WASHINGTON, D.C. — The Consumer Financial Protection Bureau (Bureau) this week issued a final rule to extend the Government-Sponsored Enterprise (GSE) Patch until the mandatory compliance date of a final rule amending the General Qualified Mortgage (QM) loan definition in Regulation Z. The GSE Patch was scheduled to expire on January 10, 2021. The Bureau is not amending the provision in Regulation Z stating that the GSE Patch will expire if the GSEs (Fannie Mae and Freddie Mac) exit conservatorship.
In releasing the final rule, the Bureau is taking steps to ensure a smooth and orderly transition away from the GSE Patch and to maintain access to responsible, affordable mortgage credit upon its expiration. Further, the Bureau is taking this action to ensure that responsible, affordable credit remains available to consumers who may be affected if the GSE Patch expires before the mandatory compliance date of a final rule amending the General QM loan definition. The Bureau issued a proposal to amend the General QM loan definition on June 22, 2020, the same day it issued a proposal to extend the GSE Patch. The Bureau is currently developing a final rule amending the General QM loan definition and is planning to issue it at a later date.
The Dodd-Frank Act amended the Truth in Lending Act (TILA) to establish ability-to-repay requirements for most residential mortgage loans. TILA identifies factors a creditor must consider in making a reasonable and good faith assessment of a consumer’s ability to repay. TILA also defines a category of loans called QMs, which are presumed to comply with the ability-to-repay requirements. In 2013, the Bureau issued the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule, which established a general QM standard for loans where the consumer’s debt-to-income (DTI) ratio is 43 percent or less and that meet various other requirements.
The ATR/QM Rule also created the GSE Patch as a temporary QM definition. The GSE Patch provides QM status to certain mortgage loans eligible for purchase or guarantee by either of the GSEs. GSE Patch loans are eligible for QM status even if the DTI ratio exceeds 43 percent. Last year, the Bureau released an assessment of the ATR/QM Rule and found that GSE Patch loans represent a large and persistent share of mortgage originations. As noted above, the GSE Patch is scheduled to expire soon, and absent regulatory action the Bureau estimates that approximately 957,000 mortgage loans would be affected by the expiration of the GSE Patch. The Bureau estimates that, after the GSE Patch expires, some of these loans would either not be made or would be made but at a higher price. On August 18, 2020, the Bureau also issued a proposed rule related to the ATR/QM Rule to create a new category of QMs (Seasoned QMs). The Bureau is planning to issue a final rule in connection with this proposal at a later date.
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