On July 25, 2019, the Consumer Financial Protection Bureau (“CFPB”) issued an Advance Notice of Proposed Rulemaking (“ANPR”) to solicit comments regarding the expiration of a provision known as the “GSE patch” and other possible amendments to the CFPB’s Ability to Repay/Qualified Mortgage (“ATR/QM”) Rule.
The Dodd-Frank Wall Street Reform and Consumer Protection Act implemented ATR/QM requirements for virtually all closed-end residential mortgage loans and in 2013, the CFPB adopted the ATR/QM Rule. The rule generally requires an analysis of the borrower’s ability to repay the loan, caps points and fees at no more than 3% of the loan amount and does not allow the borrower’s debt-to-income ratio to exceed 43%. Loans that meet these requirements are called Qualified Mortgages (“QMs”).
One provision of the ATR/QM Rule temporarily expands the definition of QMs to include loans that are eligible for purchase or guarantee by the Government Sponsored Enterprises (“GSEs”), Fannie Mae and Freddie Mac. The temporary definition or “GSE patch” excludes this category of QMs from the 43% debt-to-income requirement that applies to general QM loans. It is scheduled to expire the date the GSEs exit federal conservatorship or receivership or on January 10, 2021, whichever comes earlier.
The CFPB proposed in the ANPR that it plans to allow the GSE patch to expire in January 2021, or after a short extension, if necessary, for a smooth transition. The temporary provision was meant to provide time for the market to recover from the mortgage crisis and “allow for a shift toward general QM loans, and non-QM loans above a 43% debt-to-income ratio.” However, the CFPB noted that a previously released assessment of its ATR/QM Rule found that “GSE QM loans represent a large and persistent share of originations in the conforming mortgage market and that creditors generally offered a temporary GSE QM loan even when a general QM loan could be originated.”
The CFPB indicates in the ANPR that as long as the GSE patch is available “the private market is less likely to rebound.” Federal Housing Finance Agency Director Mark Calabria responded to the CPPB announcement by stating the “QM patch should expire so that we can level the playing field, foster competition in our nation’s housing finance market, and bring us one step closer to comprehensive housing finance reform.”
The ANPR seeks comments on whether a change to the QM definition should retain a direct measure of a consumer’s personal finances, such as debt-to-income ratio, or if there are better alternatives that are still consistent with the purpose of the regulation.
