June 23, 2020

CFPB Proposes Significant Changes to the QM Rule, but Extends GSE Patch

2 min

The CFPB has issued two proposed rules designed to ensure "a smooth and orderly transition" away from the temporary "Government-Sponsored Enterprises Patch" (GSE Patch) to the ability-to-repay/qualified mortgage (ATR/QM) rule for residential mortgage loans. The CFPB proposes to amend the general QM rule to eliminate the need for the GSE Patch, and to extend the GSE Patch until the amendment to the general QM rule is finalized.

The CFPB proposes to eliminate the 43% debt-to-income (DTI) ratio requirement (and with it, the complex procedure for verifying and documenting a consumer's income, assets, and debts set out in Appendix Q). Instead, the CFPB proposes a "price-based approach." The Bureau proposes that for QMs (on first liens) the APR may not exceed APOR for a comparable transaction as of the date the interest rate is set by 2% or more.

Under the proposal, lenders must still comply with amended requirements to consider and verify certain information about the borrower. According to the proposed rule, lenders must

  • "consider[] the consumer's income or assets, debt obligations, alimony, child support, and monthly DTI ratio or residual income, using the amounts determined from § 1026.43(e)(2)(v)(B); and
  • "verif[y] the consumer's current or reasonably expected income or assets . . . using third-party records that provide reasonably reliable evidence of the consumer's income or assets, in accordance with § 1026.43(c)(4), and the consumer's current debt obligations, alimony, and child support using reasonably reliable third-party records in accordance with § 1026.43(c)(3)."

The proposal represents a significant upcoming change to the mortgage market. The CFPB notes that the GSE Patch affects a large section of the market—and the expiration of the Patch stands to affect nearly one million loans. As the Bureau and the mortgage industry learned with the first attempt at a general QM rule, the definition of a QM and the practical application of the safe harbor are complex, and we are continuing to digest the Bureau's proposal. Industry participants have 60 days after Federal Register publication to comment on the proposed QM rule, and 30 days after publication to comment on the extension of the Patch.