Qualified Mortgages & Government Reverse Redlining: How the CFPB\u27s Qualified Mortgage Regulations Will Handicap the Availability of Credit to Minority Borrowers

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