The U.S. House of Representatives is considering a bill to address the underwriting difficulties and resulting lack of access to mortgage credit for self-employed borrowers and others with nontraditional income sources.
Representatives Bill Foster (D-IL) and Tom Emmer (R-MN) introduced H.R. 2445, a House companion to the Senate bill recently re-introduced by Senators Mike Rounds (R-SD) and Mark Warner (D-VA). H.R. 2445 calls itself the "Self-Employed Mortgage Access Act of 2019," although its effects would not be limited to those borrowers. It would, if enacted, amend the ability-to-repay and qualified mortgage provisions of the Truth in Lending Act to allow mortgage lenders to satisfy those requirements by relying on one of several sets of industry-recognized underwriting guidelines. Specifically, the bill would state that a mortgage lender may satisfy the ability-to-repay requirements, and obtain qualified mortgage status, by considering income, assets, and obligations in accordance with either Regulation Z's Appendix Q, or a guide or handbook maintained by Fannie Mae, Freddie Mac, a Federal Home Loan Bank, the Department of Housing and Urban Development/Federal Housing Administration, the Department of Veterans Affairs, the Department of Agriculture, or the Rural Housing Service.
As we noted previously in this space, Appendix Q currently requires lenders making a qualified mortgage to a self-employed borrower to obtain a significant amount of income documentation, without providing any flexibility. For borrowers with certain other types of income (besides income from W-2 employment), Appendix Q provides either scant or no instructions, leaving mortgage lenders unclear as to how to comply, and often unwilling to take the chance. The apparent purpose of the Self-Employed Mortgage Access Act of 2019 would be to allow lenders access to other tested industry guidelines as an alternative to Appendix Q.
Since the CFPB is already considering how to address the expiration of the temporary Fannie Mae/Freddie Mac "patch" (which allows lenders to rely on those enterprises' guidelines until January 10, 2021, so long as the enterprises remain in conservatorship), this legislation might direct the agency to use the new standard as the replacement for the "patch." This will be welcomed by those in the industry that want a wider underwriting standard for QM lending, but will not satisfy others that believe that acceptable underwriting under QM should not be limited to standards set by the government or government-related entities.
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