Qualified Mortgages & Government Reverse Redlining: How the CFPB’s Qualified Mortgage Regulations Will Handicap the Availability of Credit to Minority Borrowers

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Abstract:
Imprudent underwriting and mortgage origination in the years
leading up to the Global Financial Crisis of 2007 and 2008 was
determined to be one of its predominant causes. As a result, partly in
an effort to protect consumers and ensure that lending institutions
did not relapse into poor mortgage origination practices, Congress
passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act. This Note examines the qualified mortgage rule
promulgated by the Consumer Financial Protection Bureau pursuant
to the Dodd-Frank Act. This rule is intended to ensure that borrowers
receive loans that are not unfair, deceptive, or abusive, and to ensure
that lenders will be repaid by borrowers. However, despite public
belief that the rule will afford protection to all borrowers, the rule
may unintentionally have a negative impact on Black and Hispanic
borrowers by increasing lending costs for a greater percentage of
minority borrowers.
This Note argues that there are strong justifications for modifying
the qualified mortgage rule’s requirement that a borrower have a
43% debt-to-income ratio. This Note will examine criticism of the
rule as well as statistical data of historical mortgage originations to
determine that the rule may negatively impact minority borrowers.
The rule will force a larger percentage of Black and Hispanic
borrowers to pay exorbitant prices for government guaranteed loans
compared to similarly situated Asian and White borrowers. Black
and Hispanic borrowers are, on average, more unlikely to meet the
qualified mortgage rule’s 43% debt-to-income requirement. This
Note presents multiple solutions to this problem in the form of
proposed amendments to the qualified mortgage rule. All of these
proposals will ensure that borrowers receive loans they are capable
of repaying, while simultaneously removing the projected disparate
impact upon Black and Hispanic borrowers.

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Fordham Journal of Corporate & Financial Law