300 New Jersey Avenue, NW Suite 800 Washington, DC 20001

Telephone 202.872.1260 Facsimile 202.466.3509 Website brt.org

Chairman W. James McNerney, Jr. The Boeing Company President John Engler Business Roundtable

Executive Committee Ajay Banga MasterCard Incorporated Ursula M. Burns Xerox Corporation Kenneth I. Chenault American Express Company David M. Cote Honeywell International, Inc. Alexander M. Cutler Eaton Corporation James Dimon JPMorgan Chase & Co. Michael T. Duke Wal-Mart Stores, Inc. Jeffrey R. Immelt General Electric Company Andrew N. Liveris The Dow Chemical Company Gary W. Loveman Caesars Entertainment Corporation Robert A. McDonald The Procter & Gamble Company Harold McGraw III The McGraw-Hill Companies Douglas R. Oberhelman Caterpillar Inc. Edward B. Rust, Jr. State Farm Insurance Companies Randall L. Stephenson AT&T Inc. Rex W. Tillerson Exxon Mobil Corporation

November2,2012 TheHonorableRichardCordray Director BureauofConsumerFinancialProtection 1700GSt.,NW Washington,DC20552 Re:AbilitytoRepayProposedRule,DocketNo.R1417andRINNo.7100AD75 DearDirectorCordray: TheBusinessRoundtable(BRT)isanassociationofchiefexecutiveofficers ofleadingU.S.companieswithmorethan$7.3trillioninannualrevenuesandnearly 16 million employees. Although the formal comment period for the proposed rule hasended,1wenonethelesswritetoshareourviewsonthedefinitionofQualified Mortgage(QM)intheforthcomingabilitytorepayfinalrule.Inthisregard,we wish to share the combined perspectives of CEOs at key companies because, as proposed,thenewmandatewouldapplytoallmortgagetransactionsgoingforward (beginning in January 2013) and would have a substantial impact on mortgage underwritingandcreditavailability.Accordingly,ourmemberswhichrepresent all sectors of the U.S. economy have a tremendous interest in ensuring that consumershaveaccesstoaffordablecredit,whichsupportsbotharobusthousing recoveryandoveralleconomicgrowth. Specifically,weurgetheConsumerFinancialProtectionBureau(CFPB)to issue a final rule that includes the following: (1) a broad definition of the term Qualified Mortgage with objective, brightline underwriting standards; (2) a stronger safe harbor for such mortgages; (3) a reinstatement of the affiliate exemption from points and fees; and (4) harmonization of the QM definition with the Qualified Residential Mortgages (QRM) definition. Moreover, these policies shouldbe coordinatedwithotherrelated mandates,reformsandprogramsthat when combinedwill greatly impact credit availability and costs, as well as the futureofhousingfinance. BRTmembersbelievethattheabilitytorepayfinalrulemustbeprecisely calibrated to protect consumers from irresponsible lending while avoiding serious disruptions in mortgage credit, particularly for certain borrowers and underserved communities. Although many economists see some communities recovery in the

OnMay11,2011,theFederalReserveBoardissuedaproposedruletoimplementtheabilitytorepay requirementsforresidentialloansasmandatedbySections1411,1412andportionsof1414ofthe DoddFrankAct.UndertheDoddFrankAct,jurisdictionovertheproposedrulewastransferredtothe CFPB,whichreopenedthecommentperioduntilJuly9,2012.

TheHonorableRichardCordray November2,2012

housing market, lending is still largely restrained. The DoddFrank Wall Street Reform and Consumer Protection Act (the DoddFrank Act), together with the proposed rule, present CFPB with an opportunitytohelpfacilitateastablemortgagefinancemarket.Conversely,anarroworambiguousQM definitionwithoutasafeharborrule,andwithapointsandfeescapthatincludesaffiliatefees,could furtherunderminethehousingandmortgagemarketstothedetrimentofconsumersandthreatenthe nationseconomicrecovery. We offer the following principles to ensure credit availability for qualified borrowers, instill confidence,andultimately,helprestorethemarket: I.PrinciplestoInformtheAbilitytoRepayRule 1) TheQualifiedMortgagedefinitionshouldbebroadlydefinedtoensurecreditavailability. The first step in restoring the housing market to full health is to provide certainty and consistencyforallparticipants.Asyouknow,theDoddFrankActestablishestheQMasastandardby whichacreditormaypresumeaborrowersabilitytorepay.Asapracticalmatter,lendingoutsidethe QMcontextwillbeseverelyconstrained,asanyviolationcouldbringliabilitytolendersandalsorepel investors that provide capital to fund the $9.7 trillion mortgage market and support the $16.4 trillion realestatemarket. Accordingly,thedefinitionofQMshouldencompassthevastmajorityofsafe,highquality lendingbeingdonetoday.Objective,brightlineunderwritingstandardscouldbedeterminedusing widelyaccepted,existingstandardssuchasFannieMaesDesktopUnderwriter,FreddieMacsLoan Prospector,ortheFederalHousingAdministrationsHandbookonMortgageCreditAnalysisfor MortgageInsuranceonOnetoFourUnitMortgageLoans.Certaintywillreducecompliancecostsand litigationrisk,allowinglenderstoprovideloanstoconsumersatlowercoststhantheycouldiftherules wereambiguousandtheQMdefinitionincludedonlyanarrowclassofmortgages. 2) Thefinalruleshouldincludeafullsafeharborthatprovideslegalcertaintytoconsumers,lenders andinvestors. The proposed rule sets forth two alternatives for affording legal protections to lenders and purchaserspursuanttotheQMprovisions:(1)safeharborprotection;and(2)arebuttablepresumption ofcompliancewiththeabilitytorepayrequirements.BRTbelievesCFPBshouldadoptandstrengthen thesafeharborprotectionalternative. Thepracticaleffectsofthetwoalternativesdiffersignificantly.Arebuttablepresumptionwould inviteuncertaintybyallowingfortheintroductionofevidenceandargument,includingaboutstandards or factors not explicitly listed in the statute or regulation. Although a lender could establish that its conduct met the presumptionunder thetestprovided,another partycouldattempttoshowthat the presumption should be overridden by reference to some other set of facts, additional evidence, or policyconsiderations.Thelevelofproofthatcourtsrequirewillinevitablyvary,andthejudicialdisarray in the application of a rebuttable presumption standard would leave lenders and secondary market participantswithsignificantuncertaintyaboutwhatactionsareneededtoavoidcostlylitigation.The

TheHonorableRichardCordray November2,2012

result of such uncertainty would be less credit available to otherwise creditworthy, moderateincome borrowers.SucharesultwouldstandinstarkcontrasttowhatCongressintendedinpassingtheDodd FrankAct.Conversely,asafeharborwouldaffordprotectionfromliabilitythroughatestthatcouldbe followed and reliedupon and thus provide certainty necessary for an efficient and wellfunctioning housingmarket. A safe harbor should include the general abilitytorepay criteria in the form of objective, brightline underwriting standards. While the Federal Reserve Board decided not to include considerationofaborrowersdebttoincome(DTI)ratioorresidualincomeinthesafeharborproposal, we believe these considerations should be included. The final rule should provide lenders with the discretiontoadaptDTIorresidualincomerequirements,basedonchangingmarkets,andnotimposea rigidstandardthatarbitrarilyexcludescreditworthyborrowers.ItiscrucialthattheCFPBgrantlenders anunambiguoussafeharborforQMtoensurethatresponsiblyunderwrittenloansarebroadlyavailable toqualifiedborrowersandthatthereisaliquidsecondarymarkettohelpconsumersobtainaffordable mortgages. 3) Thefinalruleshouldrestoretheaffiliateexemptionfrompointsandfeescaps. TheDoddFrankActprovidesthataQMcannotcarrypointsandfeesthatexceedthreepercentof theloanamount.Billsthatprecededthefinallegislationexcludedcertainchargesimposedbylenders affiliatesfromthedefinitionofpointsandfees.BRTsupportsreinstatingtheaffiliateexemptionfrom the points and fees definition. The exemption provides consumer choice and may avoid unintended consequences. Language from H.R. 4323, the Consumer Mortgage Choice Act, excludes the affiliated charges. Importantly,sincethehousingcollapseandsubsequenteconomicrecession,mortgagefinancinghas becomeunstableanduncertain.Thisfragilestatemakesaffiliaterelationshipsevenmorecriticalasthey establishaccountabilitybetweenthecompanies,whichleadstowellcoordinated,efficienttransactions thatdecreasethelikelihoodofanysurprisesfortheconsumer. In addition, the definition of points and fees includes loan originator compensation, including compensationpaidtoalendersemployees.Escrowsfortaxesandinsurancealsoappeartobeincluded in points and fees. Enforcing the threepercent cap, and including charges to affiliated (but not unaffiliated)companies,compensationfororiginators(includingemployees),andamountsofinsurance andtaxesheldinescrowinthepointsandfeesdefinitionislikelytoexcludemoresafeloansthanrisky loansfromtheQMdefinition.ExcludingsoundloansfromtheQMdefinitionwillcostconsumersinthe longrun. 4) Theregulationsshouldbeharmonizedandcoordinated. BRTbelievesthattheabilitytorepayregulationsandtheQMdefinitionshouldbeharmonized and coordinated with other similar provisions in related regulations and programs. In particular, the proposed rule issued under the DoddFrank Act implementing risk retention requirements contains a definition for Qualified Residential Mortgage. The two definitions are related in the sense that the DoddFrankActrequiresthedefinitionofQRMbenobroaderthanthedefinitionofQMintheability torepayrule.

TheHonorableRichardCordray November2,2012

The abilitytorepay regulations and the risk retention mandateas well as other related regulations,reforms(BaselIII,accountingchanges,etc.),andprogramswillgreatlyimpactthefuture ofhousingfinanceand theavailability andcostofcreditfor borrowers.UndertheDoddFrankAct, a securitizer or originator must retain at least five percent of the credit risk of the underlying assets, unlesstheloanisaQRM.Whileestimatesvary,theriskretentionrulecouldcauseapricedifferential between QRM and nonQRM loans. Further, as proposed, nonQRM loans would be subject to other mandatesthatarecauseforconcern,suchasthePremiumCashCaptureReserveAccount,thatimpact thecostoforaccesstocreditandremoveeconomicincentivestolendandinvest. Both the risk retention and abilitytorepay requirements will affect many lenders. If the definitions of QM and QRM unnecessarily differ, increased compliance costs for lenders would result, thus reducing the availability of loans to some borrowers. We urge the CFPB to work with other regulators to ensure that these two sets of regulations, and other relevant regulations and programs, are harmonized to the greatest extent possible to promote a vibrant mortgage finance market and borroweraccesstoaffordablecredit. II.Conclusion Ultimately,anunnecessarilynarrowandsubjectiveQMdefinition,whichdoesnotcoveralarge percentage of loans or does not include a clearlydefined safe harbor, could further undermine the housingandmortgagemarketsandthreatenthenationseconomicrecovery.Ourmembersappreciate your consideration of our views on the abilitytorepay proposed rule, and we would welcome the opportunitytodiscussthemingreaterdetail.Withyourleadership,webelieveCFPBisinapositionto createcertainty,instillconfidence,anddoitsparttohelprestorethehousingmarket. Sincerely, DanielS.Fulton President&CEO WeyerhaeuserCompany Chair,BRTSubcommitteeonHousing