The Consumer Financial Protection Bureau (CFPB) is planning to make some changes aimed at widening the accessibility of mortgage loans by allowing lenders more freedom in determining a borrower’s ability to repay. Currently, one of the requirements for a qualified mortgage (QM), the loan type preferred by both lenders and consumers, is a debt-to-income ratio of no more than 43%. This criterion is designed to be an indicator of the borrower’s ability to repay. However, there are other methods of determining this that can broaden the range of QMs. The CFPB’s solution is to compare the loan’s annual percentage rate (APR) to the average prime offer rate (APOR). Because a borrower with a high DTI would likely also have a high APR compared to APOR, DTI considerations are still indirectly included, but there will also be people with a high DTI but low risk of default that are able to get a good APR to APOR ratio and therefore successfully get a QM loan.
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