The Consumer Financial Protection Bureau (CFPB) is backing the elimination of the debt-to-income (DTI) requirements in the mortgage process. Over the past few months, multiple large lenders, including Bank of America, Quicken Loans, and Caliber Home Loans, as well as the Mortgage Bankers Association (MBA), have called on the CFPB to remove the DTI requirement.
Recently, the CFPB Director Kathy Kraninger sent a letter to Congress asking to amend the Ability to Repay (ATR) or Qualified Mortgage (QM) rule to remove the debt to income ratio as a factor in the process. Per Kraninger’s letter, the CFPB would issue a new rule on the DTI requirement by May 2020.
Currently, 43% debt-to-income ratio is the maximum amount of debt percentage a potential home buyer can have and qualify for a home loan. Without this regulation, it could be easier for some buyers to qualify for a loan and easier for lenders to qualify a home buyer.
The CFPB and Ability to Repay rule were created in 2008 as a response to the housing collapse as a way to prevent lending money to borrowers who may not have been able to repay the loan. Eight factors go into the ATR rule, including income verification, credit history, DTI, and more. The CFPB is only looking to adjust and remove the DTI requirement from the ATR and QM rules.
The 43% DTI requirement doesn’t apply to government mortgages including FHA, VA, or USDA home loans.
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Sources:
https://www.bankrate.com/mortgages/cfpb-debt-to-income-rule/
https://www.housingwire.com/articles/cfpb-planning-to-eliminate-dti-requirement-from-qm-lending-rules/