FormFree Founder and CEO Brent Chandler responded to this week’s news that Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger indicated the bureau’s decision to propose amending the Ability to Repay/Qualified Mortgage Rule so as to “move away” from debt-to-income (DTI) calculations as a mortgage underwriting factor:
First, I commend the CFPB for their courage to engage in thoughtful discussion of alternative methods for assessing a borrower’s ability to afford a loan and calculating what is affordable for them specifically.
DTI is an archaic evaluation that has outlived its usefulness for consumers, and particularly mortgage-seeking consumers. DTI has left tens of millions of consumers in the cold because they do not meet this threshold, when in fact, based on their actual cash flows, they could afford a loan and possibly even be a superior borrower to someone who does meet it.
With the advent of and 10 years’ success using digital data to dependably deliver voluntary ‘source truth’ on users’ personal solvency or money management lifestyle, we can calculate ability to pay definitively based on residual and discretionary income.
In other words, digital financial tools allow us to clearly identify what consumers can afford based on their money management habits better and more transparently than a rigid one-size-fits-all formula. That’s why ability to pay is the best consumer borrowing risk indicator.
It is gratifying that the CFPB and the powers that dictate what makes a safe and solvent loan have begun acknowledging technology as a useful tool for creating more efficient, safer, more secure, more accessible models of lending.
Our board member and close industry advisor Faith Schwartz reminds me that the myriad policy considerations driving the CFPB’s proposal are not limited to technology-driven advances. While I am not blind to other considerations, I see the world through the lens of how technology is driving positive change. I am fascinated by and ardent about the doorway we are finally stepping through as an industry that lives or dies, fails or thrives, based on its ability to lend responsibly to consumers.