On October 20, 2020, the CFPB issued a final rule that extends the sunset date of the temporary “GSE Patch” under the Ability-to-Repay/Qualified Mortgage (“ATR/QM rule”). The extension was necessary to bridge the gap between the previously anticipated expiration date on January 10, 2021 and the effective date of a new general QM definition that was proposed earlier this year. See information on that proposal here. As such, the final rule provides that the GSE Patch will be available for covered transactions for which the creditor receives a consumer’s application before the mandatory compliance date of the final rule amending the General QM loan definition in Regulation Z. The final rule will become effective 60 days after being published in the Federal Register.
The final rule does not amend the Regulation Z provision that states the GSE Patch will expire if Fannie Mae and Freddie Mac (the “GSEs”) cease to operate under conservatorship. Thus, in the unlikely event the GSEs were to leave conservatorship before the proposed general QM definition becomes effective, the GSE Patch would also still end at that time.
The CFPB previously released two Notices of Proposed Rulemaking (“NPRM”) on June 22, 2020. The first NPRM was a proposal to amend the definition of a General QM under the ATRM/QM rule to move away from the current 43% debt-to-income (“DTI”) threshold towards a price-based model based on a comparison of the annual percentage rate (“APR”) to the average prime offer rate (“APOR”). The second proposal was to extend the GSE Patch until the final rule amending the definition becomes effective.
The CFPB announcement regarding the GSE Patch confirms that they are currently developing the final rule amending the General QM loan definition but wanted to extend the GSE Patch expiration date as a measure to ensure a smooth and orderly transition and to reduce the impact on consumers.
The ATR/QM rule requires lenders to make a reasonable and good faith assessment of a consumer’s ability-to-repay a residential mortgage loan before lending them money. The rule also establishes a general QM standard for loans which presumes ability-to-repay requirements are met when a consumer’s DTI is 43% or less, along with other requirements such as a 3% limit on points and fees. The temporary QM definition which creates the GSE Patch provides QM status to certain loans eligible for purchase or guarantee by the GSEs even with a DTI ratio greater than 43%. Previously, the temporary GSE Patch was set to expire the date the GSEs exit conservatorship or on January 10, 2021, whichever occurred first.
The CFPB has made an Executive Summary and unofficial redline version of the final rule available here.
DocMagic will continue to monitor for any further announcements regarding the ATR/QM rule and will provide updates as they become available. If you have any questions regarding this article, please contact DocMagic’s Compliance Department.
