The Federal Reserve Board released a survey Aug. 4 in which it reported that some banks are making fewer loans because of new qualified mortgage rules enacted by the Consumer Financial Protection Bureau in January, National Mortgage News reported.
The Fed releases a mortgage loan survey every three months and polls both large U.S. banks and foreign banks.
The change in loan approval rates mostly was reported by mid-size and smaller banks, with a significant number reporting a negative impact on approvals for prime conforming mortgages. Only 19 percent of large banks surveyed said the new rules were impacting their approval rates, National Mortgage News reported.
FICO scores of borrowers did not impact those results.
When principal balances were higher than conforming loan limits, 44 percent of banks indicated approval rates dropped regardless of FICO scores.
“Among those banks that reported the rule had no effect on their approval rates, roughly half said that lending policies would have been tighter without the safe harbor for mortgages that pass the (government-sponsored enterprises) automated underwriting models,” the Fed survey noted, National Mortgage News reported.
Under new CFPB guidelines, mortgages have to meet certain criteria in order to gain status as “qualified” mortgages. However, loans purchased by Fannie Mae or Freddie Mac automatically gain exception to qualify for the rule. Nevertheless banks are trying to make conforming loans because they offer better legal protections.
According to National Mortgage News, seven banks said approval rates would be lower for nontraditional loans due to the new rules.
Half of the surveyed banks noted they have reduced approval rates on jumbo mortgage applications, citing a 43 percent cap on debt-to-income ratios as part of the reason.
Six of the nation’s eight large banks surveyed indicated documenting and evaluating borrowers’ credit histories, as well as assets and debt as somewhat, very or most important factors in the decrease in approval rates. Even more pointed to borrowers’ current and expected income as factors.