the committee will come to order. without objection the chair's authorized to declare a recess of the committee at any time. last january, the cfpb -- i'm going to recognize myself for the purpose of making an opening statement. last january the cfpb issued a

series of rules that will fundamentally change the mortgage market in the united states. over the last year we've had numerous hearings, in the financial institutions and consumer credit subcommittee to learn more about the effects these rules will have on the availability of credit. last november, i had the pleasure of joining mr. rothfus in pittsburgh for a roundtable discussion with the community development organizations in the greater pittsburgh area about the effect these rules will have on their ability to serve their consumers. two things emerged from these committee hearings. one, that the new mortgage rules impair the ability of lenders to work with borrowers on an individual basis. and number two, low to moderate income borrowers stand to lose the most if lenders cannot write loans outside the qualified mortgage definition. this morning we have a panel of witnesses that will further educate members of the subcommittee on how their constituents will be affected by this rule. we have three lenders that will discuss the difficulties in working with borrowers with credit profiles that fall outside the qualified mortgage

definition. in most cases, lenders will sit down with riskier borrowers, that's what we do in west virginia, and craft a mortgage that is highly tailored to the borrower's needs and risk profile. this type of relation is especially crucial in the rural areas as my district of west virginia is. no two borrowers have the same credit profile and i fear that the one size fits all approach to the cfpb mortgage rule will severely hamper the ability of community lenders to tailor products to their borrowers. i also fear that the very population that this rule seeks to protects the low to moderate income borrower, is the population that will be most affected by these rules. this morning we will learn about the difficulties that habitat for humanity face in complying with this rule. the ability of charitable programs like habitat and other entities who provide mortgages to underserved populations is critical. is critical, to helping these borrowers realize their dreams of home ownership. this is another example of the

consequences of removing underwriting discretion from the hands of lenders, and borrowers, and placing it in the hands of the bureaucracies in washington. it is my hope we can work together to find commonsense solutions to provide consumers with the transparency they deserve, without limiting the ability of lenders to work with borrowers on a case by case basis. i now yield time to the ranking member of the subcommittee mr. meeks for the purposes of making an opening statement. >> thank you, madam chair. and i certainly agree with you that today we hold a very important hearing that the qm rules finally became effective last friday. and i also think that we can all agree that this is one of the most important new financial reforms that have been passed in recent years. i also want to say thank you for being here today and this morning knowing the serious issues that your constituents face in west virginia dealing with their drinking water.

i'm pleased that we're discussing the implementation and impacts. but you know i think that we also need to issue some words of caution that the rules just became effective a few days ago and although we're here to talk about their impacts we really don't have the data yet to definitively argue what the effects of the new qm rules will be. in fact, it may take a few years to have the conclusive data. but i think that it is important to have these discussions and to have them now for clearly this is very important to me. i probably would not be sitting here today if it wasn't for the fact that my parents had the opportunity to own a home. you know, we moved from public housing to buying a home which was the american dream, at which time my parents were able to actually afford me and my sisters an education as a result of owning that home. and so, this is significant and it is somewhat personal for me.

and i personally have no doubt that there are impacts, significant impacts on prospective home buyers. after all, it was our intent to have new rules that fundamentally changed the old practices of the mortgage industry. and what i have to try to weigh, i think what we all have to try to weigh, is to make sure that we don't eliminate the possibilities of individuals like my parents from owning a home. we want to make sure that those individuals, because that's how we move the american dream and people have an opportunity to progress. at the same time, we cannot be -- we cannot have a short memory, because we know from january 2007 to december 2011, 4 million american households lost their homes through completed foreclosures, and another 4.2 million were appended. and by 2010, u.s. home values dropped by an average of 30% from their 2006 peak. more than 26% drop that occurred between 1928 and 1933 during the

great depression. and the fact that we lost a record 9 million jobs between 2008 and 2009. roughly 6%. this was devastating and i look at a district like mine, still recovering, actually, from this devastation. they were the devastating consequences of an economic system that failed because of widespread predatory and fraudulent mortgage practices. and in the midst of all this, especially african-american hispanics were disproportionately steered to these predatory loans. studies by "the wall street journal" and fannie mae both concluded that about 50% of african-americans and hispanics were steered to loans, subprime loans, even though they could qualify for prime loans. these groups were targeted by subprime lenders and brokers who received incentives for jacking up the interest rates. wells fargo, bank of america, citi, countrywide, are among a list of large lenders that were sued for the lending practices

that discriminated against minorities by steering them into high-interest subprime loans they eventually could not pay for. no other recent economic crisis better illustrates the saying that when america catches a cold, african-americans and hispanics will get pneumonia. today the wealth gap between blacks or hispanics and whites is the worst it has been since we started tracking these figures three decades ago. so let me make it real clear. this is one of the most fundamental pieces of legislation that was long overdue in this country, and its effectively implementation is an important milestone that we can be proud of. and i look forward to working in a bipartisan manner, because this affects all americans. i talk specifically in regard to how disproportionately affected african-american hispanics, but it affects every american, every poor american. in urban america, in rural america, this is something that we need to come together and work collectively together to resolve it, because, really, this is where the future of our country lies, and if we don't

keep individuals the opportunity to have a better life, by investing in the american dream and owning a home, then shame on all of us. so i look forward to, and i have been working very closely with my colleague and the chair, i look forward to continuing to do so in a bipartisan manner so that we can make sure we do the best things for america's people. i yield back. >> i thank the gentleman. i would like to, without objection, enter into the record the flyer many of the folks in the audience have been passing out in the hall today. without objection. [ applause ] i'd like to recognize mr. duffy for two minutes for an opening statement. >> thank you, madam chair. i appreciate you holding thises very important meeting. i understand the caution after the financial crisis to have some form of a qualified mortgage rule when we're selling mortgages into the secondary market. that makes some sense. my concern, though, with this rule, is the way it's been written. a lot of small banks in

wisconsin, a lot of credit unions in wisconsin, who may not have any interest in selling these loans into the secondary market, actually are loans they want to keep on the books, but those loans don't fit within the qualified mortgage rule, aren't going to make these loans. and the people that are left behind by this rule are minorities, are low income, moderate income individuals. people that might not have a traditional income stream. a 9:00 to 5:00 job, a small business owner who may have a cyclical income with that small business. it's these people who aren't going to be able to live the american dream, which is part of buying a home. and so, i'm interested in hearing from the panel today on how you are analyzing the qm rule and how it's going to affect your lending practices. because as i look back to my district, we're at work in our communities. where our bankers are able to look at individuals in a number of different factors, and they

take risk on them. and they -- and they give them loans. and oftentimes, those loans perform really well. but now we see big government making rules, bureaucrats in washington making rules, that are going to prohibit that young individual, who's just coming out of college, just starting a family, from actually buying a home. i would agree with mr. meeks, the pendulum was too far over before the '08 crisis. but this rule swings the pendulum far to the other side. we have to have a commonsense approach that's going to work for the american people. no matter what kind of income stream you have. this just can't work for high-income americans. in this rule is tailored toward high-income earners. we have to make sure we're looking out for all americans. i yield back. >> thank you. i'd like to recognize miss maloney for two minutes for purpose of opening statement. >> i thank the chairlady and the ranking member for holding this important hearing. the qualified mortgage rule is

one of the centerpieces that came out of the financial crisis. and it is supposed to ensure that borrowers are protected from predatory lending practices that did so much damage to americans. we have to remember, this country lost $16 trillion. thousands of people lost their homes, their jobs. we're still recovering from the longest recession in my lifetime. which most economists attribute to the mortgage crisis, and the predatory, risky loans, that were pushed out to consumers. what does this rule do? it merely says that you cannot have risky features that can consumers and the overall economy. such as saying interest only payments, that's not a good thing to do. it also says that negative

amortization, where the total debt rose every month, that you can't do that. and it says the payments should not exceed 43% of a borrower's monthly income. most economists say it shouldn't be more than a third. and even exceptions are to that. now the rule came out on friday, and already the cfpb has given a two-year grace period to small lenders, community banks, credit unions, to see how they can monitor it and see what the effect is. they have also said, and i'm very pleased to hear this, that based on their data, they're open to making adjustments and changes. i think we all agree that we don't want another financial crisis. and if we don't learn from the one we already went through, then we probably will have another financial crisis. this rule is put in place to protect consumers. protect lenders. protect borrowers. protect banks. and protect our overall economy. so i look forward to monitoring

it, seeing its impact, and making sure that it is fair to consumers and our overall economy. i yield back. >> thank you. i'd like to recognize mr. baucus for two minutes. >> i thank the chairman. i got my kiplinger letter about four days ago, came out, and it predicts ten things for 2014. it was very similar to an article in the economist that came out right after christmas and also in bloomberg business. they all predict the very same thing. here's what it says. you'll pay a higher rate for a mortgage and mortgages will be harder to obtain because of higher lending restrictions from the cfpb, the consumer financial protection bureau. it also says something else, as a result slower growth for housing. now housing is about an eighth of our economy.

we're talking about home ownership and mr. meeks told a story that really is an american story. i think really the american dream is a job, not so much a home. because if you don't have a job, it's hard to have a home. to have home ownership. but that's what every person aspires to do is get a job, and then for themselves or their family, find a home. and leading up to 2008, we may have gone too far because we wanted everyone to have a home. because we found that if you own your own home, communities are safer, children do better in school, people buy in to the community. and it benefits society as a whole. i don't know of anything more beneficial to a community than high rates of home ownership. and yes, we had very lax

underwriting standards. no one wants a repeat of 2008. but we don't want to overregulate. we don't want to go too far. we don't want, as physicians say, do no harm. and this rule does harm. it's going to deny people like mr. meeks or myself -- i can remember when we -- first home. it was a great day. and i don't want to deny that to any american. >> thank you, mr. green for two minutes. >> thank you, madam chair. i would like to associate myself with the comments of the ranking member, and i'd like to add i bit to it. because, in congress, i have a piece of legislation for alternative credit scoring. i have a history of trying to make sure those persons who don't have opportunities acquire opportunities. this piece of legislation would consider light bill, gas bill, water bill, utilities, other forms of credit that are not

traditionally scored. and this will help a lot of people. i'd also like to reflect for just a moment on what happened to cause us to get in to this crisis. a lot of the people that we have been trying to help were given loans that were beyond what they qualified for. they qualified for a loan at 8% with a yield spread premium, they got a loan of 10%, 12%. or if they qualified for 5, they got a loan for 10%. and they didn't know. they did not know that they qualified for a 5% loan. because there was a system in place that allowed the person who was qualifying you to get a bonus, a kickback, if he could qualify you for a loan at a lower rate, and then push you in to a higher rate loan. that's dastardly. that's what this deal deals with. we've got to deal with the things that have caused

african-americans to lose a generation of wealth. we don't want that. dr. king was right. he said life is an inescapable network of mutualities tied to a single directly what impacts one directly impacts all indirectly. that crisis that hit the african-american community, the minority community, impacted the entire economy. it wasn't just some people who were taken advantage of in the final analyses. so we've got a duty to do all that we can to prevent this from happening again. i want to see the balance. i support these community banks. but i don't want to see people taken advantage of. i yield back. >> time has expired. if i could remind the audience, i'm happy -- mr. green is hard to resist because he's very enthusiastic. but if i could ask you to respect the rules of the house, and refrain from expressing approval and disapproval, we'll move the hearing on, i think

quicker and i thank you for your cooperation. thank you. i'd like to recognize mr. pettinger for 1 1/2 minutes please. >> thank you, madam chairwoman for yielding me the time for this important issue. as i travel throughout my ninth district in north carolina, i meet with community bank leaders who tell me time and again of the struggles that they have with regulation s pouring out o washington, d.c. and their inability to address the real financial needs of their community. so often we have seen that the government has become its own worst enemy. we saw that clearly from what happened with the inception of this entire housing demise. the government forced institutions to do certain things and now the government's saying, well, now we're requiring you to do certain things. the government seems to be the one who wants to dictate and micromanage to communities throughout the country.

while regulators here in d.c. say that there won't be a problem with this new rule, that is referred to as qualified mortgage, we have found that that may not be the case. you know, we were also told that if you can -- you can keep your hud carrier if you'd like to. well, we're finding that the community banks, back in our districts, they're not going to lend outside of the qm rule, because of fear of litigation by the feds. the heritage foundation said young duts and minorities will be the hardest hit by these rules. first-time homeowners, they will be limited, with limited economy and debt, they'll be pushing their debt-to-income ratio above qualified status. so, madam chair, i thank you, i believe that we need to give this important consideration. >> thank you, mr. lynch for two minutes for the purpose of opening statement. >> thank you, madam chair. despite the controversy that seems to be percolating here,

today's hearing deals with a very basic rule that is obviously necessary after the last crisis, and should be uncontroversial. and that rule simply states that to stop the predatory lending that the fed -- that fed the housing bubble, "the wall street journal" reform law states very simply that before a lender offers a mortgage to a consumer, they should first come to a reasonable and good faith determination that that consumer has the ability to pay the loan. and that's it. that's what this hearing is about. the law also authorizes the cfpb to define the contours of a qualified mortgage or one that bears the hallmaker of safe, responsibility lending practices. i understand there are some concerns from the banking and the mortgage lending industry about restricting access to credit. but the bottom line here is that the cfpb's rule is supported by a lot of groups who were hurt very badly by that last crisis. a lot of you heard -- have heard from already, especially in

minority neighborhoods in my district, those people who have the most difficult time with the recent crisis are in support of this rule. that includes the naacp, the national council of loraza the national fair housing alliance, the center for responsible lending, and they're all here with us today. and they support -- these groups support this rule that was put in to protect the people that they represent. the qualified mortgage definition may need some tweaking, no doubt about that, going forward. and if it does i hope we can work in a way that cfpb also supports, but i think the folks on this committee would do well to tone down the doomsday talk and rhetoric about the rule that is going to do enormous good for home buyers and will allow a lot of people to own a home. i yield back. >> gentleman yields back. mr. huizenga for one minute. >> thank you, madam chair. i appreciate you holding this

hearing along with my good friend mr. meeks. as someone who's worked in the housing industry as a realtor, it's very important to me. and more importantly to all of our constituents. we're here today to further discuss the impact of qualified mortgage ability, unfortunately this is a flawed rule. i disagree with my colleague over there, and i, along with my friend ranking member meeks, introduced bipartisan legislation which would clarify the rule to ensure access to mortgage credit for low and moderate income families and first time home buyers. today i'm especially pleased to introduce one of the witnesses from the great state of michigan, mr. bill emerson who is the ceo of quicken loans based in detroit and you may be familiar with the work being done in the private sector by companies like quicken and people like bill and gilbert to revitalize detroit and we all applaud that. quicken loens is the largest online and nonbanking mortgage lender in the nation employing 10,000 people. it's been voted one of the best companies to work for and has earned j.d. powers customer

satisfaction awards for four years in a row. it's this kind of company and this kind of attitude that we need to help this change this rule so thank you very much. i yield back. >> thank you. and with the remaining 30 seconds i yield to mr. pearce. >> thank you, madam chair. i represent the southern district of new mexico which is one of the poorest directs in america and i can tell you we are hurt by the qm rule. 50% of the homes in my district are trailer houses and qm automatically declares those high cost loans, and prohibits them so that poor people have no access. so while we're told this rule needs to be there to protect the poor, it is hurting the poor in my district. we must solve this problem. i appreciate your having the panel here today. i yield back. >> thank you. that concludes our opening statements. we welcome our panel of distinguished witnesses. and each of you will be recognized for five minutes to give an oral presentation from your written statement. without objection each of your written statements will be submitted to the record.

after your oral remarks. i'd like to introduce our first witness, mr. jack hardings, president and chief executive officer of the people's bank of ohio, on behalf of the independent community bankers of america. welcome. and you're going to need to pull the microphones up, because they have to be closer to -- close to your mouth when you're delivering your remarks. thank you. >> chairman capito, ranking member meeks, members of the subcommittee i'm jack harding president and ceo of the people's bank company and vice chairman of the independent community bankers of america. the people's bank company is a $400 million asset bank in coldwater, ohio. and i am also a member of the cfpbs community bank advisory consul. i am pleased to represent icba and the nearly 7,000 community banks at this important hearing. the cfpb's new qualified mortgage, or qm rule, has the potential to drive many community banks with fewer resources out of the mortgage market, curtail access to

mortgage credit, and hamper the housing recovery. the qm rule, by providing a safe harbor for harsh liability, including a private right of action under the ability to repay rule effectively draws a tight box around the types of loans that will be made by community banks. banks like mine simply will not incur the risk of making non-qm loans. i'll note a few examples. a start-up small business owner or farmer may have business-related debt on their credit report and that will disqualify them under the qm's 43% debt-to-income or dti limitation. business formation should be encouraged, not punished, by unrealistic dpi limitation. minority borrowers are more likely to exceed the dti limitation according to the recent study of 2010 lending. while many of these underserved borrowers use federal loan programs, the qm status for these programs is only temporary.

the highly compensated individual may see the dti perhaps due to a second home or other types of debt and still have a high disposable income for mortgage payments, these individuals are critical to the housing market recovery. as a small creditor, under the cfpb's definition my bank is not subject to dti limitation. and i could serve these customers. but many other community banks do not have small creditor status. and i'm very close to the 500 annual origination threshold that would disqualify me as a small creditor. we believe that loans sold in the secondary market should not apply to the threshold, and request this committee support for that simple change. even as small creditor, i am significantly limited by qm here, and here are some of the non-qm loans for small creditors

that i may not be able to make as a small creditor. low dollar loans are common in many parts of the country for the purchase or refinance, but qm closing fee cap is often a challenge in making these loans. balloon loans, which are used to manage interest rate risk on loans that can't be sold into the secondary market, are non-qm unless they are made by lenders in predominantly rural areas. under the cfpb's very narrow definition of rule beginning in 2016. loans that exceed the price trigger may still be qm but carry weaker liability protections. even when those loans align with the lenders' cost of funds, risk and other factors. there are additional examples of state legitimate loans that will fail the qm test even under the broader term available to small creditors. icba's solution to the threat of

qm which is included in our plan for prosperity is simple, easy to apply, and will preserve community bank lending. safe harbor qm status should be granted to all community bank loans held in portfolios. a portfolio lender holds 100% of the credit risk, and has every incentive to thoroughly assess the borrower's financial condition, assure the loan is afjordable, and work with troubled borrowers. withholding safe harbor status for loans held in portfolio, and exposing the lender to excessive litigation risk, will not make loans safer, nor will it make underwriting more conservative. it will merely deter community bank lending. i would like to thank the members of this committee that have introduced bills that would provide qm status for community bank loans. these bills include the path act, the clear relief act, and the portfolio lending and mortgage access act. i want to thank you again for the opportunity to testify. thank you.

>> thank you. our next witness has been introduced by mr. huizenga. i would like to add my voice of support. i hear what's going on in detroit, and thank you for you and your company's active participation. mr. bill emerson is the chief executive officer of quicken loans incorporated and he's speaking on behalf of the mortgage bankers association. welcome. >> thank you, chairwoman capito, chairman meeks. while most people rang in the new year two weeks ago for those of us in the mortgage industry the new year began last friday. that's when a host of dodd-frank rules finally came online. none are more consequential with the power to completely reshape the mortgage industry than the ability to repay rule and its qualified mortgage standards. as the ceo of quicken loans, the nation's largest online and mortgage lender it's been my responsibility to charter our company's course into the new regulatory regime. the mortgage bankers association i'm honored to serve as the vice chair has devoted enormous

resources over the past year helping companies like ours come into compliance. a common question we received and one i want to answer at the outset is whether we plan to write non-qm loans. i can tell you categorically that quicken loans like the overwhelming majority of lenders will not lebd outside the boundaries of qm. in fact, even if we wanted to, we wouldn't be able to make non-qm loans because there is no discernible secondary market for them. the only place these loans can be kept is on a bank's balance sheet. beyond that the liability for originating non-qm is simply too great. claimants can sue for actual and statutory damages as well as refund of finance charges and attorney's fees and there's no statute of limitations in foreclosure claims. by the calculations protracted litigation for an average loan can exceed the cost of the loan itself. given this uncertainty, at least for the foreseeable future non-qm lending is likely to be limited to three narrow categories. first there will be loans where there were unintended mistakes. that is because of the complexity of the calculations.

lenders will make loans they think to be qm, only to find out they fail the test. nba believes cfpb should provide lenders with the ability to cure mistakes. a second group will be higher balance and nontraditional loans for wealthier borrowers. because of their income and assets default rates on jumbo loans are relatively low and some lenders particularly large depository institutions will have the resources to keep those loans in their portfolio. and finally, a few lenders will be willing to make loans to riskier borrowers but at significantly higher rates. rates we've seen suggest borrowers could pay an interest rate around 9% or 10% for nonqm loans. the bottom line is nonqm will be very limited and very expensive for all but the wealthiest borrowers. that's why it remains so important to continue to make adjustments to the qm rule. cfpb deserves enormous credit for working with all stake holders lenders and consumer groups alike in fashioning a rule we think is substantial

improvement over dodd-frank. we are also grateful the bureau is open to making additional revisions in the near future. further amendments are essential to assure the qm rule promotes rather than henders our tepid housing recovery. a keyate jiblt factor for qm is the 3% cap on points and fees. a major problem with the 3% cap is the impact on borrowers who take out smaller loans particularly in the $100,000 to $150,000 range. because so many origination costs are fixed a lot of these loans will trip the 3% cap and fall outside of the qm definition. that means consumers, particularly first-time home buyers and families living in rural and underserved areas, will be priced out of the market. the bureau has wide latitude to correct this problem and we urge it to do so. additionally, the final rule pits winners and losers between affiliated and unaffiliated settlement service providers even though their fees are subject to identical regulation. having been in this industry for more than 20 years i can tell you that rules that pick winners and losers ultimately harm

consumers. at quicken loans we've chosen to affiliate with title and other service providers to ensure our customers have the best loan experience, and that there are no surprises at the closing table. as congressman huizenga noted wund of the reasons consumers awarded us the j.d. power award is because we have a smooth closing process. nba urges the congress to pass the mortgage choice act. i want to thank congressman huizenga, ranking member meeks and so many other members of this subcommittee who have introduced and pushed this important legislation. i want to thank chairman hensarling for including these regulations. chad up chairwoman i think you'll find the mba continues to be a willing partner. we want it to work for everyone for lenders, the consumers we serve, and for our economy. thank you again for homding this important meeting. i look forward to your questions. >> i'd like to recognize mr. fincher for the purpose of

introducing our next witness. >> thank you madam chairwoman. i appreciate the opportunity to introduce mr. daniel j. weickenand to the committee this morning. since 2010 mr. weickenand has served as president and chief executive officer of federal orion federal credit union in memphis, tennessee. orion is the largest credit union in west tennessee. i was pleased to host mr. weickenand at a credit union roundtable discussion back in november which included the qualified mortgage rule. today mr. weickenand is here representing the national association of federal credit unions. where he serves as a board member. madam chair it's a pleasure to have mr. weickenand appear on this panel today and i appreciate his taking the time to express views with qualified mortgage before the committee. thank you, and i yield back. >> thank you mr. weickenand you're recognized for five minutes. >> thank you. good morning. chairman capito, ranking member meeks and member of the committee. my name is daniel weickenand. i serve as ceo of orion federal

credit union in memphis, tennessee. we appreciate the opportunity to discuss the cfpbs ability to repay rule and the impact qualified mortgage standard will have an credit union lending. credit unions did not causes financial crisis and shouldn't be subject to the regulations aimed at those entities that did. unfortunately, it has not been the case thus far. as we're hearing from many of our credit union members enough is enough when it comes to the tidal wave of new regulations. we support efforts to support that lenders are not forced into marts they cannot afford. this is a long standing practice of credit unions before the crisis and continues to be the case post crisis. credit unions have a history of making loans for their members they have the ability to repay. this was demonstrated by the quality of their loans during the financial crisis. while credit union loans generally do not have a problem meetings ability to repay underwriting criteria, meeting the additional criteria to obtain a qm status and avoid the additional liability is not certain.

under the rule, the least risk to credit unions is to originate only qm loans limiting loans to solely qms would reduce a legal risk and help ensure the loans are eligible for sale in the secondary market. the ability to sell loans will help credit unions manage interest rate and concentration risk. at orion we made a conscious decision at the onset of the financial crisis to double down on our efforts to return as much as possible to our members in the community we live in. why some institutions may start charging a premium on their loans to account for the additional risk associated with nonqms, we do not feel this is in the best interest of our credit union, our members and our community. consequently, due to the liability and liquidity concerns we have decided to cease to offer nonqm loans at this time. i cannot tell you how difficult of a decision this has been, orion takes great care in placing our members with the right mortgage product. and the qm standard will inevitably force us to turn away many credit worthy borrowers. for example, in 2010 we started

a special orion home run program that allows qualifying participants to rent an unsold foreclosed home for a set period of time. during that rental period the participant is expected to make timely payments, keep the home in good condition, and have positive impact on their neighborhood. when the rental period lapses the home can then be purchased outright for 70% of the tax value with the previous rental payments applied as a down payment and guaranteed financing by us. despite demonstrating the ability to repay, the program participants would not fit the qm standard and therefore would not have the opportunity to become homeowners through orion at this time. i've talked with many of my fellow credit union ceos about the issue, some may be cautiously going forward with non-qm loans but they have indicated they will be more stringent in making them. almost 11% of all of our mortgage loans in the past few years have been classified as non-qm. there are several changes to the

qm standard we're seeking. these areas are outlined in my written testimony but include a fix to the points and fees issue. modifications to the small creditor exemption, consideration of a 40-year loans to be qm, changes to the 43% debt income ratio and deeming all loans sold to the gses to be safe harbor loans. we appreciate the cfpb looking for a good faith effort of compliance months after the rules take effect however this will create ambiguity and cfpb must work closely to further clarify. in conclusion, credit unions have historically but their members into affordable mortgages and continue to do so today. the unique relationship between credit unions and their members allow credit unions to provide flexibility to give their members products that work for them on an individual basis. the restrictions of the new gm mortgage standards have eliminated this ability in many cases. given the new liability, and the additional costs that come with doing non-qm loans many credit

unions like mine have ceased or severely cut back on non-qm lending. congressional action to provide relief on some of the qm standards would help further more congressional action on regulatory leave would help ease the growing burdens associated with new compliance standards. i thank you for the opportunity to appear today, and would welcome any questions you have. >> thank you. our next witness is mr. frank spencer, he is the president and ceo of habitat for humanity in charlotte. welcome mr. spencer. >> good morning, madam chair. and ranking member meeks. i'm frank spencer president and ceo of habitat for humanity of charlotte. i'm here today in support of legislation to address several unintended consequences of mortgage regulation reform that threaten the continuing work of many habitat affiliates. i've submitted my full written testimony for the record, and i appreciate the opportunity to share a brief overview of a few challenges being faced by our affiliate, and other habitat

affiliates in our collective efforts to comply with new mortgage regulations. habitat charlotte builds new houses, rehabilitates vacant properties, repairs houses, operates a $4 million retail outlet, recycles 1200 tons of steel per year, and currently services approximately 780 noninterest bearing mortgages for its partner families. habitat charlotte has served 1200 families in its 30 years, and is supported by 85 employees, and over 5,000 volunteers annually. habitat greatly appreciates the commitment congress has made to stable and productive housing markets as the nation continues to recover from the foreclosure crisis, and economic recession. the success of habitat ownership model is, in fact, predicated on market stability, and the long-term appreciation of real estate values.

habitat understands and fully supports efforts to protect consumers and the american taxpayer from predatory lending schemes that undermine the stability of u.s. housing markets. habitat opposes neither the qualified mortgage standard specifically nor the dodd-frank law more generally. habitat is seeking legislative relief only after having exhausted all other options. the cost of compliance with the new mortgage regulations has been significant. as the largest affiliate in north carolina, we are the only one to employ a licensed mortgage originator in the state. she has spent most of the last year becoming trained on the new standards, auditing our processes to ensure compliance, and organizing our staff to prepare for implementation this january. jill further works to guide other habitat affiliates through seminars and meetings, and has devoted well over 1,000 hours to this process.

this is only on the origination side of the process. we have expended equal, if not greater, effort preparing for the requirements of the servicing component of these new regulations. i can assure you that the compliance costs for most affiliates has been high, and every dollar spent on compliance is one that is not spent meeting local housing needs. habitat affiliates have worked hard to comply with the thousands of regulatory changes, but there are a few regulations endanger an affiliate's capacity to serve partner families without providing our homeowners or the taxpayer any protection. habitat greatly appreciates representative meadows introducing legislation, hr-3529 to provide relief from these regulations. these few provisions focus on monthly documentation of fees and interest, rarely relevant in

a habitat context. ability to repay requirements that fail to recognize the long history of success of the habitat model, which provides home ownership opportunities to individuals who do not qualify for traditional mortgage products. and appraisal regulations that could threaten habitat affiliates' ability to continue to accept donated appraisals. with critical housing needs continuing to increase, habitat resources can be better spent on serving families than on complying with regulations that ultimately provide protection neither to our partner families, nor to the taxpayer. i'd like to say a few words about the ability to repay standards in particular. as drafted, these regulations have the unintended consequence of discouraging habitat affiliates from working to the to improve mortgage products. we in charlotte used to service

mortgages for other affiliates, but the loan limitation numbers prevent us from assuring compliance. in conclusion, habitat for humanity of charlotte is in compliance with the law. however, knowing the human and financial investment we have made, it is equally clear to me that many of our affiliates cannot adequately make the same investment. over half of the housing built in north carolina comes from small and rural affiliates. habitat offers habitat offers a hand up, not a handout. and we hope that we can eliminate any inadvertent impediments to that approach. >> thank you. >> our final witness is michael d. calhoun, president of the center for responsible lending. welcome. >> thank you, chairman, ranking member meeks. it's an honor to testify before this committee and an honor to

be on this panel, particularly so for has been date. i've served more than a decade as a member of the finance committee for my local habitat in north carolina. my brother is a 25-year veteran of habitat and currently serves as a project director in florida for a habitat affiliate on the east coast there. it's also very appropriate that habitat is here today because it really brings us full circle. a lot of these mortgage revisions as many know, north carolina was the first to adopt provisions to stop predatory mortgages. habitat played a key role in that. in the late 1990s, our affiliate self help credit union which provided over $6 billion in finances for first-time home buyers, found borrowers were coming back to us on the brink

of foreclosure. we looked at the loans that they were getting, and they had extraordinarily high interest rates and extraordinarily high fees, and we knee these borrowers' credit histories and they were far beyond what they qualified for. so we undertook research to find out were they just targeting our borrowers? was this limited phenomenon? so we searched the record books across the state. and one of the things we found is that among the lenders being targeted by these predatory lenders were habitat for humanity borrowers. and indeed, 15% to 20% of habitat borrowers had been refinanced out of zero interest rate mortgages into subprime mortgages that were taking them, stripping their home equity with high fees and leading them to foreclosure.

as a response, and you hear more of this perhaps in the question and answer, habitat adopted a protection by putting on soft second mortgages that would protect that home equity from these people that were targeted. and this wasn't isolated. as a lender we had companies offering to sell us target sheets of borrowers in our geographic area who were having financial difficulties but had a lot of financial equity in their home. so that is how we ended up these 15 years later with a lot of pain in between, and for those who doubt that is still out there, this issen e-mail that i came across recently from a subprime lender today. is this the subject reads this is return of subprime lending. the text goes onto say this text is next to the old subprime of our memories.

they promise to take the program nationwide by the end of last year. so subprime is back and ready there again. a second reason we need the qm rule more broadly is the mortgage market is inherently a boom and bust market. and apologize for the small size of this, but if you look at the real price of homes over the years, it's not steady. it goes consistently up to high peaks and bottoms, and the problem is on those roads up to the peak, lending standards erode badly. and if you're a lender, it's hard for you to say i'm not going to join in with the others because you see all of your business go elsewhere. that's why the rule was needed. they chose to adopt a rule that was broad, bright lined and limited liability at the industry which we support, and

they have adopted important measures to make it a two tier model with key protections for smaller lenders. for example, they can charge an extra two percentage points of rates and still be a qualified mortgage with the safe harbor. to be clear how broad this box is, any loan that qualifies for fha, that's 43%. and with compensating factors it can go up to 50%. you can have a loan that takes two-thirds of a borrowers' income and still meet the able to pay standard. and we believe at this state in the market that is the right approach. on fees the three-point limit does not include a lot of standard fees. the average fees charged on loans according to freddie mac as of last week was seven-tenths of one point for origination points and discount points.

so we're talking more than three times that. so we are glad you're holding this hearing. we look forward to this questions, and as many members have said, we look forward to places where this rule needs massages, it should be. but this is a broad rule that comes real close to what we need. >> thank you. i thank the witnesses. i will recognize myself for five minutes to begin the question and answer period. i would like to say at the onset how i view this hearing in the contest of where we are. i think the ranking member pointed out as many others have that the rules have only been in effect since friday. but i kind of see this like when you go to the doctor and you get a baseline on your blood levels and your mammograms and other things that shows you where to go so that we have this hearing in another six months we'll be able to see where our baseline was and to see what effect this rule is really having. that's what i think this is a

setting for the base to see where the statistics can then begin to grow from. so that's where i am on that. i would like to start with mr. emerson. at quicken loans if you could just tell me, and you and i have had the discussion. i don't think a full appreciation for how broad and large your business is. maybe you do have exactly, how many mortgages you would say you would write in a year and what your average customer looks like in your average loan. >> so our average customer spans the scope of the country. we serve all 50 states. we serve every area. we serve anybody out there who has the ability to qualify and the able to repay a por gaj. >> right. >> and so in the calendar year of 2013, we originated $80 billion worth of loans. call that roughly 400,000 clients that we served in the year of 2013. >> have you quantified and

looked at how many of those loans would fa fall below the qm standard? have you looked at that yet? >> yeah, we looked at it. it's arguably some of the best performing loans ever written. depending upon when we first looked at this and the rules were put out, up wards of 30% to 40% of folks wouldn't qualify. as they began to tweak, ultimately somewhere around 90% of the market will be served with the current rule in place, ob sent the fee issue we're dealing with a 3% cap. but you have to realize it includes the patches put in place for loans that run through the gscs, which exist for seven years or until they come out of conservatorship. when that shifts fewer people will qualify for that as well. >> okay. in your community bank, you

mentioned to me when we first met that you have a lot of agriculture. certainly the agriculture community has a boom and bus cycles that mr. duffy was talking about. some years are better than others. how do you see the rule lending to the agricultural households. >> it's going to make it very difficult. chairman, especially in the bust years. when we look at the customers that are long-term relationships. so we're looking at the last ten, five years of their income often in the ag-culture community, we have a disaster, so those individuals will probably be shut out of our lending because we do not plan to do nonqm loans and the other thing about the individuals that are farmers, they are young people that come up through the farms. a lot of times they carry debt because they're trying to help the family farm. they have shown the ability to save the down payment on their

own. we can look at their savings account. in the secondary market a lot of times they're looking for four trade lines. so the only choice is a portfolio loan, something we can offer them. >> thank you. mr. wikenend. we have a bank in west virginia that has a very similar -- or some similarities with your home run program. and this kind of bleeds into habitat for humanity. you're really serving a population that were it not for either the special provisions na you have or that habitat has or that aur bank in west virginia has a trust that was set up to help people with down payments and interests who would never, ever be able to have a home. they're not going to be able to -- they don't feel comfortable with the way the qm is written that they're comfortable to give homeowner ship to those who couldn't enjoy

it. i would like to say, will you be able to move forward with your program, or are you going to have to put a halt to it? >> it's been put on halt anyway just because of the market itself. foreclosures went down. then the home rolls into this program. the nonqm loans just from a point is more of a balance sheet that we have to mansion. i can only hold so much mortgage paper. so taking that ability to resell these nonqms to a secondary market is going to affect 10% over our membership. >> all right. mr. meeks. >> thank you, madame chair. and in my estimation there's a

number of issues that are concerning to me. first, we've gone historically from red lining where african-americans would deny loans period to the point where they were given loans, no dock loans or these adjustable rate loans which was devastating in the financial crisis. some were able to pay the mortgages for that first year. after that first year when rates went up they could no longer pay their mortgages. the fact that those who qualified for prime loans were steered away from them into another loan that was much more expensive. and quite -- and you know, what happens unfortunately in this society sometimes, individuals who are the poorest and need

that helping hand are the ones taken advantage of. and it seems as though -- not seems. it was a fact that that's what took place in the financial crisis that we are recovering from. on the other hand you have individuals, like my parents, who struggled to own a home. it was their dream. i don't know today. i couldn't tell you whether or not under these rules they would have qualified for a loan or not. i know that they struggled. they had to take out extra money to put down a payment. if it wasn't for a community bank that knew them and looked at their overall history to

judge whether or not they would pay the mortgage, they probably would have been turned down. they looked at how they paid their bills and what the income was. they did the investigation necessary to make sure that there was in fact income and looked to see how they prioritized and spent their money. so the question is whether we have a system that can try to resolve both of those issues, and that's why i think this is difficult. i guess i throw my first question out to mr. calhoun. because there are various reports that say blacks and hispanics will have a harder time obtaining credit, or will mostly be given the higher priced non qm loans now that the rules are effective. can you clarify what lending

options will be available to low-income americans who may not meet the 43% debt to income limit. >> thank you. first of all as noted under the current rules that a loan can go beyond the 43% if it meets any loan that would qualify for fha insurance is per se a qm loan and we urged with industry that they allow for the capacity. for smaller lenders urge for exception. o freax, mortgage rates are 4.5% today. for community banks, they can charge up to 8% interest today on loans. and that would meet the qualified mortgage safe harbor level. that allows for a lot of features to accommodate.

we think they should do that. and that it's made a good faith effort. there may be places that it needs to tweak. they did set up a program, an exception for nonprofit programs. a concern has been whether the soft second mortgages count. that could be a problem. >> mr. spencer, would you respond to that? >> yes. we are already pushing up against that limit in terms of the number of mortgages that can be provided and have the exemption available to them. and so our interest here is certainly narrow in that we are looking for the exemptions provided in hr-3529 so that they become statutory, a opposed to

interprative by the regulatory agencies. our concern is we're only doing qualified mortgages at habitat charlotte. so the rule may have become effective january 10th but we've been working on this a full year. the reason we do that like many other habitats is there are -- i don't want to use the term secondary market. we work with banks and other lending institutions to provide balanced sheet capital. we're concerned they won't won't take the loans as collateral if they're not qualified. so we are now only doing qualified mortgages, which potentially takes certain borrows out of our pipeline. >> gentleman's time has expired. mr. duffy. >> thank you, madame chair. no doubt before the crisis there

were loans that were written that probably shouldn't have been written, given to people who probably shouldn't have qualified, no doubt. today there's probably people who should have qualified that won't be able to get a loan. the pendulum has swung too far over. we heard a lot about predatory lending, and that did go on, no doubt. but to his commentary and questions, you had a situation where his family -- i don't know if they qualified for the qm rule or not, but were able to go to a community bank or credit union and work with them in way that treated them fairly, and they were able to buy a home. i'm worried low income, moderate income, minorities under this

income who had an opportunity to get a mortgage, to buy a house, they're the one who is are going to be left out. and i think that's what happens when you have big government coming in and saying we are going to set the rules. we're going to set the standards. we know what's best in small town rural america. you, the small town community banker and your clients can't figure out what's best for the both of you, even though you're going to hold the loan on your books. i don't think this rule serves our community well. it doesn't serve low and moderate income individuals well. and the minorities well. and maybe to that point. and to our three bankers, would you say that those mortgages that you hold on your books, those loans that you hold on your books, and focusing on those who are low to moderate income borrowers, there's more

lower and moderate income borrowers that will not meet the qm rule. is that fair to say, mr. hardings? >> that would be a fair statement? >> mr. emerson? >> yeah, i think when you evaluate the 3% test and take a look at lower load amounts specifically in the range of 100 to $150,000 and there are going to be folks that fall into the bucket that will fall outside of the 3% test, therefore falling outside of the qm rule. >> being from memphis, i serve in a community that's over 60% african-american, and a lot of loans, 11%, affects a major part of these individuals. now my procedures based on this new rule state prices on qm mortgages to address the risk. i don't want to -- it's just not going to serve my community if i

have to kmarj somebody for a mortgage i would have given them last year because there's a rule in place. if you find a lower income borrower who doesn't mean the qm standard are you going to charge them a higher interest rate and higher fees? >> i would not go any higher. the problem is on my balance sheet i can only hold so much. if i do say okay, we're going to go full blown into nonqualified mortgages, it's a limited time i can do this. so there's only a limited amount of individuals i can serve due to me managing my balance sheet risk. >> and also, harder question, but you actually assess risks, right? and you have to charge for a risk. if you're in a safe harbor, you find someone who doesn't qualify under qm, that's a greater risk to the bank.

i have to imagine you're going to charge more for the risk. >> because of the interest rate you're going to provide them on the mortgage knowing full well within the next few years rates were going to rise. >> so previously we were able to have -- there was predatory lending. and we now frown upon that. right? it was wrong. it was inappropriate. it was abusive. but now under the qm rule, we're saying in essence, listen, it's okay. we know you're going to charge minorities, low-income, moderate-income people more because they're not going to fit the qm standard. again, you're wealthy. you're middle class, you're fine. that's why i have a hard time seeing how people can support this rule when the people who can work with the community bank and afford a home, they can work together and afford a mortgage, that they're going to be charged more for it with the new rule. am i wrong on this, mr. hardings? >> no, i don't think you're wrong at all. al thoer our bank is making a

decision not to make non-qm. i would have to look at the litigation risks. i would have to look at risks like to my bond insurance. because my bond insurance is out there to protection me gets suits and that's probably going to go up. i look at things like my examinations. when examiners look at loans with credit scores. they're going to look at non-qm loans. so there's a much higher coast to making non-qm loans going forward. >> thank you for your time. >> gentleman's time is expired. i would like to recognize mrs. watters for five minutes. >> thank you very much, madame chair. i would like to thank you for holding this meeting. this is very important. this has been an issue that we've all spent a lot of time on for good reasons. we have experienced a rub prime

meltdown that caused a recession in this country. and it has been very painful for a lot of our constituents and of course, it goes without saying we want our constituents to be able to get mortgages. we absolutely support that. however, we don't like the fact that too many constituents were taken advantage of in too many ways. they were sold mortgages that they could not afford. they didn't know about the exotic products. often times they didn't know what they were getting into. they didn't know what was going to happen when the devil came due on some of these loans. mr. meeks has referred the to some of these exotic products. whether low-interest loans or

whatever. so now we're at the point where we have to figure out how to make sure our constituents have access to credit and the community banks that we are all working to give support to have the ability to make these loans without having too much interference, too much involvement by government that you're able to make loans that work. so we want to help the community banks, but we will certainly protect our constituents and not allow our communities to be devastated by foreclosures in the way that we have experienced. now having said that, we worked very hard with the community, the cpfb in order to make sure that there was a difference between the community banks and the too big too fail banks. and we have very special things

that we did. i want to know why is it, what we have done to differentiate between community banks and too big to fail banks, why that's not enough. i think i'll start with asking this question to mr. bill emerson, chief executive officer of quicken loans, incorporated on behalf of the mortgage banker's association, and before i get into the question, i would like you to know, i love your commercials. they're so cute. #. >> thank you very much. >> and before you answer, i want you to know, i'm going to ask you the question. if it's not the right answer, who do you think i am? quicken loans. >> okay. so quicken loans is an independent mortgage bank. we're not in the typical community bank lending scenario. back to representative duffy's

comments, as an independent mortgage bank we don't have a balance sheet. so the loans we're going to originate and the consumers we're going to serve, we need a viable secondary market to put that loan into. without that viable secondary market for a non-qm loan then independent ban ekers are not part of the process and therefore competition falls by the wayside because you have lender who is can't participate. so i would have to defer on this one to the community bankers sitting at the table to answer whether we should or shouldn't go further. the way that we think about this, we sure ll ll lly -- clea to make sure we're helping as many people as we can. we also want consistency for the consumer to know who exactly they're working with and who they're dealing with. >> well, we differentiated because we want to make sure the

community banks did not have the regulations that would be harmful to you. what are you telling us? that we didn't do enough? who are you saying that you want to answer the question? yes, go right ahead. >> i am a community banker. we're trying to regulate the integrity of the product and not regulate the institution. the issue is i'm a $400 million bank and their tier is this. it says if you're less than $2 billion and you originate less than 500 loans you have this small creditor exception. well in 2012 i generated 493 loans. so i would like to grow. i would like to continue to serve my customer, but right at the edge of losing my status, so trillion the issue is a much broader exception. i think tiered regulatory modeling makes a lot of sense.

i had this quoted in wall street the other day. community banks weren't the problem. qm has affixed us anyhow. so it's really the amount of the exception that we really see needs to be expanded. because at the end of the day we want to see more consumers get loans rather than less. if this role contracts the lending instead of expanding it, then it's not doing its job. >> time is expired. >> thank you. >> mr. baucus. >> thank you. >> mr. emerson, i'm going to ask you this question. as you know the current qm rule includes affiliated title insurance in the 3% points and fee trigger. but unaffiliated title insurance is not included.

since title insurance rates are funded by underwriters and have to be approved at the state level or the state determines the title rate for both types and is there any benefit to the consumer if the title insurance is purchased by an unaffiliated title. >> no, there's no reason to differentiate between the two. all charges for the title companies are excluded from 3% fees. and what the industry has been looking at is saying take the title insurance. that one regulated piece. that is the same as filed by an underwriter.

they can't take it higher. they can't tablg it lower. by not doing so you're putting a different playing field together for an affiliated versus nonaffiliated title company. they're working with the same lenders and the same people every day. and so there's an advantage for them doing that. from an affiliated perspective, now with the cpfb and the fact that you have to manage your venders have and tight controls over that. so putting that in place, it makes zero sense at all to differentiate on title insurance and the affiliated/unaffiliated piec piece. >> and the the rule does which i agree doesn't make any sense now. mr. scott said back in may said to do so reduces competition in the choice of title services and insurance providers.

so i mean, it just reduces choices. i don't see any reason why we ought to discriminate that's one thing we ought to address. what effect does putting affiliated title insurance under 3% points have on consumers? particularly low-income consumers or -- >> sure. so i think it affects them two ways. the reason we were involved was to provide service to the client. provide a seamless end-to-end solution. it had nothing to do with the able to make more money on the transaction. when you think about it, our title company works with other lenders. so our title company has proven they are competitive and do a great job. so the benefit to the consumer is an end to end seamless process. where it hurts is you include the fees into that, you're not going to qualify to deal with a

lender with an affiliated title company where you would qualify with one who does have an affiliated title company. and that bucket between 100 and $150,000, less opportunity to get mortgages because they're working with a company that has a title company. >> i fail to see whey they made that distinction. mr. calhoun, i agree with you. the problem is, sometimes it's high fees and high interest rates. those are the two big problems this doesn't have any impact on that. there are not a lot of them made because of legal uncertainty. so aren't we going to have the same problem with non-qm loans. thgs no secondary market for the loans. we're going to find the same thing happening with these no f

non-qm loans and what immakt will that have on low and middle income borrowers? >> if i may answer with that there have been a number of them recently that intend to do nonqm loans and over time they expect the secondary market to develop. the liability on the loan is orders of magnitude higher than it is for non-qm loan. >> do we know that? we're dealing with a blank slate. i can understand at some point you say it's clarified. it's only clarified after the loans are made. they're going to charge higher interest rates if there's legal uncertainly. >> gentleman's time is expired. miss maloney? >> thank you. i appreciate all of your

testimony today. i understand your legitimate concerns of wanting to get borrowing and loans out to credit worthy americans. but we got to start somewhere. and this cpfb rule is a beginning point. and i think it's a long time in coming. it came out last friday and it's almost five years since the financial crisis. and this as you were of this rule is to prevent another financial crisis from happening. so i would like to ask every panelist a yes or no answer. do you believe that the financial crisis merited serious reform of the mortgage industry, or should we have just left the industry just like it was what the no doc loans? do you think so? yes or no. starting with mr. hastings? >> yes, i would like to expand on that a little bit.

>> okay, questioned? yes? >> yes, qualified. >> yes. >> yes. >> and we all accept your other answers in writing but i would like to get to a second question. if this rule had been in place, flawed as it is, would it have prevented the financial crisis in your opinion that we are still suffering from. qualified yes or no? and put the long part in writing. mr. hastings? >> i don't know. i can't answer that. >> i sknt either. >> no. absolutely. let me give you one example. >> tough to put it in writing. >> 70% of the loans would not have qualified. >> the answers if they could come back in longer form to me because i really want to get to

this one. i think we are seeing a very fine line between what we want to accomplish. we want to prevent a future financial crisis, but we want hard working credit worthy americans to have access. i know wealthy people will always be able to get a loan. they could be leveraged very highly with all their assets. but hard working people often timescan not get loans. as my colleague from new york pointed out beautifully in his opening statement. think we share the same goal and principles. that we want to get this out but we need to find this fine line. so what qualifications would you suggest to arrive at this careful balance, if you believe the balance that has come out from the cfpb is not the right balance? now we will be able to study it over the future with data and research and monitor it, but i would like to ask the panelists

if there were other qualifications or another way that would have had the fine line of protecting our overall economy from abuse, financial crisis, but getting that loan out to the qualified hard working american. mr. hastings? >> i would like to speak about the tiered modeling. congressman meeks talked about adjusted rate mortgages. there was predatory lending made on adjustment mortgages. we have to redo our disclosures due to the new changes in the mortgage rules. 17 years ago i used an adjustable rate index. but as a community banker and someone who keeps it on the portfolio, i can't allow that to be out there. a tiered regulatory model. when you try to be this prescriptive on a what a

qualified mortgage is, you can create something safe and sound, but it's going to be very exclusive and i think you will want to be more inclusive. and i think that's best solution. >> i will give you four things that should be done. number one e expand the qm safe harbor rule. right now 150 basis points over apor. i think we should take it to between 200 and 250. i think we should increase the threshold for loan amounts and attach a chart to define how thauld work and bring more folks into the program. we've already testified that we need an able to make fixes to mistakes that take place and the care that exists and help it today. and one of the things they've tried to do a good job of giving guidance. and the more written guidance we

can get, the more clarity and certainty for people to understand the rules. >> i think this young lady's time has expired. i'll let the next person answer it while we get the clock reset. >> we've been doing qualified mortgages sis i entered the industry. that's all we do. we do not put people in situations where they cannot be qualified now. i can say qualified mortgage or qualified autotor or anything like that, i know the market of memphis and i can make the decisions. being not able to sell to the secondary market will hinder the ability to make the decisions, and i think that's a real problem. >> thank you. unfortunately the two timers that many members used the to gauge their questions have ceased working. so i guess i'm going to have to say trust me. i'll give you your five minutes. how does that sound? # our next questioner is mr.

mchenry. >> thank you, ma ddame chairman. if you don't mind, i'll keep my own time. >> i said trust me. not you. >> that's a better choice. thanks. reclaiming my time. both seconds left. well let me start this way. is the panel familiar with the impact of ranks put forward by hud earlier this year? okay. some of you are familiar with. are you supportive as promulgated? >> yes. >> okay, but in june of in year a group of industry trade organizations representing the mortgage industry sent a letter to the leader of the fpb and secretary donovan highlighting

the regulatory conflicts that would highlight the qm on one hand and hud's rules promulgated earlier this year under the fair housing act, and the later states these and other rules implements dodd-frank, including those governing ability to repay and risk retention will tighten credit standards through facially neutral requirements that may lead to desperate outcomes for some category of borrowers. it goes onto claim that this lack of guidance will create uncertainty resulting in higher prices to account for risk and less available credit for for consumers. so do you believe this regulatory impact could have another impact on consumers?

to restrict mortgage lending unnecessarily and result in suits? >> no for two reasons. historically lenders who chose not to do subprime lending, obviously that had a desperate impact. there were no actions, private or public brought against them for that decision. and we already had responses from the regulators saying that lender's choice of doing qm loans will not be used against them for that analysis. >> okay, has mr. emerson, has your industry received assurances for the government that they're not going to pursue suits if you follow the box of qm, desperate impact suits. >> so to get to that point, i think our industry in the supporting the fair housing act.

what we have come in context with is in some areas that will say what mr. calhoun indicated. but we have not heard from hud or the doj. and hud is the group that promulgated that rule and the doj enforces that. when you're thinking about the industry and where leaders have been and what's taken place through repurchasing processes, i think there's a lot of nervousness around that by not hearing from those two groups. so some guidance from those two zbrups would be helpful to know where they stand on the issue. >> mr. calhoun, do you agree sf. >> i agree that initial guidance would be helpful. >> certainly. certainly. and i certainly appreciate your organization and mr. calhoun's support for dealing with the added pressure of litigation as a result of q measuring. those that follow the strict qm

standards will not be pursued. i know we have disagreements on the final construct and the impact in the marketplace. in terms of community reinvestment act, do you think it's possible for financial institutions, if they're doing mortgages to meet their cra requirements if they're only doing qm mortgages, or does it make it more difficult? >>. >> if it reduces your mortgage volume, there's safe harbor percentages that if you're below that, you may need more documentation. i believe it would make it more difficult to receive a story rating. >> okay.

i certainly appreciate witness' testimony today. we obviously do have deep concerns and this is really a deep concern not only act the industry. but your able to provide products to those who need them, especially those who are in moderately priced homes where the questions of points and fees in mod rats income areas especially in my district, where because of the moderate income and the moderate price of the home, the points and fees have such a larger percentage, disproportionately to the cost of the loan. and we need to make sure we work through that. and with that, thank you, madame chairman. >> gentleman's time has expired. >> thank you, mr. chair. i'm very interested in hearing from the panelists about the possible effect of this rule on the continued health of the housing market. and in particular the involvement of community banks and credit union fls the

mortgage business. credit unions and community banks in my congressional district in deep south texas are essential to the local economy. my question to mr. calhoun. no only do they provide competitively priced and fair mortgages, they contribute to local economic growth and community cohesion. so do you think making banks and credit unions more attentive to underwriting nontraditional loans will help make the mortgage lending system healthier and safer? >> yes. and to be clear, we are very strong advocates of the community banks. they do half of all small business lending and the mortga mortgage lending is needed to support the institutions. we have supported, as i say, the

two tier model with special with provisions community banks. we are still working to push further, for example, some of the loan caps we think are too restrictive for the community banks and the nonprofits. we do have concerns about a complete portfolio exception. there are banks where they have reviewed programs where they have 30% to 40% foreclosure rates on portfolio loans under the old model of lending to people with a lot of home equity. and we need some backstops to that. but community banks need special treatment, and we fully support that under the qm rule and in general with the regulatory approach. >> under the qm rule, they tell me that many loans will not be made because they are below the 43% threshold that you spoke about that can go beyond 43%.

how do we let both the lenders and the borrowers know that that is possible up to say 50%? how do we do that? i think two ways. first of all there's the so-called patch that allows any loan that qualifies for gfc insurance, or ffa insurance does not have to be sold or insured by them. if it's eligible, even if it's kept on portfolio, that's per se a qm loan. it goes up to 50%. we have urged and we did with a joint comment, with industry that covered most of the mortgage market that the cfpb should use their data collection and develop specific broad criteria that would allow the so-called compensating factors for responsible lending by 50%, particularly by small lenders. >> okay. >> many african-americans and home buyers are steered into

subprime loans when in fact they qualify for a prime loan. so can you remind us the prev l prevalence of this practice and how these new rules will change that practice? >> i can't speak to what others are doing. what we do is to provide quality products at low cost to sort of raise the water a little, if you will, of our entire community, which makes everybody's boat rise. i mean, we are very, very sensitive to trying to improve the lives and livelihood of all of the members in our community at large. so we don't touch subprime. that's why we have the nonqualifying, the balance sheet limitations, plus the taste in my mouth of having to price these things differently when last year i would not have to. so i don't want to do that to my members. >> mr. spencer, now that the qm rules are made effective, can

you clarify for us what lending options are still available for low income americans who may not be able to meet the 43 debt to income limit? >> i can't really speak to the broad options available, but i can speak to what we're having to do. so our fear is the following. if you look at the borrowers, they would be subprime except for the fact that we are providing no interest loans. so they become qualify iing mortgages but the borrows would not qualify for a commercial mortgage under the same terms. and so that's why we're asking for the relief in hr 3529 because we don't believe this

rule is intended to address the ministry we're pursuing, and we hope that that bipartisan support will allow that rule to be enacted. >> my time has run out. i yield back. >> thank you. mr. westmoreland. >> thank you, madame chair. i thank you all for being here today. i'm a reformed home builder, i guess. when you have somebody apply for a loan, if they're turned down for any reason and typically there are explanations given for why the loan is turned down. and mr. hardings and daniel, if you were to turn down somebody's loan because it was not qm compliant. what would you give as the explanation for having denied that loan?

>> it's a little different when you don't have a product that's available to them. you would say we don't offer non-qm qualified loans so i can't help you out. you don't have to file an adverse action if it's not a product that you're offering, but it is a shame. i offer what i call an hba program, which is home buyer assistance for those who have less than 20% down in our port tole owe loan. i do it at a higher interest rate because i don't charge them pmi insurance. and i've already scaled it back. i used to allow 5% down. we scaled it back to 10% because we're running into the higher priced mortgage issue. that product may go away completely. and i've been doing that for a little over ten years. i've never had a foreclosure in that product. because we use a lot of compensating factors. it's not just dti. >> thank you. daniel?

>> it would be the same response. we couldn't offer it to them at that time and could not serve their needs. >> mr. spencer, you know, we hear from the other side of the aisle quite often that we need to pursue policies to have low and moderate income people be able to obtain a loan, and i certainly agree with that. i was in the business of people entering the home markets. and i see what a difference owning a home makes in somebody's life much as the ranking member shared about moving out of the housing project into a home. so i very much want to do that. do you feel that the qm is going to hurt that goal? >> we believe that not just qm

but the specific issues that this addresses gives us certainty in being able to pursue serving these customers, these clients, these partner families. and that certainty is important because we are dependent upon raising dollars to do that, but we also finance parts of our balance sheets by having loans that can be pledged as collateral. now that's not the same as the secondary market that led to the housing crisis, but it's an important aspect pekt of how we assemble capital for affordable housing. so we have to have loans that are recognized and don't create

a liability for us or a potential financial partner who may want to partner with us, like the self help credit union has in the past or community or large banks. >> so if you could, kind of describe for the committee who would -- who might be an individual that would be qualified or be somebody that you would make a loan available to who would now not be able to get that same loan? >> our target market is people who, as a household are between 30% and 60% of median income. and i'm now speaking of the charlotte affiliate. this is generally true of habitat more broadly. to qualify our folks have to have income.

but they might have a medical debt that would throw them out of the qm measure. in the past we've been able to work with them through financial counseling and over time help them pay that down. whereas now we are only doing qm loans to obtain the certainty that we need to that we need to be to continue to move forward with h our housing. >> thank you. and i yield back. >> mr. scott? >> thank you, chair lady. first, let me go to you, mr. calhoun. we have a bill, hr3211, which you're familiar with. it hasgnificant bipartisan support because it's a compromise. it's a compromise that was made

to address many of your concerns and the concerns of other consumer groups. we've worked with ranking member waters. we worked with former congressman mel watt for months. we made numerous worthwhile provisions. we made changes. we removed certain things that you objected to because we listened to you. we respect you. we know your work in the community. so we have this new bill that has your input and the input of others, and what it represents now is the bare minimum that is needed to do the most crucial thing, which is level the playing field enough so consumers can choose one stop shopping.

are you happy with this bill now? can we move forward? we appreciate your contributions in it. and are you supportive? >> thank you for those comments and your work with us, and i would like to say we have worked closely with mr. emerson in trying to hammer out something that would work for everything. not everyone's first choice. we still have concerns on the title insurance for fears that this bill would actually create an unlevel playing field, and it would harm consumers. and let me start with just one figure. the latest data on title insurance for 2012 is that over $11 billion of title insurance premiums were collected. during that same year, $765 million of claims were incurred

for a loss ratio of 7 to 10%. >> let us address that. that is a concern of title insurance. so mr. emerson, let me ask you, you're with quicken loans. you do a lot of work in this. you probably could effectively answer some of this. in fact, what effect does discriminating against these title companies have on competition? that. number one, to mr. calhoun's point, we're not debating what the price of title insurance should or shouldn't be. the discussion has been is there an opportunity to have a level playing field around an affiliate and nonaffiliate because each one of them will have the same amount of title insurance. the fee will be the same. that's been what we're talking about because there's no harm to the consumer in that particular situation. what it does for an institution

like ours that takes client service extremely -- it's very important to us, is it takes us out of the game in a lot of cases because we chose to affiliate with a title company to provide better client service and there will be clients that we cannot help today that we could have helped last thursday. >> discriminating against affiliate title reduce the cost of the insurance? >> no, it won't reduce the cost of the insurance one bit. >> which consumers do you feel will be most affected by reduced choices created by the 3% cap? >> it's the same consumers that will be affected by the 3% cap we believe any way and that's lower loan amount folks. folks between 100,000 and 150,000 and first-time home buyers and folks that will help this economy come back from a housing perspective and they're the ones just add on top of that one more fee and title insurance. >> let me go back to you, mr. calhoun. title insurance is regulated at

the state level, not the federal level. i think that's important for us to understand. so if the title costs and regulations are done at the state level, shouldn't you be working on legislation and regulation in the states to address your concerns rather than at the federal level? >> regulation varies among the states. ten of them don't regulate the price. others use very different procedures. the concern is the difference between those two numbers i gave you goes for affiliated insurance largely to the lender, which gives them an advantage over other lenders because they're capturing that difference and the effect of that is to push title insurance rates going up. title insurance rates issued