Gradual transition needed from GSE Patch to new QM rule

August 11, 2020

CUNA supports the Consumer Financial Protection Bureau’s (CFPB) proposed extension of a temporary Qualified Mortgage (QM) loan definition known as the GSE Patch, it wrote Monday, but believes time should be given for a gradual transition period. The proposal would extend the date of the GSE Patch (currently scheduled to expire Jan. 10, 2021) until the effective date of a final QM rule from the CFPB.

“CUNA supports the extension as a prudent and necessary action to ensure consumers’ continued access to affordable mortgage loans while the Bureau completes its rulemaking on the General QM definition,” the letter reads. “We strongly believe the CFPB should avoid gaps in QM coverage that would disadvantage borrowers and create uncertainty in the nation’s economically vital mortgage lending market.”

Specifically, GSE Patch mortgages are defined as mortgages that:

  • Comply with the same loan-feature prohibitions and points-and-fees limits as General QM loans; and
  • Are eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac while under the conservatorship or receivership of the Federal Housing Finance Agency.

These mortgages represent approximately 20% of loans guarantees by Fannie Mae and Freddie Mac over the last five years.

While CUNA supports the extension, it also recommends the CFPB consider that the effective date the GSE Patch will sunset allows for a gradual transition period for QM compliance.

“[I]t would be in the best interest of both consumers and mortgage lenders for the Bureau to adopt an extended and gradual transition period that would account for time to “test out” the amended General QM loan definition and ensure there are no negative unintended consequences for borrowers of modest means or underserved groups - the core constituency of America’s credit unions,” the letter reads. “At minimum, absent the end of the conservatorship of a GSE, the GSE Patch should remain in effect for 12 months following the adoption of a final General QM rule, so that credit unions and other market participants can adapt to the new requirements and provide critical feedback about the efficacy of the new rule prior to the elimination of the GSE Patch.”