure process. 

That is huge. And according to the testimony of Mark Zandi on 

February 9, 2012, when he testified before the Senate Banking 

Committee, he said, ‘‘$7.4 trillion in homeowner equity was lost in 

the housing crash with close to $500 billion of that occurring in 

2011.’’ 

So this was a huge impact on the financial stability of our country, and getting this right is important for our recovery. Economists 

tell us to this day that the biggest challenge we face in our economy is the housing market, how we can get it moving again, how 

we can make it stable, how we can make it a productive part of 

our economy. Harmful lending practices were restricted by the 

Dodd-Frank Act for Qualified Mortgages specifically in two ways: 

One, 2/28 mortgages with 5-year teaser rates that then reset at 

unaffordable high amounts were banned; and two, interest-only 

loans leading to negative amortization were also banned. 

The CFPB just closed their comment period. They are expected 

to come out with a rule before the end of the year. We look forward 

to hearing that rule. We look forward to your testimony. Getting 

that rule right is a big important part of not only protecting consumers, but I would say the industry and the overall economy. I 

look forward to your testimony. Thank you all for coming and for 

your hard work in trying to build a stable economy in our country. 

Thank you. I yield back. 

Chairwoman CAPITO. I now recognize Mr. Royce for 1 minute. 

Mr. ROYCE. Thank you, Madam Chairwoman. As we discuss the 

real-world impact of Dodd-Frank, it is becoming apparent that the 

biggest impact may fall on those consumers who are looking for a 

mortgage. Yesterday, we had a hearing on the Capital Markets 

Subcommittee, and there was a reference made to Mark Zandi’s 

study which suggests that the premium capture cash reserve accounts portion of the risk retention rule would cause mortgage 

rates to increase between 100 and 400 basis points, and that is just 

that one PCCRA provision. 

Today, we are talking about the potential for a narrowly-defined 

Qualified Mortgage rule with a murky safe harbor protection. It is 

a wonder why any financial institution would choose to make a 

4 

loan with the potential added cost and liability of these proposed 

rules. With government entities exempted from most of these new 

rules, it appears Washington is doing everything in its power to 

prevent a robust recovery in the private mortgage market. I will 

note one point of bipartisan agreement on this front, and it is a fix 

on the points and fees definition in the QM rules with a goal of 

bringing it back to what Congress originally intended. I am pleased 

to be a co-sponsor of this legislation with Mr. Huizenga and Mr. 

Scott, and I thank the Chair for holding this hearing. I look forward to the testimony of the panel. Thank you. 

Chairwoman CAPITO. Thank you. Mr. Hinojosa for 3 minutes. 

Mr. HINOJOSA. Thank you. Thank you, Chairwoman Capito and 

Ranking Member Maloney. Here we are at yet another hearing 

that is purely what I believe is a political messaging opportunity 

for my friends on the other side of the aisle. While I am concerned 

about what impact the Dodd-Frank Wall Street Reform and Consumer Protection Act is having on community banks and credit 

unions, I would rather hear about specific issues and proposals 

rather than a broad brush attack on that law. 

When we sat down back in 2008 to create a law to respond to 

the financial crisis, we listened carefully to the community banks 

and the credit unions, and we took into account that they were not 

the culprits in the financial crisis, and should not be treated in the 

same manner as the large international banks. To reflect this fact, 

we created many exceptions for small community banks. Additionally, the CFPB must consult with the community banks and credit 

unions to establish the impact of rules on these institutions I mentioned. 

Today, we are discussing the impact of the Dodd-Frank Act on 

mortgage origination. Just this week, the CFPB released their prototype for standard, easy-to-understand mortgage documents, 

something that was greatly needed. Much of the subprime crisis 

was caused by mortgage products that were opaque and difficult for 

the layman to understand. These new forms are a step in the right 

direction and will add sunlight to the closing process for the average consumer. 

While I am open to hearing legitimate concerns about the effects 

of particular upcoming rules, such as the Qualified Mortgage definition, and will listen to ideas about how to fine-tune the current 

law, I flat out reject any broad attack on the Dodd-Frank Act. It 

is political theater and unproductive in a time when so many 

Americans are looking to Congress for action, and I look forward 

to the testimony from each one of the panelists. 

Before yielding my time, I want to acknowledge the presence of 

my good friend and former colleague, former Congressman Kenneth 

Bentsen, who sat on this committee for many, many years and did 

an outstanding job. I want to say to you that we miss you on this 

side of the aisle. With that, I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Huizenga for 1 minute. 

Mr. HUIZENGA. Thank you, Madam Chairwoman, and Ranking 

Member Maloney. I appreciate you holding this hearing today. As 

we all know, mortgage rates have fallen to a record low while housing affordability is frankly at an all-time high, and we are here to 

5 

discuss some of those specific reforms that need to happen. And I 

believe my bill, H.R. 4323, that Mr. Royce had mentioned—it is actually sponsored by myself, Mr. Clay, Mr. Royce and Mr. Scott— 

is going to help stabilize the housing market while ensuring access 

to affordable mortgage credit without overturning important consumer protections and sound underwriting. I believe we need to 

pass bills like H.R. 4323 and other bipartisan commonsense reforms that promote homeownership and protect the American 

dream for future generations. 

So as we move forward, we are looking forward to your comments as to where we are and where we need to go. That is, I 

think, an important part of this. So again, Madam Chairwoman, I 

appreciate you holding this hearing and I look forward to hearing 

from our witnesses today. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Lynch for 2 minutes. 

Mr. LYNCH. Thank you, Madam Chairwoman. I would like to also 

thank and welcome the witnesses here. Thank you for helping us 

with our work. Today is the second day of hearings in which the 

committee highlights ‘‘unintended consequences of the financial reform’’ while ignoring the problems that brought us here. Let’s take 

a minute to review the many bad practices in the subprime mortgage market that caused the housing bubble to inflate in the first 

place, and started the chain of economic events that led to the global economic meltdown. 

In the years leading up to the crisis, underwriting standards in 

this country in the mortgage industry deteriorated so badly that 

some argued that they no longer existed. Because lenders could 

make more money dealing in exotic mortgage products than plain 

vanilla mortgages that were the hallmark of one of the strongest 

housing markets in the world, they started dealing more and more 

on stated income and no-doc loans. Instead of verifying even the 

most basic information such as proof of income, the industry was 

happy to accept certification from borrowers instead of doing their 

homework. 

One of our witnesses, Ms. Cohen, states that—I read her testimony last night—some lenders actually redacted income information from their files. These products were then packaged and sold 

up the food chain with the knowledge that only two people would 

suffer from these bad underwriting standards: the last person who 

bought these mortgages; and the borrowers themselves. When the 

mortgage market collapsed, 3.6 million Americans lost their home, 

often their primary source of household wealth, to foreclosure, and 

the damage caused by reckless underwriting practices in the mortgage industry has been a catastrophic drag on our economy. Yet, 

we are here today to discuss in part how the modest commonsense 

reforms in Dodd-Frank are actually holding back the mortgage industry. How quickly we forget what brought us down in the first 

place. 

Yes, I am happy to work with my colleagues to ensure that the 

rules written by the CFPB and others are reasonable and they are 

tailored to preventing another housing crisis. We do indeed need to 

make sure that the definition of Qualified Residential Mortgage 

(QRM) is not too narrow that it denies reasonable housing opportuVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
6 

nities to otherwise creditworthy borrowers, but we cannot afford to 

forget why Dodd-Frank exists in the first place. Madam Chairwoman, I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Canseco for 1 minute. 

Mr. CANSECO. Thank you, Madam Chairwoman. Recently, I 

heard from some community banks in Texas, including: Union 

State Bank in Kerville; the First State Bank of Paint Rock in San 

Angelo; Citizens State Bank in Luling; and Marion State Bank in 

Marion. And all of these institutions have ceased making mortgage 

loans largely because of Dodd-Frank and the burdens it places on 

small institutions across the country. But what I haven’t heard yet 

is an explanation for how families and consumers in Kerville, San 

Angelo, Luling, Marion, and elsewhere are being protected or are 

better off when they can no longer go to their local community 

bank and get a mortgage loan. This is but one of the side effects 

of Dodd-Frank. And I look forward to bringing greater attention to 

it at today’s hearing. I yield back. 

Chairwoman CAPITO. The gentleman yields back. 

Mr. Fincher for 1 minute. 

Mr. FINCHER. I thank the chairwoman for having this hearing 

today. As we examine the impacts of the Dodd-Frank Act on mortgage reform, I want to call attention to the manufactured housing 

industry, which is currently facing several regulatory challenges. 

To address these challenges, Congressman Donnelly, Congressman 

Miller, and I introduced H.R. 3849, the Preserving Access to Manufactured Housing Act. One of the provisions in our bipartisan bill 

adjusts the threshold in which small balance manufacturing home 

loans are classified as high-cost mortgages under the Home Ownership and Equity Protection Act, which was revised in Dodd-Frank. 

Dodd-Frank expands the range of loan products that can be considered high-cost mortgages without recognizing the uniqueness of 

manufactured home loans compared to the rest of the housing industry. That one-size-fits-all approach is reducing the home buying 

public’s access to manufactured homes. 

I thank the chairwoman again, and I look forward to hearing the 

testimony today. I yield back. 

Chairwoman CAPITO. The gentleman yields back. I think that 

concludes our opening statements. So I will recognize each witness 

as we move forward for the purposes of making a 5-minute statement. 

But I would like to join my colleagues in welcoming our former 

colleague, Kenneth Bentsen, back to the committee. We served on 

the committee together, but I was way down there in the corner at 

that point. I am very happy to see you here. 

Our first witness is the Honorable Kenneth E. Bentsen, Jr., executive vice president of public policy and advocacy for the Securities 

Industry and Financial Markets Association. Welcome back. 

7 

STATEMENT OF THE HONORABLE KENNETH E. BENTSEN, JR., 

EXECUTIVE VICE PRESIDENT, PUBLIC POLICY AND ADVOCACY, THE SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION (SIFMA) 

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

Maloney, and members of the subcommittee. I also languished 

down at the very end for many years, and so I am envious of your 

post now. I was always glad that the witnesses were still alive by 

the time they got around to me to ask questions. I appreciate the 

opportunity to present SIFMA’s views today on the Qualified Mortgage rulemaking proposal. Our views on the proposal were developed by our diverse membership which includes financial institutions that act as residential mortgage originators, securitization 

sponsors, broker/dealers that act as underwriters, placement 

agents, market makers and asset managers that include some of 

the largest most experienced investors in residential mortgagebacked securities and other structured financial products. 

SIFMA has been an active participant in this rulemaking and 

will continue to advocate for a sensible outcome. SIFMA believes 

in the underlying concept of Title XIV of the Dodd-Frank Act, that 

a borrower should be required to show an ability to repay a mortgage. However, SIFMA believes it is important that the QM definition promotes the ability of secondary markets to provide funding 

for mortgage credits as over 90 percent of mortgage credit is currently funded through securitization and the secondary markets. 

I will be focusing my statement today on two key points: first, 

that the parameters of the Qualified Mortgage definition must be 

scaled broadly; and second, that the QM definition must create 

clear bright lines for lenders and borrowers at time of origination 

and should provide a safe harbor for compliance. 

We are very concerned that the QM regulations may be constructed in a narrow manner with unclear parameters that will not 

allow for the certainty of compliance at origination. We believe 

such an outcome would restrict the availability of credit through 

increased cost and restrictive underwriting and would be detrimental to consumers. 

Title XIV of the Dodd-Frank Act imposes a requirement on lenders to determine ability to repay on virtually every residential 

mortgage loan and define the necessary criteria to demonstrate 

compliance with the ability-to-repay requirement. Thus, the QM 

definition should broadly outline the parameters of responsible 

lending. Defining QM broadly will create compliance guideposts for 

lenders that want to lend responsibly. 

In our view, the vast majority of future mortgage lending will be 

loans that are QMs. Loans that are not QMs will carry with them 

liability for purchasers of the loans, so-called assignee liability. Due 

to this liability and supervisory, reputational, and other concerns, 

we do not expect significant origination of non-QM loans. We are 

aware of the contention that a narrower definition of QM will not 

be disruptive because lenders in secondary markets will be comfortable operating outside of the protection supported by QM with 

reasonable pricing and premium for those loans. These predictions 

contradict feedback from our member firms that run these businesses, and we believe that the CFPB would be ill-advised to imVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
8 

plement QM rules based on those views. History has shown that 

loans that carry significant or uncertain liability are made with a 

significant pricing premium or not made at all. We believe that 

lenders in secondary markets would respond to the liability risk 

through very restrictive underwriting guidelines, significant pricing 

premiums or both. These actions will result in less available credit 

to creditworthy borrowers, borrowers who would have otherwise received it had the boundaries of QM been drawn more broadly. 

Given the impact of assignee liability discussed above, SIFMA 

believes it is critical that the final rules provide for certainty of 

compliance with the ability-to-repay requirements at the time of 

origination. The proposal provided two options regarding assurance 

of compliance: a rebuttable presumption; and a safe harbor. SIFMA 

believes that consumer credit availability would be best protected 

through a safe harbor, as a rebuttable presumption provides no 

comfort. A rebuttable presumption will likely cause lenders of secondary market investors to implement standards conservatively as 

an overlay narrower than the actual bounds of the QM definition. 

Credit-worthy borrowers with credit profiles within but close to 

the edge of the QM would be impacted negatively. Regardless of 

whether or not a safe harbor is provided, clear QM standards that 

provide certainty of compliance at the time of origination are paramount. Lenders and investors must know at the time of origination 

whether the loan meets the QM standards. The standards that define QM compliance must be clear, objective, and verifiable. If 

bright lines are not implemented in the final rule, borrowers will 

pay more for their loans and have a harder time obtaining them 

as once again, lenders will operate conservatively. We hope that in 

constructing the final rules, the CFPB creates a regime that not 

only corrects flaws exposed in recent years, but also serves as a 

basis for the development of a positive, inclusive, and forward-looking housing policy. A broad definition of QM and bright lines for 

compliance will help achieve this goal. Thank you, and I am happy 

to answer your questions. 

[The prepared statement of Mr. Bentsen can be found on page 48 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. 

Our next witness is Alys Cohen, a staff attorney at the National 

Consumer Law Center. Welcome. 

STATEMENT OF ALYS COHEN, STAFF ATTORNEY, THE 

NATIONAL CONSUMER LAW CENTER (NCLC) 

Ms. COHEN. Chairwoman Capito, Ranking Member Maloney, and 

members of the subcommittee, thank you for the opportunity to testify today. As a staff attorney at the National Consumer Law Center, I provide training and technical assistance to attorneys across 

the country representing homeowners who are facing foreclosure, 

and I also lead the Center’s Washington mortgage policy work. I 

have spent the last 15 years specializing in the regulations and 

laws governing mortgage lending and servicing, including the recent reforms of the Dodd-Frank Act. I testify here today on behalf 

of the National Consumer Law Center’s low-income clients. 

In 2007, a global economic crisis was unleashed by a meltdown 

in the mortgage market. The loans that triggered this international 

9 

collapse were primarily high-cost adjustable rate mortgages and 

loans with other risky features made in violation of longstanding, 

prudential underwriting guidance but subject to little or no formal 

regulation. Dodd-Frank’s regulation of the mortgage market is essential to our economic security. Underwriting traditionally served 

as a hedge against the origination of unaffordable loans. But in the 

years leading up to the foreclosure crisis, underwriting all but disappeared. Lenders relied on securitization to spread the cost of the 

inevitable foreclosures. Throughout the subprime market, pricing 

replaced underwriting as a risk control mechanism. One lesson 

from the crisis is clear: mortgage lending will endanger all of our 

economic well-being if it is not subject to regulation. The rules outlined in Dodd-Frank are nothing more than a codification of the 

basic precepts of residential underwriting for decades. DoddFrank’s mortgage affordability rule would restore balance and fairness in the marketplace best if it contained a broad rebuttable presumption with clear lines, not a safe harbor. A safe harbor would 

provide legal insulation to creditors who make predictably 

unaffordable loans. Rule writers will always be several steps behind the market, but if the incentives are in the right place, the 

rule will do its job, even as new unanticipated developments arise. 

The essential incentive for the mortgage market is the rule that 

every mortgage must be evaluated for affordability. 

A broad, clear, rebuttable presumption will still require a stiff 

uphill climb for homeowners, but will restore balance and provide 

a backstop to reckless lending. The claim that borrowers pose a significant litigation risk to creditors if there is a rebuttable presumption or otherwise is without basis. Most homeowners never find an 

attorney. Those who do will face courts which defer to the standards already set out by the CFPB. Anyone who prevails will be entitled only to 3 years of damages, a limited and predictable amount. 

And in relation to the size of the mortgage market, the incidence 

of truth-in-lending claims historically has been vanishingly small. 

Further adjustments to the underwriting standards in DoddFrank are best done by agencies with substantive expertise, including the Consumer Financial Protection Bureau. Pending before the 

subcommittee is H.R. 4323, which seeks to narrow the protections 

afforded by Congress, including on payments to loan originators 

and payments to affiliates of the creditor such as title companies. 

Title insurance and ancillary title fees, among other third-party 

fees, are rightly subject to heightened standards. They have been 

a source of price gouging of consumers in recent years and are a 

significant source of undue profit to creditors. Typically, the mortgage lender, not the borrower, chooses the title company, even 

though the borrower pays the cost of title insurance. The result is 

a form of reverse competition. Title companies compete to offer 

lenders the best deal and lenders are free to steer homeowners to 

affiliated companies where the sometimes hefty profits from title 

insurance can be retained in-house. 

Title insurance premiums are subject to little or no regulation at 

the State level. Coverage chosen by title insurers often meets the 

needs of the insurer, but not the broader needs of the homeowner, 

and loan amounts often are increased as a means of increasing the 

basis for the ancillary fees. 

10 

Dodd-Frank strikes a sensible balance in restoring fairness and 

efficiency to the market. Administrative rule writing is the best 

context for working out the technical details. The regulatory process should move forward in order to restore vigor to communities 

and to the mortgage markets. Thank you for inviting me to testify 

today. 

[The prepared statement of Ms. Cohen can be found on page 56 

of the appendix.] 

Chairwoman CAPITO. Thank you very much. I would like to yield 

to my colleague, Mr. Fincher, for the purposes of an introduction. 

Mr. FINCHER. Thank you, Chairwoman Capito. It is my pleasure 

to welcome Tom Hodges to today’s subcommittee hearing. Tom is 

a fellow Tennesseean from Knoxville and has worked for Clayton 

Homes in multiple roles since 1995. He now serves as general 

counsel and is responsible for understanding how Dodd-Frank and 

related regulations will impact Clayton Homes and the manufactured home industry. Tom, it is good to have you, welcome, and we 

look forward to hearing your testimony. 

STATEMENT OF TOM HODGES, GENERAL COUNSEL, CLAYTON 

HOMES, INC., ON BEHALF OF THE MANUFACTURED HOUSING INSTITUTE (MHI) 

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

Maloney, and members of the subcommittee for the opportunity to 

testify today concerning the impact of Dodd-Frank’s home mortgage 

reforms. Also thank you, Congressman Fincher, for that warm introduction. My name is Tom Hodges. I serve as general counsel for 

Clayton Homes, and I represent the Manufactured Housing Institute at the hearing today. 

I have submitted my complete written testimony for the record. 

But in my oral remarks today, I would like to discuss some key 

challenges to our industry that will significantly impact the industry’s ability to provide safe, reliable, and affordable manufactured 

housing. For over 60 years, manufactured housing has been an important source of housing for low- and moderate-income families 

across the country. There are approximately 22 million Americans 

living in about 8.7 million manufactured homes. The average cost 

of a new manufactured home is less than $61,000 versus roughly 

$208,000 for a new site built home. More importantly, the median 

income for manufactured homeowners is $32,000 compared to 

$60,000 for all homeowners. 

An even greater indication of the Nation’s reliance on manufactured housing as an affordable housing choice is that 72 percent of 

all new homes sold under $125,000 in 2011 were manufactured 

homes. In addition to its role as an important source of affordable 

housing, nearly 60,000 U.S. jobs were sustained by the manufactured housing industry in 2011. 

Because of the smaller size of loans that the manufactured housing market relies on, the sections of the Dodd-Frank Act that have 

a unique impact on the industry are contained in HOEPA and the 

Qualified Mortgage provisions. The HOEPA APR and points and 

fees threshold, as well as the points and fees limitations for Qualified Mortgages, make it extremely difficult for a lender to offset the 

cost to originate and service small balance manufactured home 

11 

loans. For example, the impact on a $200,000 site built loan and 

a $20,000 manufactured home loan is very different. Though the 

cost of originating and servicing these two loans is similar in terms 

of real dollars, as a percentage of each loan size, it is significantly 

different. 

It is this difference that effectively discriminates against the 

small balance manufactured home loan which is at a much higher 

risk of either being categorized as a high-cost mortgage or failing 

the Qualified Mortgage standards. Of the loans our company originated in 2010 and 2011, approximately more than 40 percent 

would have been characterized as a high-cost mortgage. Likewise, 

for the same loans, nearly 40 percent or more would have failed the 

Qualified Mortgage standards. 

The practical effect is that lenders will not make these loans, and 

credit will become less available for purchases of manufactured 

homes. The impact will be felt by low- and moderate-income families seeking to purchase new homes, as well as the 22 million 

Americans who are currently residing in manufactured homes who 

could see the ability to resell their homes effectively wiped out. For 

this reason, MHI supports H.R. 3849, the Preserving Access to 

Manufactured Housing Act, which would provide relief to consumers and the industry. Our industry’s regulatory challenges are 

not limited to HOEPA and the Qualified Mortgage. The industry is 

already feeling the impact of the SAFE Act. H.R. 3849 also clarifies 

that sellers of manufactured homes who are not compensated for 

loan origination activity should not be licensed or registered under 

the SAFE Act. 

Manufactured home sales people are fundamentally involved in 

selling homes, not originating mortgage loans. MHI is very grateful 

for the leadership and support of Representatives Stephen Fincher, 

Joe Donnelly, and Gary Miller, to help develop a bipartisan solution to provide modest relief to the manufactured housing market 

in these areas. MHI appreciates the consideration of Chairman 

Bachus and Ranking Member Frank to Congressmen Fincher, Donnelly, and Miller on these issues and for their long-term support 

and commitment to preserving manufactured housing as a viable 

and sustainable source of affordable housing. Thank you for the opportunity to testify, and I look forward to the questions. 

[The prepared statement of Mr. Hodges can be found on page 76 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. John Hudson, on behalf of the National 

Association of Mortgage Brokers. Welcome. 

STATEMENT OF JOHN HOWLAND PELL HUDSON, CHAIRMAN, 

GOVERNMENT AFFAIRS, THE NATIONAL ASSOCIATION OF 

MORTGAGE BROKERS (NAMB) 

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

Maloney, and members of the subcommittee, thank you for this opportunity to be here today to speak about the impacts of DoddFrank. I am John Howland Pell Hudson, the chairman of government affairs for the National Association of Mortgage Brokers, and 

the Central and South Texas manager for Premier Nationwide 

12 

Lending, part of a privately owned mortgage bank headquartered 

in Flower Mound, Texas. 

NAMB is the only nonprofit trade association that represents 

mortgage brokers as well as mortgage loan originators employed by 

mortgage banks and depositories. NAMB advocates on behalf of 

more than 116,000 State-licensed mortgage loan originators in all 

50 States and the District of Columbia. Since 1973, NAMB has 

been committed to enhancing consumer protection, industry professionalism, high ethical standards, and the preservation and promotion of small business and homeownership in this country. 

My testimony highlights the fact that Dodd-Frank was passed in 

haste and some would say anger at the unknown of what happened 

during the Wall Street meltdown. The creation of the Qualified 

Mortgage, Qualified Residential Mortgage, hardwiring underwriting standards into legislation, capping fees at arbitrary percentages of a mortgage amount, and giving lenders no bright line 

regarding legal liability will ultimately harm consumers, the very 

people the Dodd-Frank Act was intended to protect. 

NAMB is calling for an 18- to 24-month extension of all mortgage-related regulatory deadlines in the Dodd-Frank Act in order 

for Congress to amend sections of Dodd-Frank to take out or 

amend the unintended consequences that will harm consumers in 

the mortgage market today. 

‘‘Skin in the game’’ was a popular mantra during the years leading up to the passage of Dodd-Frank, and we certainly think the 

mortgage market is better at determining what that means than 

the regulators. What was a great sound bite has turned into a complex restructuring of the mortgage underwriting system that regulators, industry, and many in Congress have concluded is not going 

to work as intended and will ultimately be harmful to consumers. 

Overlooked in this debate was evidence in the VA loan program 

that clearly shows that downpayment does not correspond to default: 91 percent of all VA home loans are made with no money 

down, meaning technically, these home loans are underwater at the 

time that they are closed. In addition, VA has higher debt-to-income ratios and lower credit scores on average than that of FHA 

loans, yet VA loans still perform better with an astonishingly low 

default rate when compared to other mortgage loans. QRM and QM 

should be completely placed on hold by the regulators or Congress 

in order for us to think through all aspects of harm that will result 

from moving forward with these shoot-from-the-hip ideas. For example, the 3 percent cap on fees and points in the QM debate is 

wrongheaded and will harm consumers. In Texas, we have a loan 

program known as the Texas Veteran Land Board, which offers 

below market interest rates for military veterans. In fact, this 

week, mortgage rates for disabled veterans in the State of Texas 

through this program will be an astonishing low 2.61 percent on a 

30-year fixed-rate loan. However, the 3 percent cap will take away 

the viability of this program because of the free fee structure associated with it. 

The land board allows originators 2 percent, leaving 1 percent for 

all other costs. This simply does not work. This problem will be 

found all across the country in many State and local bond money 

programs designed for low- to moderate-income home buyers, 

13 

thereby destroying the specific loan programs which are there to 

help these consumers in need. Also, the problems with the affiliated company’s revenue being included in the 3 percent will also 

cause harm for small businesses. 

In many smaller communities, a business needs several revenue 

streams in order to stay in business. These small companies need 

the income for mortgage, title insurance, and other services needed 

to close a real estate loan in order to meet all payroll and other 

expenses. In addition to striking the points and fee caps from the 

QM, the industry must be given a legal safe harbor to originate 

safe loans. If not, credit standards will continue to tighten, consumers will pay more, and the economy will continue to drag. 

Among a myriad of concerns with Dodd-Frank, I would also like to 

point out that loan originators and mortgage broker entities are 

currently defined the same and what they are in effect doing is 

forcing small business mortgage brokers and lenders to limit compensation to employees and to limit loan programs. 

There are some fixes with this which would mean that DoddFrank adopt the SAFE Act’s definition of mortgage loan originator. 

Also, consumers are still paying more for property appraisals than 

they currently need to. Some appraisal issues could be fixed by allowing mortgage professionals to order directly, and for appraisals 

to be portable, meaning that consumers can purchase one appraisal 

and that appraisal can be transferred from lender to lender to lender during their loan shopping. 

Again, Congress must act to make sure that arbitrary deadlines 

do not shut out credit for consumers and destroy the availability 

of mortgage credit. Thank you. 

[The prepared statement of Mr. Hudson can be found on page 88 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Rick Judson, first vice chairman of the 

board of the National Association of Home Builders. Welcome. 

STATEMENT OF RICK JUDSON, FIRST VICE CHAIRMAN OF THE 

BOARD, THE NATIONAL ASSOCIATION OF HOME BUILDERS 

(NAHB) 

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

Maloney, and members of the subcommittee, thank you for the opportunity to be here with you today. My name is Rick Judson. I am 

a builder developer in Charlotte, North Carolina and the first vice 

chairman of NAHB. You all mentioned in your opening remarks 

the objective of having access to credit. NAHB believes that the 

housing finance system should provide adequate and reliable credit 

to home buyers at reasonable interest rates through all business 

cycles and conditions, and it is critical to our economic health in 

this country. The relative slowness of growth in housing can be 

traced, in large part, to respective home buyers finding it more difficult to obtain mortgage credit, ironically in a period of historically 

low interest rates. 

According to an NAHB housing market index survey conducted 

in January of this year, almost 70 percent of the builders report 

that qualifying buyers for mortgages is a significant problem in 

their selling homes. As this subcommittee examines the DoddVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
14 

Frank Act’s mortgage lending reforms, NAHB believes it is critical 

if such reforms are imposed in a manner that causes minimum disruptions to the mortgage markets while ensuring consumer protections. 

Great care must be taken to avoid further adverse changes in liquidity and erosion of affordability. Hence, NAHB believes it is essential that a definition of the Qualified Mortgage or QM loan and 

the ability-to-repay standards are well-structured and properly implemented. The QM is extremely important, given it will set the 

foundation for the future of mortgage financing, as all mortgages 

will be subject to these requirements. NAHB urges policymakers to 

consider the long-term ramifications of these rules on the market 

and not to place unnecessary restrictions based solely on today’s 

economic conditions. 

Overly restrictive rules will prevent willing and creditworthy borrowers from entering the housing market, even though owning a 

home remains an essential part of the American dream, according 

to all recent polls. NAHB has joined with 32 other housing, banking, civil rights, and consumer groups to urge the CFPB to issue 

broadly defined and clear QM standards. A narrowly defined QM 

would deny financing to many creditworthy borrowers, which 

would undermine the prospects of a national recovery. Many observers believe few lenders will pursue business outside the QM 

market. If made, these non-QM loans would be far more costly and 

will not include important protections, burdening families, particularly first-time home buyers who are least able to deal with these 

expenses. This seems to go against Congress’ intention for the ability-to-repay requirement. 

After carefully considering proposed alternatives for QM, NAHB 

supports the creation of a bright line safe harbor to define the QM 

to best ensure safer, well-documented, and sound underwritten 

loans without the decreasing the availability or increasing the cost 

of credit to borrowers. NAHB supports a QM safe harbor that provides a sufficient availability of funding to provide consumers with 

strong protection and provide lenders with definitive lending criteria that reduces excessive litigation potential. The safe harbor 

should incorporate specific ability-to-repay guidelines. The final 

rule should provide creditors with discretion to responsibly adapt 

debt income or residual income requirements based on changing 

markets and not impose simply a rigid American standard. This 

should be sufficiently objective to make sound underwriting and 

credit decisions. 

NAHB recommends that the regulators at corporate NAHB and 

other industry stakeholders develop a workable safe harbor. It is 

important to note that the establishment of the safe harbor under 

the QM does not eliminate lender liability. Consumers must have 

access to a responsible and sustainable housing credit market so as 

we can strengthen the lending regulations to avoid past excesses 

that have been addressed. We must be careful not to create an environment where mortgage loans are subject to unnecessarily tightened litigation risks or costs. Excessive litigation exposure and 

overly severe penalties would cause unnecessary uncertainty, resulting in liquidity issues for the entire population, and could cause 

15 

low- to moderate-income and minority populations to suffer disproportionately. 

I thank you for the opportunity to speak, and I will be happy to 

answer any questions. Thank you. 

[The prepared statement of Mr. Judson can be found on page 107 

of the appendix.] 

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

Louser, 2012 vice president and liaison of government affairs, National Association of REALTORS®. Welcome. 

STATEMENT OF SCOTT LOUSER, 2012 VICE PRESIDENT AND LIAISON, GOVERNMENT AFFAIRS, NATIONAL ASSOCIATION OF 

REALTORS® (NAR) 

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

Maloney, and members of the subcommittee. Thank you for holding 

this important hearing on the impact of Dodd-Frank’s home mortgage reforms. As mentioned, my name is Scott Louser. I am the 

2012 vice president and liaison for government affairs for the National Association of REALTORS®, and I am honored to be here 

today to testify on behalf of the 1 million members who practice 

residential and commercial real estate. 

I have been a REALTOR® for more than 15 years. I am the 

broker-owner of Preferred Minot Real Estate in Minot, North Dakota. In addition to being a REALTOR®, I am also a current member of the North Dakota State legislature representing District 5, 

so it is quite an honor to be on this side of the table today. 

If you had asked economists and housing market analysts about 

the current state of the housing market, most would agree that today’s underwriting standards are too tight and contribute to a slow 

housing recovery. Because of this, NAR believes that an unnecessarily narrow definition of the Qualified Mortgage that covers only 

a modest portion of loan products and underwriting standards and 

serves only a small portion of borrowers would undermine prospects for a housing recovery and threaten the redevelopment of a 

sound mortgage market. For this reason, NAR urges Congress and 

the Administration to work together on a broadly defined QM rule 

using clear standards. We believe that this is the only way to help 

the economy and at the same time, ensure that the largest number 

of creditworthy borrowers are able to access safe, quality loan products for all housing types, as Congress intended in the enacting of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

NAR also believes that the QM will define the universe of readily 

available mortgages for a long time to come and non-QM mortgages 

will be rarely made. Every version of the ability-to-repay provision 

introduced in Congress and including the final version of DoddFrank that became law paired the ability-to-repay requirement 

with the QM as the best means of ensuring sound lending for borrowers. 

A narrowly defined QM would put many of today’s loans and borrowers into the non-QM market, which means that lenders and investors will face a high risk of an ability-to-repay violation, and 

even a steering violation. As a result, these loans are unlikely to 

be made. In the unlikely event they are made, they will be far costlier to consumers. Creating a broad QM which includes sound unVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
16 

derwriting requirements, excludes risky loan features, and gives 

lenders and investors reasonable protection against undue litigation risk will help ensure the revival of the home lending market. 

The ability-to-repay provisions of Dodd-Frank include a provision 

that if a loan’s fees and points do not exceed 3 percent, the loan 

will be considered a Qualified Mortgage. The problem is that the 

calculation of fees and points under the 3 percent cap discriminates 

against real estate and mortgage firms with affiliates involved in 

the transaction. When an affiliate is involved additional items beyond the points and fees typically associated with the industry 

must be also included. 

NAR strongly urges the Financial Services Committee to hold a 

hearing on, and then work to pass, H.R. 4323, the Consumer Mortgage Choice Act, to correct this discrimination and level the playing 

field between affiliated and unaffiliated firms. If these provisions 

are not corrected, up to 26 percent of the market or more could be 

affected. Consumers will be denied the choice of using in-house 

services, there will be less competition in the lending and settlement services industry, as well as likely reduced access to credit. 

REALTORS® believe that one of the biggest issues impacting the 

housing economy is uncertainty in the rules that govern the housing finance industry. This uncertainty impacts all participants in 

housing finance: lenders; investors; and consumers. Until there is 

market certainty that encourages the return of private capital, 

FHA and the GSEs—Fannie Mae and Freddie Mac—will continue 

to dominate the housing finance system with the taxpayer on the 

hook. Therefore, we believe it is crucial to break the regulatory logjam and complete work on the rules related to QM and the QRM 

now that the Fed Basel III proposal is known. 

The very first step to creating certainty in the housing finance 

system is to define QM so that it encompasses the vast majority 

of high-quality lending being done today. An effective ability-torepay rule that provides strong incentives for lenders to focus on 

making well-underwritten QMs affordable and abundantly available to all creditworthy borrowers will require a clear objective definition of the QM that itself is not unduly restrictive. This action, 

along with a correcting of the 3 percent cap on points and fees will 

ensure that credit and housing services are available and affordable to the consumer. If we are able to get these first steps right, 

the market will continue its recovery. 

Once again, on behalf of the 1 million REALTORS®, thank you 

for the opportunity to testify on the impact of Dodd-Frank reform. 

And as always, the National Association of REALTORS® is available to Congress and our industry partners for any questions. 

Thank you. 

[The prepared statement of Mr. Louser can be found on page 119 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness is Mr. Eric Stein, the senior vice president of 

the Center for Responsible Lending. Welcome, Mr. Stein. 

17 

STATEMENT OF ERIC STEIN, SENIOR VICE PRESIDENT, THE 

CENTER FOR RESPONSIBLE LENDING (CRL) 

Mr. STEIN. Thank you very much. Chairwoman Capito, Ranking 

Member Maloney, and members of the subcommittee, thank you for 

inviting me to testify today. I am senior vice president of the Center for Responsible Lending, which is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth. It is affiliated with Self-Help. Today, I am 

representing CRL. 

During the housing boom years, the private market engaged in 

essentially a science experiment: What would happen if lots of 

mortgage lending happened almost entirely outside of government 

oversight? The resulting foreclosure crisis is a stark reminder in 

my view as to why Dodd-Frank was important. Private mortgage 

lending dominated. Fannie Mae’s and Freddie Mac’s shares of the 

mortgage market decreased by 20 percentage points while the private market, private label security market, Alt-A and subprime 

loans, increased by 30 percentage points to comprise 40 percent of 

the market by 2006. This market was largely unregulated. Mortgage brokers originated 70 percent of nonprime loans on behalf of 

nonbank lenders who sold those loans to investment banks on Wall 

Street, creating securities that credit rating agencies rated, and 

then sold to investors. 

Each actor was motivated more by volume than by performance 

and none of these actors were regulated at the Federal level. The 

lending bypassed Fannie Mae and Freddie Mac, which had stricter 

standards, and really bypassed the banking system, which was regulated. And to the extent that the banks were involved, I think it 

is fair to say that the regulators didn’t do that much. 

These private loans were largely bad mortgages. They had harmful features that made it more likely that the borrowers wouldn’t 

be able to repay the loans. Additionally, these were adjustable rate 

mortgages that had built-in payment shock even if interest rates 

stayed the same, and the lenders failed to determine whether the 

borrowers could afford the increase in payments. 

Countrywide acknowledged that 70 percent of their loans 

wouldn’t meet the basic standards of accounting for built-in payment shock. At CRL, we knew that these results would be bad, but 

we didn’t know how bad they would be. In 2006, we estimated that 

abusive subprime lending would lead to 2.2 million foreclosures. 

We were accused of being very pessimistic, but, in fact, we were 

overly conservative. The private label security loans performed 

very poorly, much worse than conventional loans. 

And it was in this context of massive Federal regulatory and private market failures that Congress enacted Dodd-Frank. DoddFrank addressed the abusive mortgage practices in the private 

label security market and charged the new CFPB with supervising 

bank and nonbank lenders alike and also with the research goal of 

seeing where emerging risks in the economy would develop that 

provide risk to consumers, like the rapid increase in Alt-A and 

subprime lending. 

Now to move to two of the provisions of the mortgage bill, which 

is the ability to repay and the Qualified Mortgage provisions. The 

ability-to-repay provision requires lenders to assess a borrower’s 

18 

ability to repay the loan, which sounds commonsensical but clearly 

did not occur during the mortgage boom. Also, the Qualified Mortgage provision establishes a default standard that lenders can use 

to demonstrate that, in fact, the borrower had the ability to repay 

the mortgage. The Center for Responsible Lending joined with the 

Clearing House Association, which is owned by the large banks in 

the country which have the most significant share of the mortgage 

market, along with two other groups, the Consumer Federation of 

America, and the Leadership Conference on Civil and Human 

Rights, to make three to the CFPB on how to define QM, how to 

presume that a loan is, in fact, affordable. And those recommendations are attached to my testimony. 

We at CRL make three recommendations, and the first two I 

think I have heard all down the line here, which is, first, that QM 

be defined broadly so that it encompass the entire existing mortgage market so that QM protections would be available for all borrowers, all creditworthy borrowers. 

Second, that QM be defined with bright line standards so everybody knows whether the loan is a QM loan or not. And third, that 

once you have those first two elements, there should be a significant litigation advantage to the lender to provide an incentive to 

make QM loans, which would be safer for borrowers, but that advantage should be a rebuttable presumption and not a safe harbor 

which would be absolute immunity. We believe that once a loan is 

a QM, the burden on a borrower to raise a claim is very large and 

there is unlikely to be much borrower litigation in the QM space, 

and as long as QM is broad and there are clear standards, then you 

are not going to see that much litigation. 

The biggest risk to lenders in terms of lending, and I think the 

current constraint on lending, is investor put-back risk where investors will buy a loan and then decide that they don’t want it anymore and put it back on the originator, which makes the originators very conservative. 

And that is happening now. Broad standards with—broad QM 

with clear standards and a litigation advantage would provide 

minimal put-back risk on lenders so they can originate with confidence that they can sell the loan and they wouldn’t have to take 

it back. 

Again, thank you for inviting me, and I am happy to answer any 

questions. 

[The prepared statement of Mr. Stein can be found on page 126 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

And our final witness is Ms. Debra W. Still, chairman-elect of the 

Mortgage Bankers Association. Welcome. 

STATEMENT OF DEBRA STILL, CMB, CHAIRMAN-ELECT, THE 

MORTGAGE BANKERS ASSOCIATION (MBA) 

Ms. STILL. Thank you, Chairwoman Capito, and Ranking Member Maloney. I appreciate that you have called this hearing on one 

of the most significant regulations to impact the Nation’s housing 

system. This Qualified Mortgage rule has the potential to significantly alter the landscape of homeownership. It must be crafted 

with a well-balanced, thoughtful approach to ensure it does not 

19 

harm the very borrowers that Dodd-Frank is designed to protect. 

The Mortgage Bankers Association recognizes that the industry 

bears responsibility for its share of credit risk excess during the 

housing boom. Today’s lenders agree that reasonable rules must be 

put in place so that the mistakes of the past can never happen 

again. Dodd-Frank achieved much by addressing several of the key 

drivers that contributed to the mortgage lending crisis. The prohibition of certain exotic loan products with high-risk features, and 

the requirement that all loans be fully documented, have gone a 

long way toward restoring responsible underwriting parameters. 

In the aftermath of the housing crisis, mortgage credit is now 

tighter than it has been at any time during my 36 years as a mortgage lender. Chairman Bernanke recently commented on restricted 

credit availability, noting that the tight environment is preventing 

lending to creditworthy borrowers. And HUD Secretary Shaun 

Donovan observed that 10 to 20 percent of potential home buyers 

are capable of carrying mortgage debt, but are being locked out of 

today’s market. Against this backdrop, it is critical that the CFPB 

structures the definition of a Qualified Mortgage such that credit 

qualification parameters do not become even more conservative 

than they already are. The MBA believes that the QM definition 

must be defined broadly so that all qualified borrowers enjoy access 

to safe and affordable mortgage credit. 

It is our strong opinion that setting overly tight credit parameters will hurt middle-class home buyers. This is contrary to the 

spirit of Dodd-Frank and could also jeopardize the fragile housing 

recovery. For the rule to be effective, lenders must know how to 

comply. Clear and unambiguous standards and a strong legal safe 

harbor are essential for a vibrant mortgage market in the future. 

Importantly, the safe harbor is misnamed. It is neither a pass for 

lenders, nor does it deprive consumers of an opportunity for court 

review. Under a safe harbor, a borrower may opt to go to court and 

seek review of an alleged violation. The issue is how extensive and 

expensive the legal proceedings will be. Uncertain and unbound 

legal exposure runs counter to the availability of affordable credit 

to qualified borrowers. Without bright line standards and a legal 

safe harbor, lenders will have no choice but to alter their business 

strategies: some lenders may choose to exit the business, lessening 

competition; others, to mitigate risk, will create even tighter credit 

guidelines than the QM definition; and still others will price their 

loans higher. Whether it is less competition, tighter credit or higher cost, all of these outcomes will harm consumers. 

It is also extremely difficult to envision a secondary mortgage 

market for non-QM loans. Even if you can imagine the future with 

a non-QM marketplace, how long would it take for such a market 

to develop, and can our economy wait that long? Just as importantly, how much would it cost a non-QM consumer, who by definition would be the least likely to afford the higher cost? 

MBA believes that the CFPB must carefully assess any unintended consequences resulting from the definition of QM. Of particular note is the cap on points and fees and how it is defined in 

the final rule. Unless this provision is amended, moderate-income 

households that need smaller loans or consumers who make large 

downpayments will find credit less available and more expensive. 

20 

MBA strongly supports the Consumer Mortgage Choice Act, and 

I want to personally thank Representatives Huizenga, Scott, Royce, 

and Clay for their work on this legislation. This bipartisan bill 

would clarify that escrow payments and loan officer compensation 

are not counted toward the 3 percent cap on points and fees. The 

bill also creates parity between affiliated and unaffiliated title services, ensuring consumers can choose the provider that is best for 

them. 

Madam Chairwoman, it is impossible to overstate the importance 

of getting the QM rule right. This rule will define who does and 

who does not get mortgage credit in the future. It is imperative 

that the rule strike the perfect balance between consumer protection, fair and responsible access to credit for all qualified borrowers, and a competitive marketplace. The only way we are going 

to do that is by defining the QM broadly with clear standards and 

a legal safe harbor. 

Thank you for the opportunity to testify. 

[The prepared statement of Ms. Still can be found on page 149 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

I appreciate all of the testimony. I think I have heard, and I am 

sure my colleagues have heard, from all the presenters two themes, 

broad and clear—well, three—bright lines. It just depends on what 

bright lines, I guess, you wish to be drawn. 

So I would like to ask Mr. Bentsen, does risk retention have the 

potential to promote consolidation of lending risk bearing and market share just amongst the very large institutions, in your opinion? 

Mr. BENTSEN. Madam Chairwoman, I don’t know that we know 

the answer to that question. I think, obviously, how risk retention 

is ultimately defined in the rulemaking process will have various 

impacts. But I don’t know that we can look at it and say, at this 

point at least, that it will lead to consolidation. I don’t think we 

know the answer to that. 

Chairwoman CAPITO. I am trying to get to, with the Title XIV 

issue, how it might affect smaller lenders in more rural areas. My 

colleague from Texas mentioned that several banks in Texas have 

already ceased offering mortgages, and I think research is showing 

that some smaller institutions are moving away from this, and I 

think the QM definitions and whether they can meet those standards or whether they can meet the legal possibilities that they may 

see— 

Mr. BENTSEN. Certainly with respect to QM, our view—and this 

is both a buy side and a sell side view—is that if you define QM 

so narrowly that it were to really almost be a QRM like that, it 

would not capture a very sufficient part of the mortgage marketplace. And so, from our members’ perspective, fewer investors 

would likely move into that market. Were that to be the case, and 

you are pushing off a large non-QM market elsewhere, it is not 

clear who is going to pick up that market. And then when you lay 

on top of that the Basel III standards that will come into play. So 

the capital risk retention notwithstanding, the capital associated 

with that, it is likely it could have an impact on community banks 

and others. 

21 

Just from our perspective, if the QM is so narrow that our members don’t believe that they will participate in that market, somebody else will have to pick up that slack; and it is not clear who 

will do it and who will have the capital to do it. 

Chairwoman CAPITO. Ms. Still, would you like to respond to that? 

Ms. STILL. Yes. I think another concern for the small community 

lender would be the uncertainty in a rebuttable presumption. Not 

knowing how to comply clearly would create liability and uncertainty. 

If you look at the size of the penalties of not complying with QM, 

one infraction could be ruinous to a small lender. I think MBA 

originally estimated an infraction could cost between $70,000 and 

$110,000. Our new numbers, based on new research, would suggest 

that it could be as high as $200,000. If you liken that to the repercussions of a repurchase, those are the same extraordinary numbers that would cause small community lenders not to be able to 

lend. 

Chairwoman CAPITO. In terms of the borrower in the lower range 

who maybe doesn’t have as much credit availability, the consumer 

who doesn’t have the options that some other, wealthier or bettercredit-risk consumers would have, in terms of the rebuttable presumption versus the safe harbor, I said in my opening statement 

that I think the safe harbor is the way to go because I think that 

is the way that those who are on the bubble a little bit are going 

to be able to get into the market. 

Mr. Judson, would you have an opinion on that? 

Mr. JUDSON. Yes. Thank you. 

The lenders would like to loan money. That is their business. The 

first-time buyer is about 40 percent of the market right now, and 

if they can’t get construction loans or if they can’t get a permanent 

loan because it doesn’t meet the lending requirements, that may 

explain the rise in the rental market. So we feel that a clear definition for QM would perpetuate lending and encourage it. 

Chairwoman CAPITO. When you say clear—and I don’t mean to 

interrupt—but when you say clear definition, you really mean the 

safe harbor versus the rebuttable. That is the core of what we 

are— 

I have heard a lot of talk about what the fees would constitute 

and what 3 percent constitutes and some exemptions. You mentioned title insurance that is not part of it that could become a 

large— 

Ms. Cohen, would you like to respond? Expand a little bit on the 

title insurance issue. 

Ms. COHEN. The question about the points and fees is, under the 

Qualified Mortgage definition now in Dodd-Frank, the limitation 

for a Qualified Mortgage is 3 points and fees. Some fees are included in that and some are not. And the ones that are included 

include those fees that are paid to the affiliate of the creditor because the creditor is getting that money in a way that is different 

from if the title insurance or another third party provider is not associated with the creditor. So the question you are alluding to is 

whether those parties should be in or out of that cap. 

Chairwoman CAPITO. Right. Thank you. 

Mrs. Maloney? 

22 

Mrs. MALONEY. Thank you. 

It is rare that we have a panel who agrees on everything, and 

you all seem to agree with a broad definition and also of the bright 

lines and clear standards. I want to see if you all agree with the 

ability to repay. 

Many of the analysts believe that if there had been an abilityto-repay requirement prior to the financial crisis, it would have significantly lessened, if not prevented, the mortgage meltdown. I 

know, leading up to the crisis the joke in New York was, if you 

can’t afford your rent, go out and buy a home. And it was almost 

true. You didn’t have to give any documentation or anything. You 

could just go out and buy a home. 

I would like to ask all of the panelists, do you think it is reasonable to have an ability-to-repay requirement and to ensure that 

borrowers document their income in mortgage applications and 

that they can in fact repay it? To me, this is just common sense. 

Does anyone disagree with an ability to repay? 

No one disagrees. 

Then I would like to go to the testimony where there was an area 

of disagreement. Certainly, the purpose of a Qualified Mortgage is 

to incentivize mortgage originators to lend responsibly and to make 

loans that are safe for institutions and consumers. In the Federal 

Reserve’s first proposed QM rule, it proposed two alternatives to 

that by either creating a rebuttable presumption for lenders or a 

safe harbor as a shield from liability and foreclosure proceedings. 

There was a difference of opinion on these two areas, and I would 

like to hear arguments in support, and then in opposition, and how 

these standards differ. 

I would like first to hear from Mr. Stein and then Mr. Louser, 

then Ms. Cohen, then Mr. Judson and then anyone else who wants 

to justify. How do they differ? Could you comment on the pros and 

cons of these two standards? Your comments, please. 

Mr. STEIN. Absolutely. 

As I mentioned, the recommendation that we provided on this— 

on QM with the Clearing House, there are three components— 

broad, clear, rebuttable presumption—and they are all interrelated. 

Because if you had a narrow QM—some of the panelists have 

talked about if it were narrow and you had a safe harbor, it 

wouldn’t help you very much. Because a lot of the lending would 

be outside of QM, and there wouldn’t be a safe harbor. There would 

be a lot of liability. And it is fraught to lend outside of QM. 

If QM is fuzzy, if it just talks about Generally Accepted Underwriting Standards, there would be a lot of litigation over whether 

or not this loan is a QM. And, therefore, it gets to safe harbor. 

So I think those first two elements are actually more important 

as to whether there is going to be litigation and whether there is 

going to be lending than the safe harbor question. 

Mrs. MALONEY. But there is agreement from everyone on the 

panel on those first two. The disagreement is on the rebuttable presumption and safe harbor. And so, if you could direct your comments to the differences between the two? 

Mr. STEIN. Absolutely. 

A safe harbor would be an absolute immunity to the lender that, 

in an egregious case where they knew that the borrower couldn’t 

23 

afford the loan and they acted in bad faith, there is no ability to 

raise that claim, only whether it is in or out of QM. We think there 

is enough certainty once the loan is a QM and the rebuttable presumption is a strong enough incentive, strong enough litigation advantage, that there is going to be very little borrower litigation. 

And more importantly, secondary markets are not going to put 

those loans back on lenders, and they are going to have the confidence to lend vigorously. 

Mrs. MALONEY. Thank you. 

Mr. Louser? 

Mr. LOUSER. Representative Maloney, from our testimony, we 

didn’t address safe harbor versus rebuttable presumption. The REALTORS® would prefer the safe harbor, and our concern is not 

necessarily the potential for litigation up-front but, once that begins, that would be standard if it was a rebuttal presumption. 

Maybe the lenders are a better indicator of this. One of my roles 

as vice president has been to meet with the large lenders across 

the country, and consistently, we have found that they agree with 

the safe harbor. 

Mrs. MALONEY. Ms. Cohen? 

Ms. COHEN. The difference between the rebuttable presumption 

and the safe harbor is whether, in an extreme circumstance, a 

homeowner has any recourse at all. 

If the lines are bright and clear, it will be easy for a creditor to 

make a loan that is within a Qualified Mortgage. But if they have 

additional information that rule writers can’t contemplate now, for 

example, extremely high costs that are documented and that they 

do have access to at the moment of making the loan and while they 

are preparing the loan, that homeowner with a predictably 

unaffordable loan will have no legal recourse at all in a safe harbor. 

In the rebuttable presumption, the homeowner will still have a 

very steep hill to climb. They need an attorney, and the courts in 

general will defer to the standards set by the government agency 

writing the rules. 

And in terms of whether there is a large amount of litigation 

risk, between 2005 and 2010, there were almost 65 million homes 

in foreclosure. There were, around the same timeline, 60 cases 

about the truth-in-lending rebuttable presumption that already exists. 

Mrs. MALONEY. My time has expired. May I ask for 30 additional 

seconds for Mr. Judson to respond? 

Chairwoman CAPITO. Mr. Judson? 

Mr. JUDSON. We clearly support the ability-to-repay requirement. 

We would also support the safe harbor in that it is more likely to 

lead to availability of funding, which is really what this is about. 

Availability of funding makes more mortgages available to the average buyer, the consumer. 

Chairwoman CAPITO. Mr. Renacci? 

Mr. RENACCI. Thank you, Madam Chairwoman. 

I want to thank all of the witnesses for being here. 

Mr. Bentsen, I want to go back to your testimony. You say that 

your association is very concerned that the QM regulations may be 

construed in a narrow manner, parameters that will not allow for 

24 

the certainty of compliance at origination. Would you tell me today, 

based on just that comment and the way that the Dodd-Frank 

rules are moving forward, that your industry does have some uncertainty and unpredictability of the future? 

Mr. BENTSEN. Certainly within the housing finance sector, there 

is a great deal of uncertainty, because we don’t know what the 

final QM rule is going to be. We expect the QRM rule and risk retention rules to come behind that. So maybe December, January 

QM comes out. Then, following on the heels of that, QRM risk retention. So that creates a lot of uncertainty in market participants 

as to what the structure of new mortgage finance will be. Not to 

mention, we still don’t know what Congress—what you all are 

going to ultimately decide to do with the respect to the GSEs. So 

I think that does create a fair amount of uncertainty in the housing 

finance sector. 

Mr. RENACCI. It is one of the things I hear back in my district 

in Ohio, that this uncertainty is one of our issues. Government is 

causing so much more uncertainty. 

I know that you were on this side of the table at one point in 

time, so it is interesting to get your perspective now that you are 

on the other side that you do agree that Dodd-Frank is causing 

some uncertainty and unpredictability at this point in time. 

Mr. BENTSEN. In our count, there are about 150 rulemakings— 

I guess you can slice and dice it any way you want to get to a 

count—that have to be done across all aspects of the financial markets, including a large part of the capital markets that we represent. And until all those rules are done, whether you agree with 

them or not—and we have questions certainly on a number of 

them—the markets—our member firms will have to adapt to what 

those final rules are. We know they are coming, but we don’t know 

what they are going to be. So there will be a great deal of adaptation among market participants to comply with the new rules. But 

until they are done, there are still a lot of questions. 

Mr. RENACCI. Sometimes we wonder why markets are frozen up 

or why capital is not out there. But when government causes the 

uncertainty, sometimes that could be the answer, too. That is what 

I was trying to get out, and I think that is what you are saying. 

I hear it all of the time back in my district. So it is interesting, 

some of your comments. 

Mr. Hodges, in your written testimony you expressed frustration 

that half of all loans to purchase manufactured homes could be at 

risk by being categorized as high cost under Dodd-Frank. Could 

you explain why the economics of originating and servicing these 

small loans often result in APR fees being higher than conventional 

home mortgages? 

Mr. HODGES. Absolutely. 

It is best described by way of example. If the average cost to 

originate a loan is, let’s call it $2,000, well, $2,000 is 1 percent of 

a $200,000 mortgage. It is 10 percent of a $20,000 mortgage. And 

of course that scale goes—it runs the scale there. Since most manufactured housing loans are smaller loans with the same cost to 

originate and service—or similar—it just adversely affects us just 

by virtue of applying the percentages in HOEPA and QM. It adversely—our transactions, it would be easier to hit those caps. 

25 

Mr. RENACCI. Mr. Hudson, you also describe in detail the concern 

with the 3 percentage point fee cap, that it is biased against mortgage loan originators who are not creditors. Can you explain that? 

Mr. HUDSON. Again, just to follow up on my colleague with regard to it’s best used by example, in the State of Texas, there is 

currently a 3 percent cap in existence on Texas home equity loans. 

Borrowers cannot pull cash out of their property unless it is in an 

ADLTV with a 3 percent cap. That does not include the items that 

are currently in the proposed QM. 

Currently in the State of Texas, consumers are hard pressed to 

find any lender willing to make a home equity loan for less than 

$150,000 simply because it is so easy to hit that 3 percent cap, coupled with the fact that the State of Texas, on average, has the second-highest closing costs in the country, second only to Ranking 

Member Maloney’s State of New York. So it is going to be very easy 

to hit that 3 percent cap. 

And in particular, when it comes to home loan programs that are 

specifically designed for low- to moderate-income consumers, such 

as bond money programs—for example, my company has been the 

lender of the year for 3 years running now for the Texas Department of Housing and Community Affairs. We originate a lot of 

bond loans for first-time buyers. We don’t necessarily do them because they are a profit center but because consumers need to have 

access to these products to participate in the American dream of 

homeownership. 

So if this 3 percent cap comes into place, loan amounts will be 

set at a minimum standard. Otherwise, we will have to charge 

higher interest rates to offset that balance; and, therefore, you run 

into another whole new set of legal liability. 

Mr. RENACCI. Thank you. I yield back. 

Chairwoman CAPITO. Mr. Watt for 5 minutes. 

Mr. WATT. Thank you, Madam Chairwoman. 

Let me start by thanking the chairwoman and the ranking member for putting together a very balanced and broad-based panel. It 

is an important subject. 

When I first saw the notice of the hearing, I actually shuddered 

a little bit, because I thought it was going to be another one of 

these hearings about the broad-based attack on Dodd-Frank. That 

was justified somewhat because we had just had a hearing yesterday in the Judiciary Committee that was kind of a broad-based attack on Dodd-Frank. I don’t know why we were having it in Judiciary. It seemed to suggest that we were at the 2-year anniversary, 

and there was some concerted effort to just make this broad-based 

attack. But you have put together a good, balanced panel; and I 

think that is very important and instructive. 

I want to applaud the work that has been done by this broad bipartisan industry/consumer/civil rights group of folks who put together the discussion draft that was apparently submitted to the 

CFPB as part of the comment process. Seldom will you see—except 

when I had to work with all of them in the back room to try to 

get to the language that we were trying to get to in Dodd-Frank— 

a public coalition between the Center for Responsible Lending, the 

Consumer Federation of America, the Leadership Conference on 

Civil Rights, and something called the Clearing House Association, 

26 

which consists of Bankco Santander, Bank of America, the Bank of 

New York Mellon, BB&T, Capital One, Citibank, Comerica, Deutsche Bank, HSBC, JPMorgan Chase, KeyBank, PNC, RBS Citizens, 

Regions, UBS, U.S. Bank, Union Bank, Wells Fargo, City National, 

Fifth Third Bank, First Citizens, and M&T. That is one heck of a 

coalition when you put all of those people together and they come 

up with a joint proposal. 

So I guess my question to the panelists—I know Mr. Stein’s 

group was part of that coalition, and Ms. Cohen’s group was part 

of that coalition. Does anybody else on this panel have a membership on that coalition? 

Ms. COHEN. Excuse me, Representative Watt. We are not part of 

the coalition, just so you know. 

Mr. WATT. I give you more credit or blame than you are due, and 

I apologize for that. 

Maybe I should ask the question this way: Has anybody looked 

at the recommendation that this broad coalition made to the CFPB 

in its comment? Have you looked at it? Do you have substantial 

disagreement with any parts of it, Ms. Still? 

Ms. STILL. Only one part of it. We very much think that the 

Clearing House document is a good place to start the discussion. 

We support the attempt to come up with some bright line standards. 

Mr. WATT. What is it that you disagree with? 

Ms. STILL. The piece we would observe and disagree with, first, 

I am not sure that a 43 percent back ratio is not too tight and 

wouldn’t cut out qualified borrowers. 

Mr. WATT. Okay, what else? 

Ms. STILL. The second thing is we would put the bright line 

standards in a safe harbor at the Mortgage Bankers Association, 

not the— 

Mr. WATT. So we are back to the safe harbor issue. 

Does anybody else who has read this document have any concerns about it other than Ms. Still’s group? 

What about you, Mr. Louser, and you, Mr. Hudson, in particular? 

And you, Mr. Bentsen? You all represent broad coalitions of members. Are there specific things in this proposal that you are concerned about? Or have you read it? 

Mr. HUDSON. I have not read the specific proposal. 

Mr. WATT. Okay, then I won’t ask the question. 

What about you, Mr. Bentsen? 

Mr. BENTSEN. Mr. Watt, I can tell you that I have not personally 

read it. Our team has looked at it. While we think there is much 

in there that we like, and we work with these various groups from 

time to time, our view still is from a concern about assignee liability, that we really believe the safe harbor is the better approach 

to go. So that is mainly where we disagree. 

Mr. WATT. So this law, much of which was drafted by Mr. Miller 

and I, based on the North Carolina law, where there is a presumption but no safe harbor, very little litigation, that doesn’t influence 

you on this issue? 

Go ahead? 

Ms. STILL. I think in North Carolina, you have loans over 

$300,000 that are excluded from consideration. You also have a 50 

27 

percent back ratio, and you don’t have the recoupment of attorneys’ 

fees and you have much lower penalties for infraction. So I think 

there is a huge difference between the two. 

Mr. WATT. Mr. Stein may disagree with some of those points. 

Mr. STEIN. Just for clarification, the North Carolina ability to 

repay is a later addition. Since 1999, North Carolina has required 

a net tangible benefit for all refinancing transactions. That has significantly greater damages than the ability-to-repay provision does 

and virtually no litigation. So I think that is the history of the 

North Carolina law. 

Chairwoman CAPITO. The gentleman from Texas, Mr. Hensarling 

is now recognized. 

Mr. HENSARLING. Thank you, Madam Chairwoman. 

I want to pick up on the concept of the ability to repay. Ms. Still, 

you seem to be very anxious to say something, so I am going to give 

you the first crack. Representing the Mortgage Bankers Association, can you explain to me why it is in the interest of your individual members to loan money to people who can’t afford to repay 

it? Why is that in your interest? 

Ms. STILL. It is not. 

Mr. HENSARLING. So it is not in your interest to loan money to 

people who can’t pay you back? 

Ms. STILL. We absolutely support the ability-to-repay rule. It is 

critical, though, that we get the rule correct. We have to make sure 

that we strike a balance between ability to repay and not restricting credit to deserving borrowers. 

Mr. HENSARLING. But you need a rule to tell you not to loan 

money to people who can’t pay it back? 

Ms. STILL. I think good, balanced underwriting criteria is always 

advisable for all consumers. I think the clarity of that and the balance of that is going to be critical, absolutely. But the Mortgage 

Bankers Association— 

Mr. HENSARLING. I don’t disagree with you. We certainly had a 

huge erosion in underwriting standards. I just find it somewhat 

ironic, when I look at the affordable housing goals that were thrust 

upon Fannie and Freddie, when I look at CRA, to think that we 

essentially have had Federal regulation tell people to loan money 

to people who couldn’t afford to pay it back. And now all of a sudden, we need a Federal regulation to tell you not to do what they 

told you to do in the first place. And I just can’t help but recognize 

the irony of that. 

Also, when we are talking about the ability to repay, who has the 

greater information base in figuring out whether or not you can 

repay a loan to buy a home? Having bought a home before, although there are voluminous amounts of disclosure, sooner or later 

I was given a piece of paper that told me how much I had to pay 

each month and how many months I had to pay it. I ended up with 

that piece of paper in the disclosure. 

But, when I am sitting down with the people who are loaning me 

the money, I am trying to figure out, if I was about to send a kid 

to college, would I know that or would my banker know that? If 

I was about to get laid off from my place of employment, would I 

have the greater knowledge base of that or the person loaning me 

the money? The tragedy of divorce, as tragic as that is to a family, 

28 

it is also a financial tragedy, so who would have the greater knowledge base of the ability to repay? Would that be the borrower or 

would it be the lender? 

Ms. Still, your opinion? 

Ms. STILL. There are certain objective criteria that any lender 

needs to look at: income; assets; job stability, et cetera. They are 

objective. They are verifiable. 

There are other things that we don’t take into consideration, and 

a lot of that is buyer intent. Will you send your kids to private 

school or will you send them to public school? Will you keep the 

air conditioning on 24 hours a day or will you be conservative in 

your energy bills? 

And so, it is a shared responsibility. Certainly, the lender has to 

own the standards that are objective and that would keep a consumer in bounds in terms of— 

Mr. HENSARLING. Forgive me. I see my time is starting to run 

out here. 

In yesterday’s hearing—and I see, Mr. Bentsen, you are becoming a frequent guest here. I guess you miss us from your days of 

service in this institution. 

But I was a little taken aback when I saw this study—which I 

intend to study much more closely—from Mark Zandi of Moody’s 

Analytics, whom I believe is the most frequently quoted economist 

from my friends on the other side of the aisle, looking at just one 

aspect of Dodd-Frank, the premium capture cash reserve account. 

In his study, he estimated that mortgage rates could increase 1 to 

4 percentage points if the rule is implemented as proposed. Again, 

seeing that, I think 30-year fixed-rate loans are going for about 33⁄4

percent. Essentially, what Mark Zandi is saying is that one aspect 

of Dodd-Frank could double interest rates. 

I am curious if anybody else has seen this study. Mr. Bentsen, 

I know that you have. Mr. Judson, have you seen this study? And 

if so, what would a doubling of interest rates do to home building? 

Mr. JUDSON. It would hurt the home building industry and the 

ability to get financing. 

Mr. HENSARLING. I would say you have a knack for the understatement, sir. 

I see my time has expired. Thank you. 

Chairwoman CAPITO. Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Madam Chairwoman. 

I have heard concerns from community banks in my congressional district and also others who have come into my office here 

in Washington. I have also heard from REALTOR® groups, both 

nationally and in deep south Texas, about the upcoming Qualified 

Mortgage rules that the CFPB is formulating. 

My question is for Ms. Cohen and for Mr. Hudson: What do you 

predict the benefits will be of having a well-defined Qualified Mortgage and how will a broad criteria impact the industry versus a 

more narrow criteria? 

Ms. COHEN. If the question is about broad versus narrow and 

clarity, the benefit from the perspective of the consumer is that the 

Qualified Mortgage definition is meant to provide affordable loans 

to homeowners. So if the definition is broad, it reaches more loans. 

And by definition, then it would reach out to more homeowners 

29 

who would come under the purview of this more privileged and 

more predictably affordable loan category. 

We still worry about people around the edges, but the fewer people you have around the edges, the better off for the population in 

this particular context. 

With regard to clarity, it is also better for homeowners if the 

rules are clear because the creditors will have a better sense of 

what it means to make an affordable loan; and when the loan is 

not affordable, it will be easier to demonstrate whether the rules 

were complied with or not. 

Mr. HINOJOSA. Mr. Hudson? 

Mr. HUDSON. Thank you, Congressman. 

I live in San Antonio, Texas. My family is from Brownsville, 

Texas. I have originated home loans as an originator in Brownsville, Texas. And I can tell you that one of the great things about 

measuring an ability to repay is that if I have some broad guidelines I can still do what I can to make sure that I am giving a consumer the loan that they deserve. If we get too narrow in scope, 

my real fear is that there is a large segment of consumers, particularly in south Texas, who will be limited in their access to credit 

and be forced into a permanent class of renters, which is, I think, 

a real shame. 

With respect to ability to repay, I think I can pretty much say 

that everybody on the panel might agree with me on this, the industry—we are already determining a borrower’s ability to repay. 

I think the chart that the CFPB put out for us to comment on with 

regards to debt-to-income ratios, the bottom line was 2009 numbers 

with regards to debt to income ratios. 

So, post-collapse, pre-Dodd-Frank, you could already see where 

the industry has already come back and decided, you know what, 

we are going to actually verify that consumers can make a payment. If you simply look at those delinquency numbers, they will 

reflect that. 

But my fear is if we get too narrow in scope, then we will be 

harming the consumers who need access to credit the most. 

Mr. HINOJOSA. If Dodd-Frank had been in place, say 6 years ago, 

Countrywide lenders in Texas would not have had so many violations, as we now find out. 

Looking at one of the Wall Street reports on the reforms containing a number of other reforms that will benefit consumers, including a requirement that the CFPB design a new disclosure form 

to be used at the time of a mortgage application—and we have seen 

some forms that have been given to us as examples, and so I will 

refer to that. In fact, just this week, the CFPB announced this proposed rule after using the last year or so to test draft forms with 

the industry, with consumers, and with other stakeholders, and all 

of these reforms were designed to level the playing field between 

consumers and loan originators so that we never have to see another multi-billion dollar settlement for weak servicing standards. 

Ms. Still, have you seen any of those proposed forms that would be 

tested? 

Ms. STILL. Yes. We have had committees at the Mortgage Bankers Association that have done a review of every iteration of the 

30 

rounds of activity to get to the final forms that have been proposed. 

We clearly support clear, transparent disclosures for consumers. 

Mr. HINOJOSA. I think that all of us want consumers to understand exactly what the amount is, the principal and the projected 

payments. Honest costs for, say, appraisals. There were many, 

many violations that we learned about after having congressional 

hearings here. So I am pleased to see that an effort is being made 

by all of the stakeholders to be able to come up with something as 

simple as what I have in my hands that will tell the consumer exactly what he or she is getting into. 

I yield back. 

Chairwoman CAPITO. Mr. McHenry for 5 minutes. 

Mr. MCHENRY. Thank you, Chairwoman Capito. 

Ms. Cohen, you say in your testimony that a QM safe harbor will 

leave the door open to known types of abusive lending; is that correct? 

Ms. COHEN. Yes. 

Mr. MCHENRY. Mr. Bentsen, how do you respond to this concern? 

I will read it again. The QM safe harbor, Ms. Cohen says in her 

testimony, will leave the door open to known types of abusive lending. 

Mr. BENTSEN. From our perspective, Congressman, our view 

looks at it from the standpoint of securitizers and investors. 

Mr. MCHENRY. That is why I asked you. 

Mr. BENTSEN. Yes. So we are looking at it from the standpoint 

of, we are getting the loan from the lender. So we really have two 

concerns. The main one is assignee liability, that a rebuttable presumption transfers the potential liability of litigation to the 

securitizer and to the investor in the mortgage. So we mainly are 

concerned about that. 

We think a consequence of this also could be that lenders would 

become equally concerned and very conservative, and therefore 

they probably would be overly strict in their underwriting for fear 

of litigation. 

So we think—from our standpoint, we are concerned about assigning liability. 

Mr. MCHENRY. Let me interrupt, and I will ask something a little more specifically to you. 

You said in your testimony that you expect any limited lending 

outside of the confines of the QM definition will be performed at 

far greater cost to the consumer and, therefore, will be more likely 

to be provided by less-regulated, less-well-capitalized and possibly 

less-reliable entities. Implicit in that, if I may, is that a narrow QM 

definition would have the unintended consequence—or the consequence of creating an active non-QM market; is that correct? 

Mr. BENTSEN. Yes. But we also think that non-QM market, at 

least from the standpoint of the secondary market, would be very 

small. So there would be a non-QM market. It would be funded 

somehow. But our members don’t believe that is a market they 

would participate in. 

Mr. MCHENRY. I understand that they wouldn’t participate in it, 

but who would this affect, then? 

Mr. BENTSEN. It would affect those borrowers who don’t meet the 

threshold of a QM, were they able to get credit— 

31 

Mr. MCHENRY. I am asking who those are. Obviously, those who 

don’t meet that QM threshold. 

Mr. BENTSEN. Depending on where a QM is established, it could 

be lower-income borrowers whose debt-to-income ratio is above that 

certain level, that they would be priced out. They would be priced 

out of the market. 

Mr. MCHENRY. Okay. To that end, I want to ask Ms. Still, in 

terms of setting a downpayment requirement, what would the effect be on the marketplace here? If we simply set a 20 percent 

downpayment requirement, what impact would that have? 

Ms. STILL. It would have an enormous impact. 

Mr. MCHENRY. Would it be positive or would it be negative? 

Ms. STILL. It would be negative. 

Mr. MCHENRY. Mr. Judson, to the same question, do you think 

that would be beneficial to home building in America? 

Mr. JUDSON. I would say it would not be beneficial, no. It would 

be quite negative. 

Mr. MCHENRY. That is a very soft way of saying it. I appreciate 

my neighbor saying that. 

To that end, Mr. Judson, you said in your testimony that the establishment of a bright-line safe-harbor definition for QM, Qualified Mortgage, is the best way to ensure that safer loans are made 

without increasing the cost of credit. So there are obviously tradeoffs between consumer protection and maintaining credit availability. What is that balance, in your estimation? 

Mr. JUDSON. I can’t give you a numerical number for that, but 

common sense will say that if you are creating the cottage industries you referenced earlier, which is what would happen, you are 

going back to the same thing that got us into this dilemma in the 

first place. If we have a broader interpretation for the safe harbor 

and the bright line, you are going to get broader participation and 

more availability of funds, which casts its net over a broader segment of the buying public, particularly that first-time buyer and 

the minority, who are the ones who will be most impacted by this 

cottage industry of the non-QM lender. 

Mr. MCHENRY. Thank you. 

I yield back. 

Chairwoman CAPITO. Mr. Miller for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. Mr. Stein, since the question 

wasn’t addressed to you earlier, could you answer in just 30 seconds, or a minute at most, why a lender, if there were no risk retention rules or if there were still prepayment penalties or if we 

still had an appreciating housing market, why would a lender 

make a loan where the borrower did not have the ability to repay? 

Mr. STEIN. I think the private label security market was a perfect example where no one was bearing the risk and they didn’t 

really care if the loan performed. And so, you had the 2/28 exploding ARMs, you had yield-spread premiums where brokers were 

paid more if the interest rate was higher, prepayment penalties 

that locked people out of bad loans, didn’t escrow to make it look 

cheaper, those are all things that increased volume; and so people 

received fees, but they caused a lot of defaults and hurt the economy. Those are exactly the things that Dodd-Frank cracked down 

on in the no-doc lending. 

32 

Mr. MILLER OF NORTH CAROLINA. And if the lender no longer 

owned the mortgage, the default was not really their problem? 

Mr. STEIN. Exactly. 

Mr. MILLER OF NORTH CAROLINA. Mr. Stein, in your testimony, 

you have urged a rebuttable presumption as opposed to a safe harbor, which presumably means an irrebuttable presumption. You 

don’t really offer any examples of the kind of conduct that might 

rebut the presumption, the kind of circumstances that might rebut 

the presumption. Can you imagine any? Or, failing that, can you 

think of some practices that existed at the time Congress passed 

HOEPA that did not exist at the time of HOEPA and so would not 

have been forbidden if Congress then very thoroughly forbid abusive practices? 

Mr. STEIN. I think the important thing about the ability-to-repay 

test for the lender, it is true that borrowers—going back to the previous question—know more about their circumstances. All that 

lenders are being held to is what they knew at the time the loan 

was made, what they have received the information on. 

I think because the practice—I never could have predicted the 

yield spread premiums’ prepayment penalties, the abuses that occurred, and I don’t have the creativity to predict abuses that may 

happen in the future, and so I think having this little fail-safe for 

egregious cases available to borrowers would be prudent. And lenders have enough certainty, and they are going to win the vast majority of cases while the loan is QM. 

Mr. MILLER OF NORTH CAROLINA. The old cases—when I say ‘‘old 

cases,’’ 300- or 400-year-old cases on fraud—the courts say in very 

quaint language that there should not be a fixed definition lest 

crafty men find ways to evade it. 

Ms. Cohen, can you think of some practices that have been 

hailed as innovations that were really just an innovation to get 

around regulation? 

Ms. COHEN. When HOEPA was first passed, at the time I was 

working at the Federal Trade Commission, and I got a lot of calls 

from homeowners. The problems at the time were that the points 

and fees were very, very high. They were 10, 12, and higher percent. 

The other big innovation at the time was credit insurance. 

Both of those abuses dried up when HOEPA was passed, and the 

exploding ARMs that Mr. Stein was just talking about and similar 

loans where there was a jump in the interest rate essentially or 

prepayment penalties that were quite excessive came much later 

for the most part and locked people into their abusive loans in 

ways that were permitted by HOEPA. 

Mr. MILLER OF NORTH CAROLINA. So if we had a rigid definition 

that did not allow other circumstances and innovation, might a 

new practice evade the existing definition, the rigid definition in a 

way that we don’t anticipate? 

Ms. COHEN. That seems quite likely. 

Mr. MILLER OF NORTH CAROLINA. Mr. Hodges, the GSEs are supposed to recognize the secondary market for personal property as 

well—in other words, manufactured homes that are not affixed to 

dirt—but they haven’t done much to create those markets, and 

they say it is because there is not much demand. Do you think the 

33 

GSEs, by helping to create more of a secondary market, what effect 

do you think that might have on the demand for loans secured by 

real property? In other words, manufactured homes? 

Mr. HODGES. The Manufactured Housing Institute—what you 

are alluding to is the duty to serve obligation in the Housing Economic Recovery Act. So the Manufactured Housing Institute, we 

are big supporters of that. 

And so, to answer your question, we do believe that if the GSEs 

would create a viable market for personal property, for purchasing 

personal property manufactured home loans, what it would do at 

the least is make that market available and in some ways more attractive for other lenders to get back into it. We haven’t really had 

it ever from the personal property side, so we would really like to 

think that it would be helpful in bringing lenders into that market. 

Mr. MILLER OF NORTH CAROLINA. Thank you. My time has expired, Madam Chairwoman. 

Chairwoman CAPITO. Mr. Luetkemeyer for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

I appreciate all of you being here today. It is an interesting discussion that we are having. 

We are in a situation where the government pushed the lenders 

to loosen up some of the lending standards and we had a disaster, 

and now we have the pendulum going in the other direction where 

we are probably tightening up too much to the point where we are 

restricting the availability of credit. And now we are trying to figure out where that fine line is between where we can loan safely, 

encourage home building, encourage homeownership, and yet don’t 

go so far as to get back into the same problem that we had. So I 

appreciate the chairwoman’s ability to put this hearing together. It 

is quite interesting today. 

To follow up with Mr. Hodges on something Mr. Miller brought 

up, how has the money accessibility been since 2008 in your industry? Has it dried up significantly or is there still plenty of access 

to loans? Can you tell me about your industry as a whole? 

Mr. HODGES. Are you asking from the GSE standpoint or 

securitization or just lending in general? 

Mr. LUETKEMEYER. No, just lending in general for your product. 

Mr. HODGES. I would say, since 2008, it is safe to say there is 

less lending for small balance manufactured home loans, especially 

personal property, than there may have been 10 years before that. 

Mr. LUETKEMEYER. I would have thought it would have increased 

as, obviously, your product that you are selling is less in cost than 

a bricks-and-mortar home. Is it because there are not as many people who have jobs to be able to do this? Or is it because access to 

credit has restricted the ability of people to buy homes? Why is it 

less? 

Mr. HODGES. I think in some ways it is because manufactured 

housing finance is really affordable housing credit. So a lot of the 

buyers who come to the manufactured housing sector would be lowand moderate-income people who are worthy buyers but may not 

have the credit history that other bigger financial institutions want 

to really maybe entertain that market. 

34 

Mr. LUETKEMEYER. So what you are saying is, because of the restricted credit analysis that goes on, they have lost the ability to 

enter into your market; is that right? 

Mr. HODGES. As credit scores have tightened, as lenders have 

gotten more conservative on credit scores, for example, it takes our 

low-income buyer really out of that market. It makes it a lot harder 

for them to find financing, which is why we believe supporting the 

manufactured housing market, which will loan to people who are 

worthy in that regard, is really important to this type of housing. 

Mr. LUETKEMEYER. That is very interesting. 

I was listening to Mr. Hudson’s testimony a while ago, and he 

made the comment about veterans being basically a better group 

to loan to than the average citizen. So it was interesting to listen 

to your testimony, sir. 

Mr. HUDSON. Yes, Congressman. With regards to VA loans, in all 

honesty, they are relatively simple: verify that they have a job; 

verify that they have income; and verify that they have some assets. And there is another little piece in there known as residual 

income, meaning we are going to make sure that a borrower has 

a certain amount of cash at the end of the month to cover other 

cost-of-living items that we don’t currently include when we underwrite loans. 

Mr. LUETKEMEYER. I would submit that there may be another 

issue there, and that would be the character of the individual to 

whom you are loaning money. 

Mr. HUDSON. Yes and no, Congressman. Some people could say 

that because these people are military, that they have a better 

sense of duty and honor in paying back debts. But, at the same 

time, I would like to point out that there are lots of members of 

our military who do not meet credit standards, who do not have 

good enough credit scores. So I think, honestly, when it boils down 

to consumers and borrowers, it is less the fact that they are in the 

military as much as the fact that we are actually verifying their 

income. 

Mr. LUETKEMEYER. As somebody who has been on the other side 

of the table and loaned money to people, I would certainly like to 

see a veteran across the table from me. It certainly makes my job 

a little bit easier. 

Ms. Still, you mentioned something a while ago about 

downpayments. You were asked a question about it. What do you 

think is an adequate level for downpayments? I know you said 20 

percent is going to dry up the market, but yet I think everyone 

would agree the home buyer needs to have a little skin in the game 

as well. What do you feel would be an adequate figure? 

Ms. STILL. That is very difficult to answer, because every borrower is different. I think it depends on the loan program. If you 

look at the VA program, which is 100 percent financing, we have 

just touched on that. If you look at the borrowers that the FHA 

loan program targets, 3.5 percent downpayment compared to 

maybe 5 percent plus in the GSE lending, I do think that skin in 

the game absolutely helps. 

I am not sure that I believe skin in the game would be determinant of ability to repay. I think as we talk about this rule, inVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
35 

come and debt load is probably a better driver, although maybe not 

the single driver, of ability to repay. 

Mr. LUETKEMEYER. Thank you. I see my time is up. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Mr. Lynch for 5 minutes. 

Mr. LYNCH. Thank you, Madam Chairwoman. 

Ms. Cohen, I think the import of Dodd-Frank is really to reinject 

the ability to repay as a controlling concern of lenders. 

Earlier in the hearing, the gentleman from Texas asked a question, rhetorical in some regard, but he asked what would cause a 

lender to extend a loan to someone who did not demonstrate the 

ready ability to repay; and I think in your testimony you pointed 

out that a lot of these loans that went into default were very highcost loans where the fees were evaluated and that these lenders 

had the ability—the originators had the ability to push these out 

in the securitization stream, and so they could escape any consequences of making an unstable or a loan to a non-creditworthy 

person. Are those factors that you think led to the original problem 

that we had with subprime? 

Ms. COHEN. That appears to be the main factor in how the machine was oiled. If the party making the loan doesn’t care whether 

it performs because they sell it right away and they earn their fees 

up front, then they have no incentive to make sure that the loan 

is affordable. And, on the other hand, the assignee liability that 

Mr. Bentsen was talking about before is key for the homeowner, 

because it is the party who holds the loan at the time of the loan 

payment problem who needs to be accountable to the homeowner 

so that the homeowner can get a remedy. 

Mr. LYNCH. Let me go over to the safe harbor versus the rebuttable presumption argument. The safe harbor appears to be a 

structure, sort of a check-the-box situation, where if the lender can 

fit their product and their process within the safe harbor guidelines, then we can check that box, and they are pretty much immune to any backlash, any litigation, any liability further on down 

the road. 

We had such a structure in the mortgage rating or the security 

rating portion where, regardless of the real quality of some of these 

asset-backed, mortgage-backed securities, as long as they had that 

AAA stamp on them, they were fine and people were buying them 

up and they were fungible, even though behind that check-the-box, 

AAA situation, we had some wholly unsustainable securities, and 

they weren’t anywhere near the quality of a U.S. Treasury. 

Are we getting into that same situation here where we create 

this safe harbor, check-the-box type of situation, yet we all know 

that through innovation and creativity, you might have a situation 

where a lender could check the box but yet still convey a mortgage 

that is really, given the circumstances of that individual customer, 

not repayable or is of highly questionable ability to repay? Ms. 

Cohen? 

Ms. COHEN. I will focus on the safe harbor. I am not an expert 

on the ratings agencies. 

With regard to this question about whether if you check the box 

you are golden, no matter what you have done, that is essentially 

what the safe harbor does. Several witnesses said it is not an absoVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
36 

lute insulation to litigation. To the extent that you don’t meet the 

Qualified Mortgage definition, you can raise the question of whether you have done that or not. But once you have properly checked 

those boxes and you can prove it, the homeowner has zero recourse 

even if you made a predictably unaffordable loan. 

Mr. LYNCH. And if you are a lender and you basically have to 

prove that you have investigated the applicant’s ability to repay, 

wouldn’t you have evidence that you have walked through that 

process? Wouldn’t that be extremely valuable to a lender, having 

that information regarding that particular applicant? 

Ms. COHEN. That is the underwriting process that the statute 

hopes to reinvigorate. 

Mr. LYNCH. Ms. Still? 

Ms. STILL. Congressman, I think you have touched on exactly 

why it is so important to get these standards right. If we could all 

agree on a set of standards that legitimately evaluated a borrower’s 

ability to repay, then it would be good to have the certainty of a 

safe harbor and we would all agree that the checklist, if you will, 

was very appropriate for any given borrower. 

I think by having a safe harbor and a very explicit checklist, you 

incent good behavior and lenders know exactly how to comply, and 

so we will get a better business result at the end because there will 

be clarity on how to do this right. 

The only other thing I would point out is that, in the past, lenders were managing to guidelines, whether it was GSE guidelines or 

private investor guidelines. This is law, and it is not a guideline. 

It is the law. And so I think you do get much higher levels of compliance than in the past. 

Mr. LYNCH. But the difficulty with legislation is that sometimes 

it is better to have the rule-making agency deal with the particulars. It is very difficult for us with 435 Members of Congress to 

sometimes agree on the precise word and not its second cousin in 

terms of crafting legislation. 

So I am just worried about the innovative, creative lender who 

might be able to push out a loan to a non-creditworthy customer 

and that creates a certain advantage for that firm and pushing the 

envelope. We want to provide some type of recourse, perhaps this 

rebuttable presumption, for the borrower who gets snookered, so to 

speak. 

Thank you. I yield back. And thank you for your indulgence. 

Chairwoman CAPITO. The gentleman from Tennessee, Mr. 

Fincher, for 5 minutes. 

Mr. FINCHER. Thank you, Chairwoman Capito. 

Mr. Hodges, how can Congress and the Administration be 

proactive in providing relief in terms of ensuring that potential 

manufactured home loan customers continue to have access to financing options? 

Mr. HODGES. For one, I think supporting House Resolution 3849 

helps. Anything that would help adjust both the HOEPA and QM 

thresholds and caps to help make more low balance manufactured 

home loans come under those thresholds keeps financing available 

in that market. 

I think the CFPB also has authority in this area on both HOEPA 

and QM to provide regulatory assistance. So anything coming from 

37 

this body or others who can help promote that with the CFPB— 

and we have enjoyed our discussions with them—can be very helpful. 

And then just I guess lastly, if anybody is concerned or questionable about manufactured housing and its impact and its value to 

low- and moderate-income customers, ask us. We would love to 

help educate and provide more information, just so you can feel 

comfortable like we are with these issues. 

Mr. FINCHER. Okay. Second question: In your testimony, you explain that the Dodd-Frank Act recognized the need to regulate big 

banks and small banks differently. Could you explain the challenges inherent in trying to regulate small manufactured home 

loans on par with larger site-built home loans? 

Mr. HODGES. Sure. And sort of harkening back to the question 

earlier, by way of example, fixed cost to originate and service of 

around $2,000 per loan, that is 1 percent of a $200,000 loan or 10 

percent of a $20,000 loan, which makes hitting those thresholds 

and caps much more risky for the manufactured housing transaction. 

Mr. FINCHER. Okay. One more just to wrap up. 

I think you said a few minutes ago you expressed the need for 

the CFPB to clarify that individuals who assist and aid customers 

in the manufactured home buying process are not categorized as 

loan originators for purposes of the SAFE Act. Have you had discussions with them about this issue; and, if you have, has there 

been any action on their part following the meeting? 

Mr. HODGES. MHI has had discussions with the CFPB staff on 

guidance coming from the SAFE Act. At this point, we haven’t 

heard exactly where that guidance may go. We would be very 

pleased to help participate in that and receive guidance from the 

CFPB with respect to manufactured home retailers and sellers and 

whether they would be loan originators under the SAFE Act. 

Mr. FINCHER. Thank you, Tom. I appreciate it. 

I yield back. 

Chairwoman CAPITO. Mr. Carney for 5 minutes. 

Mr. CARNEY. Thank you, Madam Chairwoman. 

I would also like to add to Congressman Watt’s comments about 

the panel today. Thank you for putting together a very helpful and 

balanced panel. I appreciate that very much. The information being 

shared and the conversation has been very helpful. 

I have heard kind of agreement—basic agreement from everybody across-the-board that we need, in terms of a QM, something 

that is broad and something that is clear with bright lines. Does 

everybody—I see everybody pretty much shaking their head with 

that. 

Is your expectation that it will be easy to figure out what that 

is, what constituents broad and clear? I ask Ms. Still if she has a 

notion of what that—I suspect at some point, the question is going 

to get to be, where do you draw the line? 

Ms. STILL. Yes, exactly. And I don’t think the expectation is easy 

at all. I think the Clearing House document tried to make an attempt at starting that dialogue. 

Mr. CARNEY. Is that the document Mr. Watt was referring to? 

38 

Ms. STILL. Yes, exactly. I would look to the Colorado Housing Authority, which has set ability to repay at about a 50 percent back 

ratio. Fannie Mae has a waterfall that starts at 45 and goes to 50. 

North Carolina has set the number at 50. I think the interagency 

guidance from a couple of years ago provided the notion that 50 

would be a good number. And so, for me, that would be part of the 

review: to look at what the States have done already and look at 

what the current lending levels are. 

Mr. CARNEY. There are good practices. There have been good underwriting practices, notwithstanding what has happened in the 

last several years, and good underwriting practice among institutions out there in the marketplace currently. So one would think 

that you could arrive at some close place. 

Anyway, Mr. Stein, do you have a view of that? 

Mr. STEIN. Yes. We were part of the Clearing House recommendations, and the thought there was to set a back end debtto-income ratio as the baseline, which we picked 43, which is FHA’s 

manual underwriting standard. So anybody under 43 would be a 

QM. But we recognize that there are a lot of borrowers who can 

afford a 43 and shouldn’t be denied a home loan or the safer type 

of home loan provided by QM, so we have added the compensating 

factors that lenders have used historically. If you have a lot of reserves, if your new loan doesn’t cost more than your old loan that 

you successfully paid, if you have a low mortgage payment, or if 

you have residual income, which somebody mentioned, if any of 

those are true, you also could become a Qualified Mortgage. 

Mr. CARNEY. So this is a really important issue, right? I have 

gotten a lot of calls and a lot of comments from people at home and 

here. But your sense is that everybody—so everybody has a pretty 

compelling interest to engage and to try to come up with something 

that works. 

Is there anyone on the panel who has a different view as to 

whether this will be able to come up with something that works? 

Mr. Bentsen, how does it relate to your interests, the folks that 

you represent? 

Mr. BENTSEN. Congressman, I think largely QM will become the 

mortgage market. 

Mr. CARNEY. You said that. So it is really, really important, 

right? 

Mr. BENTSEN. Yes. If you consider the fact that 90 percent of 

mortgages are funded through the secondary market or through 

securitization, this is where investors—the main investors are 

going to be. This is where the securitization market will be. So it 

is a very difficult process, no doubt, in how these clear and bright 

lines are determined, but it will define the mortgage market. 

Mr. CARNEY. So, we didn’t talk about this much. You referred to 

it briefly, I think, in response to a question about the future of the 

GSEs. How might that affect this whole question as well? 

Mr. BENTSEN. Certainly you, Congress, are going to have to 

make the determination on what you do. 

Mr. CARNEY. Let’s just take, for example, the Administration— 

about a year-and-a-half ago, the Treasury came in here and presented their White Paper, I guess, and their preferred option, 

39 

which was kind of a hybrid government-private kind of an option. 

How would that affect what we are talking about today? 

Mr. BENTSEN. Obviously, QM, QRM, whatever the GSE conforming market, all of those things are going to have to be in correlation or coordination with one another. They can’t be in conflict. 

And so, wherever QM ends up based upon the final rule, risk retention, and then wherever Congress determines what to do with the 

GSEs going forward, whatever that may be, all of those things 

have to be considered in coordination with one another. 

Mr. CARNEY. Thank you. I see my time is up. 

Chairwoman CAPITO. Thank you. 

Mr. Canseco? 

Mr. CANSECO. Thank you, Madam Chairwoman. 

In all my years as a community banker in Texas I have never 

met a banker who made loans that he knew wouldn’t get repaid. 

This makes the ability-to-repay requirement and corresponding QM 

and QRM rules included in Dodd-Frank all the more curious. And 

there appears to me a belief behind these rules that perpetual liability and the ever-present threat of litigation will somehow make 

the mortgage market function better for consumers. And nothing 

could be further from the truth. 

As I already noted, a number of banks and community banks in 

Texas and around the country have ceased making mortgage loans 

because of Dodd-Frank; and this cuts off a very vital source of credit for families in small towns who have relied for years on their 

local institutions. 

This is not consumer protection. In fact, this is harmful to the 

families who are supposed to be protected by all these new rules. 

As we have already learned today, credit could be even further restricted to worthy borrowers if common sense is not applied to 

pending rules by the CFPB. So if you want proof of just how bad 

Dodd-Frank is for our economy and the housing market, look no 

further than today’s hearing. 

So, Ms. Cohen, as I mentioned in my opening statement, there 

are financial institutions in Texas and around the country that 

have stopped making mortgage loans largely because of new compliance regulations. Do you view this as an acceptable consequence 

of the mortgage rules included in Dodd-Frank? 

Ms. COHEN. Congressman, I don’t have any information about 

why those particular banks closed. What I can tell you is that I 

have gotten calls every week for the last 15 years from homeowners who got loans they could not afford, largely not from community banks, but sometimes from community banks. And the protections in Dodd-Frank are intended to address those excesses. If 

the standards are broad and clear and balanced, then many lenders 

intending to make home loans should be able to make good loans. 

Mr. CANSECO. So do you think that these community banks in 

Texas were making those types of loans that were being forced to— 

these banks that are being forced to exit the market are making 

these type of bad loans? 

Ms. COHEN. I am not in any way saying they were making bad 

loans. My observation generally is that the economy has been in a 

hard place. The economy has been in a hard place because of the 

40 

excesses of the lenders and Wall Street, not because of the excesses 

of consumers. 

Mr. CANSECO. Thank you for your opinion. 

Mr. Hudson, I understand that there is a concern from the Texas 

Veterans Land Board over the QM rule and how it will affect mortgage availability for veterans in Texas. Could you expound on that 

a little bit, please? 

Mr. HUDSON. Yes, Congressman. 

Two weeks ago, the Texas Veterans Land Board, which is an 

agency of the State of Texas, contacted me with their concern with 

the Qualified Mortgage, particularly with reference to the 3 percent 

cap on points and fees. Because it is a State bond money program, 

there is no secondary market income or revenue for any originating 

lender. So that money needs to be collected up front in order for 

us to pay for the cost associated with originating a loan. 

The Texas Vet Land Board loan is specifically designed for Texas 

veterans. And, like I said, this week, if you are a disabled veteran 

in the State of Texas, you would have a mortgage interest rate on 

a 30-year fixed-rate loan of 2.61 percent. So the Texas Vet Land 

Board contacted me because they see the threat to their viability 

to assist Texas veterans, in particular disabled veterans, because 

they see that with this 3 percent cap, it is going to be impossible 

for them to allow for anybody to originate these loans. 

Mr. CANSECO. Have you seen any signs from the CFPB that they 

are aware of this issue in Texas or potentially other States? 

Mr. HUDSON. Yes. We actually just recently met with the CFPB 

and brought to their concerns the bond money programs that will 

be affected. 

We are also going to be contacting every State agency now with 

regards to their home loan programs to make sure they are aware 

of these issues, too. 

Mr. CANSECO. What, in your opinion, should the CFPB do in 

order to address this issue? 

Mr. HUDSON. Right off the bat, the first thing that really needs 

to be done is to delay this arbitrary deadline for this Qualified 

Mortgage rule and with respect, also exclude the 3 percent cap 

from the ability-to-repay standard. 

Mr. CANSECO. Thank you very much. I see that my time has expired, and I yield back the 3 seconds I have left. 

Chairwoman CAPITO. Thank you. 

Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman. And I thank the 

ranking member as well, the two of you, for allowing me to interlope. This is not my committee assignment, but these things are of 

great interest to me, and I try to make my way over so as to be 

a part of these informative sessions. 

Let’s just start with what has been said, but some things bear 

repeating. We find ourselves here today because, at some point, 

loans were no longer maintained in-house; they were moved to a 

secondary place. And then after they were packaged and moved to 

the secondary place, they went to a tertiary place, securitized, and 

then they went to a quaternary place and became a part of credit 

default swaps. 

41 

So when all of this happened, the person making the loan no 

longer concerned himself or herself with the ability to repay. And 

by no longer being concerned, I don’t have to keep it on my books. 

It is going to someone else. These standards became—to be kind, 

they varied. 

Some had pretty good standards. Among the many that had pretty good standards were the small banks, because they were keeping 

the loans in-house. And because they kept them in-house, they 

were a little bit concerned about your ability to repay that loan. 

One of the things that I do hear from my small bankers is that 

they are concerned about the paperwork. They tell me that we are 

creating a lot of paperwork for them, and they have to hire people 

to do this. I have not heard a lot about the standard that is being 

set as much as I have—and I have heard some about the standards—but as much as I have about just the fact that they have to 

do the paperwork. And that causes me some degree of concern. 

So, given that we do have the large institutions or institutions 

that maintain these loans in-house—and I understand the difference between the QM and the QRM and how they apply. But the 

small banks that have this paperwork that they have to contend 

with, has anyone actually looked at the amount of paperwork that 

a small bank would have to contend with? 

Ms. Still, you are nodding yes. So have you had a chance to look 

at the paperwork? 

Ms. STILL. Certainly, we do. We know that the cost of manufacturing a loan has gone up considerably. 

I would start first with what we are doing to the consumer, 

though. We are defensive underwriting. I would suggest that in a 

rebuttable presumption environment, we will ratchet that up even 

more and over document all of our loan files for the unknown and 

the uncertainty. I think it is a real issue for the consumer who is 

trying to buy a home. 

Mr. GREEN. Okay. You have identified a concern, expressed consternation. Now give me a possible solution, because I find myself 

having to do this balancing act. I am concerned about the unintended consequences, but I am also very much concerned about 

consumers not going back to where they were and when we have 

this wholesale distribution of loans with standards, as I said, that 

varied. So now give me some indication as to what the solution is. 

Ms. STILL. I think the solution is a clear definition for the ability 

to repay, a clear, confident way for lenders to lend, require the documentation from the consumer that is applicable, and make sure 

that we can lend with confidence and not have to over-document 

loan files because of the uncertainty of a rebuttable presumption. 

Mr. GREEN. Now, I am in complete agreement with you of what 

you just said, but I don’t know that it addresses what the small 

bankers tell me about the paperwork and how they have to employ 

additional help for the paperwork. I think you are right. I am with 

you. But I am still trying to help them. Is there some way to 

shrink, condense? 

Ms. STILL. I think we will never go back to stated income loans 

where there was no paperwork in the file. So I think some of that 

paperwork is very applicable. I don’t think we are going to solve 

the problem. I think we need to acknowledge that a well-docuVerDate Nov 24 2008 18:46 Feb 26, 2013 Jkt 076115 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\76115.TXT TERRI
42 

mented loan file is one of the advantages, one of the benefits that 

Dodd-Frank has brought us. I wouldn’t try to go back all the way 

to where we were. 

Mr. GREEN. I concur. I don’t want to go back. Because I remember the no-doc loans, and I don’t want to go back to loans that had 

these balloons and teaser rates that coincided with prepayment 

penalties. I understand where we were. I don’t want to go back either. 

But I just try to do what I can to help the little guy that is involved in this, and the little guy is a small bank. Now, we are not 

talking about little guy in the sense that you are poor. 

But I thank you, and I have to yield back, sir, or I would come 

to you. Thank you. I have to yield back. 

Chairwoman CAPITO. Thank you. 

Mr. Huizenga? 

Mr. HUIZENGA. I will grant the first 30 seconds of my time to Mr. 

Stein to answer that. 

Mr. STEIN. Thank you very much. That is very kind. 

I was just going to say that I will be curious what your banker 

constituents think about the new form that the CFPB put out, the 

disclosure form which combines two forms into one. It simplifies it 

and makes it clearer for borrowers. I think that is an improvement 

in terms of reducing paperwork and making people better understand what they can buy. 

Thank you very much. 

Mr. HUIZENGA. I appreciate that. Because I am interested as 

well. I have a background in real estate, developing, my family is 

still involved in construction, and this is an issue a bit near and 

dear to my heart. 

I do have to make one quick comment, though, about the Zandi 

report. I have not read it yet. I am looking forward to that. 

But it seems to me that this is the—the estimate that the 1 to 

4 percent increase in our mortgage rates may come about if this 

is fully implemented, the way that it has been proposed, strikes me 

as running completely counter to what Chairman Bernanke at the 

Federal Reserve is trying to do by driving interest rates down some 

of us would argue maybe below market rates by—through quantitative easing and some of those other things. 

But, Ms. Cohen, I know you had made a comment about a couple 

of things. One, you were saying about if there were clear, broad, 

and balanced guidelines, that you didn’t think there would be a 

problem, and that this was not excesses of the consumers but of 

banks and of Wall Street. 

I think part of the problem is the balanced part of those guidelines. My bill, H.R. 4323, dealing with the 3 percent cap that I 

think Mr. Hudson had referred to and a couple of others had referred to is trying to restore some of that balance. And I would respectfully put forward that this notion that somehow consumers 

don’t have some culpability in this may be a little off. 

I am advancing, but I am 43, all right? I know what my generation is looking for and those who are slightly younger. They are 

trying to figure out why they can’t have the same size house mom 

and dad had, even though mom and dad ended up saving 50 percent for their downpayment and they bought that home when they 

43 

were 55, not 35. And there is definitely some generational element 

to this, which is why I think we have seen sort of that norm go 

from 20 percent down to 10 percent down to 5 percent down to zero 

down to 120 percent loan to value. 

Nobody wants to go back to those days. It doesn’t make sense. 

It didn’t make sense at the time, obviously, as we know. 

But it seems to me that we have to have that true balance in 

there. And we know that properly done homeownership is one of 

the most stabilizing aspects in a neighborhood, and we need to encourage that. 

I think, as Mr. Luetkemeyer had put forward earlier, that pendulum swung way too far where we were encouraging, ‘‘we’’ being— 

I wasn’t here yet; I am first term—the Congress as a whole and 

others were encouraging lending practices that may have brought 

on some of that. And now it is our job, my job, to make sure that 

the pendulum doesn’t swing back so far that we lock up the construction, we lock up mortgages, we lock up the real estate industry, and really ultimately end up destabilizing these neighborhoods 

further. 

So I don’t know if you care to make a quick comment, but I also 

want to get to Ms. Still, as well. So I would like you to maybe put 

forward a little bit about what types of disclosures you have to do, 

and ultimately are customers benefiting from being able to use affiliated businesses? 

So if either want to make a quick comment? 

Ms. COHEN. I will answer first, since you asked me about it first. 

I, too, am a member of the same generation as you, and the other 

thing that is really challenging people is their lack of economic security, their lack of retirement money. And all of that has been exacerbated by the recent crisis. 

So as we go forward and we think about what do we want the 

market and our economy and our country to look like and our 

neighborhoods, the question really is, will people have access to 

loans they can afford? If there are incentives to inflate fees, we are 

back into the mid-1990s when there were abusive fees that HOEPA 

tried to get rid of. 

One of the key things that HOEPA introduced was a limit on 

fees that could be paid, and it focused in part on affiliated fees. Because it is those companies which can funnel more money to the 

creditor, and the creditor has an incentive to inflate the loan 

amount and to inflate the fees. That is our concern. 

Mr. HUIZENGA. Okay. Ms. Still? 

Ms. STILL. Thank you, Congressman Huizenga, for your Consumer Mortgage Choice Act. 

As it relates to affiliates, yes, we do want consumers to have 

choice. And in today’s housing environment, the value of working 

in an affiliate relationship, the value of the one-stop shop is beneficial to consumers. And so in your bill not aggregating the title affiliate and the mortgage affiliate is very helpful for consumers to 

be able to use those services. We certainly appreciate that. 

We have talked about the three-point rule, and I just want to 

make one comment. There is a way to address the three-point rule. 

In MBA’s comment letter, our recommendation is we, the CFPB, 

change the definition of a low loan amount. I think it is set right 

44 

now at $75,000. Our research would suggest that $150,000 would 

be a better definition of a small loan. And if, in fact, we set the 

definition of a small loan at $150,000, which is about the median 

loan amount in the country, in most States the majority of costs 

would be addressed appropriately with that level. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. Miller? 

Mr. MILLER OF CALIFORNIA. I want to thank Chairwoman Capito 

for allowing me to ask questions. I am not a member of this subcommittee, so it is very much appreciated on your part. 

You have to wonder what we are doing in this country anymore. 

FHFA is bulk selling foreclosed properties in California right now 

in a market where you go in any real estate office and there is a 

list of buyers looking for homes to sell. We asked them why they 

were doing this, and they said because the homes have been on the 

marketplace far too long. We said then give us the definition or 

breakdown of how long the homes have been on the marketplace, 

just to find out that 70 percent of the homes were never even listed 

for sale. 

And so, instead of listing them in the normal, traditional way, 

and selling them off and making a profit for the government, we 

are going to sell those houses to the same people who got us in 

trouble, Wall Street, and give them a great deal for doing it, and 

somebody is going to pay the price later. And I think we need to 

look at what we are doing. 

But then you have to look at QM, and you say, how are they 

going to define it? What is it going to do to the marketplace? Any 

loan that does not meet the Qualified Mortgage designation marketplace is going to be a real problem loan. And I am concerned 

about the CFPB. What happens if they adopt a rebuttable presumption definition versus a safe harbor? How does that impact 

the marketplace? 

Mr. Bentsen, it is good to see you again. Maybe you would like 

to address that a little bit? 

Mr. BENTSEN. Thank you, Mr. Miller. 

Our view is that the rebuttable presumption has the risk of assigning liability that will basically force or cause investors to consider in their underwriting and investment in a loan whether they 

are going to invest for 5 years, 10 years, or 30 years. Thirty-year 

loans tend to prepay often, as you know, in an interim period. 

They are also going to be underwriting assigning liability, and 

that is a risk that investors are not inclined to take. 

And, furthermore, given the fact that the government is by statute and mandate through rulemaking establishing underwriting 

criteria for the loan, we think that a safe harbor is a much more 

appropriate approach to take. 

Mr. MILLER OF CALIFORNIA. So it is almost like defects litigation 

that occurred. We know how that was expanded on and abused. Do 

you see the same thing that could possibly happen here? 

Mr. BENTSEN. We think there is a risk, and we think that risk 

will have, at the very least, a price effect. But, let me be clear, we 

think as part of that, we agree with the other panelists that you 

have to start with what is the broad definition and then you have 

45 

to be very explicit about what that definition is. So there are the 

bright lines that we understand where the QM market is. 

Mr. MILLER OF CALIFORNIA. The other one I am having problems 

with is loan origination compensation for mortgages. And I understand the concern that was expressed when we got involved in this, 

but it is becoming detrimental now to actually closing loans. You 

have a situation where they might need to modify compensation in 

some fashion at the end even downwardly, and they are prohibited 

from doing that. 

Mr. Hudson, can you expand on the loan origination and compensation rule and how you believe it is harming consumers and 

individual mortgage brokers? 

Mr. HUDSON. Yes, Congressman. Thank you. 

Currently, the way that the loan originator rule from the Federal 

Reserve Board and now the CFPB is adopting is taking us to where 

once I have a payment or a compensation agreement with my loan 

originator and they in effect quote a mortgage rate to a consumer, 

if that consumer were to shop and try and come back and say, hey, 

well, the guy down the street is offering me a lower interest rate, 

can you match that or beat it, under the current rule my loan originator cannot. In effect, we have taken out the consumer’s ability 

to shop for the better home loan program. 

Another concern with the originator compensation piece is, in the 

very definition, creditors and noncreditor mortgage companies, 

which not only are just typically mortgage brokers but now more 

depositories are acting more as a mortgage broker as well, are 

treated differently. So as to where a creditor can actually not have 

to disclose their compensation, what they are making on that loan, 

our mortgage brokers do have to disclose everything. 

And where this is going to fall in the piece with the Qualified 

Mortgage definition is, because all of our costs or compensation are 

being disclosed up front, it is going to hit that 3 percent trigger 

much more quickly than a creditor would because they are not having to disclose that compensation. 

But with respect to—you have a bill out there, Mr. Miller, that 

will solve some of the problems with regards to allowing consumers 

to shop or even at the same time allowing my loan originator to 

make less—earn less money in order to give that consumer a better 

deal. 

Mr. MILLER OF CALIFORNIA. And it allows you to pay your employees, that is traditional in the marketplace, where you are prohibited from doing that right now. 

There has been recently a proposal from the CFPB, and you 

think it will affect consumers. Can you expound on that a little bit, 

too? 

Mr. HUDSON. I am sorry? 

Mr. MILLER OF CALIFORNIA. The most recent proposal from the 

CFPB, how that will affect consumers? 

Mr. HUDSON. Their most recent proposal with regards to LL compensation? 

Mr. MILLER OF CALIFORNIA. Yes. 

Mr. HUDSON. It actually wasn’t a proposal, an official proposal, 

but their idea was to generate a flat fee compensation amount, 

46 

which would mean that our originators would make the same on 

an $80,000 loan as they would on an $800,000 loan. 

The problem we see there is that in today’s environment, everything is built around basis points, percentage of a loan amount. 

And, in effect, my originators or myself as a company and mortgage 

brokers and mortgage bankers, higher loan amounts are in effect 

subsidized to lower loan amounts. So if we reduced that ability to 

compensate an originator on a lower loan amount that they were 

making— 

Mr. MILLER OF CALIFORNIA. I just wanted you to put that on the 

record. Thank you very much. 

Chairwoman CAPITO. The gentleman’s time has expired. 

Mr. MILLER OF CALIFORNIA. Thank you. 

Chairwoman CAPITO. Thank you. 

Well, I think that concludes the hearing. 

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 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

I would like to thank all of the witnesses for their great answers 

and very candid responses. 

And, with that, this hearing is adjourned. 

[Whereupon, at 12:33 p.m., the hearing was adjourned.] 

(47) 

A P P E N D I X 

July 11, 2012 

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