WSJ Op-Ed: Regulators Have Created a Mortgage Minefield

by Jeff Sovern

Former governor, HUD general counsel, and current head of the American Bankers Association Frank Keating has penned an op-ed for the Wall Street Journal (behind paywall) with the headline above.  Keating complains that HUD has adopted the disparate impact test for discrimination; that the CFPB's qualified mortgage rule (QM rule) will restrict lending to borrowers who would otherwise get mortgages; and that banks which comply with the QM rule risk falling afoul of the disparate impact test.

Keating explains: "The QM requirements will result in an immediate tightening of credit, with banks substituting a one-size-fits-all federal mandate for their own good judgment and sound underwriting." That sounds scary, until you remember that the banks' "good judgment and sound underwriting" led to the making of millions of mortgage loans on which borrowers defaulted and were foreclosed upon, which wrecked the economy and led to enormous bailouts to the banks which exercised such good judgment.  Keating never mentions any of that. Personally, I prefer the QM rule to that kind of "good judgment and sound underwriting."

Keating says use of the disparate impact test "represents a radical shift in how the government enforces fair housing law."  Somehow he forgets to note that more than 40 years ago, the Supreme Court approved use of the "radical" disparate impact test, albeit in the employment discrimination context.  Courts have used the disparate impact test in lending discrimination for some time.  To be sure, the Supreme Court has taken the Mount Holly case on the issue, but that was not because of a circuit split on this issue–because there isn't one.  And even if there were, that wouldn't make use of the test "radical." 


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