Richard Bove says that a recent interview and the ‘Agency patch’ show that the CFPB now realizes its qualified mortgage rules don’t make sense

When the Consumer Financial Protection Bureau put the ability to repay and qualified mortgage (QM) into effect as part of the Truth in Lending Act, it was part of a larger effort to prevent the kind of irresponsible, and in some cases predatory, lending that led to the housing crisis. Many critics have said that the rules were too strict and would limit access to credit for marginal borrowers, and Rafferty Capital Markets VP of equity research Richard Bove thinks he sees signs of the CFPB backpedaling in a recent interview.

Fannie Mae: Bove speculates about seven year agency patch

CFPB appears to walk back importance of QM rules, says Bove

“We try to be very clear in saying that a non-QM loan is not necessarily a bad or risky loan. It simply means that you’ve made an individualized judgment rather than rely on a cut-and-dry rule to determine whether this loan meets the requirements,” said CFPB associate director David Silberman in an interview with American Banker.

But Bove thinks this is disingenuous. While there’s nothing stopping a bank from making non-qualified mortgages, he says it opens them up to put-backs and lawsuits from the ultimate buyer of the mortgage. Bove also points to the ‘agency patch,’ which says that any mortgage bought by one of the agencies such as Fannie Mae would be considered a qualified mortgage regardless of whether it met the CFPB’s criteria or not, as proof that the CFPB doesn’t really stand by its own rule.

“To me it sounds very much like the CFPB recognizes that its rules make no sense and that the Bureau is trying to find some way to back out of them,” Bove writes.

Fannie Mae: Bove speculates about seven year agency patch

Even while he’s talking about access to credit and the housing market, Bove can’t resist speculating about the future of Fannie Mae and Freddie Mac. The CFPB’s agency patch lasts from 2014 until 2021, even though the US Treasury says that Fannie Mae and Freddie Mae will be wound down by 2018. But the CFPB isn’t a part of either the US Treasury or FHFA, so there’s no reason anyone there should have special insight into the future of the GSEs. What’s more likely is that someone at CFPB noticed that the future of the GSEs is still undetermined, and decided that seven years was long enough for QMs to be someone else’s problem if the situation still hadn’t sorted itself out.