CFPB issues QM proposals addressing GSE Patch expiration

June 22, 2020

The Consumer Financial Protection Bureau (CFPB) issued two Notices of Proposed Rulemaking (NPRMs) Monday to address the impending expiration of the Government-Sponsored Enterprises Patch (GSE Patch). CUNA has called on the CFPB to provide clarity on the future of the GSE Patch, which is scheduled to expire in January 2021 or when the GSEs (Fannie Mae and Freddie Mac) exit conservatorship, whichever comes first.

The CFPB’s Ability to Repay/Qualified Mortgage (ATR/QM) established a general QM standard for loans where the consumer’s debt-to-income (DTI) ratio is 43% or less and the loan meets the other statutory QM requirements. 

The ATR/QM rule also created the GSE Patch as a temporary QM definition that also provides QM status to certain mortgage loans eligible for purchase or guarantee by either of the GSEs. These Temporary GSE QM loans are eligible for QM status even if the DTI ratio exceeds 43%.

Absent regulatory action the CFPB estimates that approximately 957,000 mortgage loans would be affected by the expiration of the GSE Patch. The Bureau estimates that, after the Patch expires, many of these loans would either not be made or would be made but at a higher price.    

The NRPMs are:

  • A proposal to amend the General QM definition in Regulation Z to replace the DTI limit with a price-based approach. It also proposes that lenders take into account a consumer’s income, debt, and DTI ratio or residual income and verify the consumer’s income and debts; and
  • A proposal to amend Regulation Z to extend the GSE Patch to expire upon the effective date of a final rule regarding the first notice’s proposed amendments to the General QM loan definition in Regulation Z.