Ahead of Tuesday’s deadline for public comments, trade groups, businesses and housing sector organizations responded to the Consumer Financial Protection Bureau regulatory proposal for the general definition of qualified mortgages and the expiration of the QM patch in January 2021.
In June, the office published two proposals regarding the QM Patch, which allows loans sold to Fannie Mae or Freddie mac exceed the debt-to-income ratio of 43% that the Bureau had established in its rule on repayment capacity / qualifying mortgage loan.
The first proposal was to change the definition of quality management in Regulation Z to replace the DTI limit with a price-based approach – which the CFPB said was a more holistic and flexible measure of capacity to ‘a consumer to be reimbursed than the DTI alone.
The second proposal was an amendment that would extend the QM fix to expire on the effective date of a final rule regarding the changes proposed by the first notice to the general definition of QM loan in Regulation Z.
“The Bureau’s goal with these proposals is to facilitate a smooth and orderly transition away from the definition of temporary GSE QM loan and to ensure access to responsible and affordable mortgage credit when it expires,” the Bureau said in a statement. July press release.
At July On September 9, the Bureau opened for public comments on the proposed rule until September 8, prompting several industry organizations to express their approval and suggest revisions.
Fannie Mae, who is directly impacted by the fix, expressed support for the proposed definition but encouraged the Bureau to reconsider the specificity of references to Fannie Mae’s sales guide and to clarify its position on five-year MRAs.
“While the vast majority of Fannie Mae’s business falls within the proposed APR-APOR spread, Fannie Mae would favor a higher threshold for the Safe Harbor and Rebuttable Presumption levels and / or wider spread, as mentioned in the Bureau’s proposal. Fannie Mae is also requesting that the Bureau provide immediate advice on how the current APOR tables should be used for SOFR loans, as they will begin to be created this fall, ”said Fannie Mae.
Another comment included that of the National Association of Real Estate Agents, which welcomed the CFPB’s clarification efforts, but expressed concern that the proposed rule did not address several weaknesses that could lead to higher and inconsistent costs for consumers, discrimination and weakening of safety and solidity.
In a 22-page letter addressed to the CFPB, the Mortgage Bankers Association expressed support for the overall CFPB effort, but highlighted specific concerns, in particular how the proposed changes affected the “clear line” for qualifying quality management.
The MBA cited the added comment of the proposal here as problematic:
“Monthly debt ratio or monthly residual income. Under 1026.43 (c) (2) (vii), the creditor must take into account the consumer’s monthly debt-to-income ratio, or the consumer’s residual monthly income, in accordance with the requirements of 1026.43 (c) (7). Section 1026.43 (c) does not prescribe a specific monthly debt ratio with which creditors must comply. Instead, the creditor must determine an appropriate threshold for a consumer’s monthly debt ratio or residual monthly income to reasonably and in good faith determine a consumer’s ability to repay.(Bold added by MBA.)
The MBA commented: “In layman’s terms, this provision of the commentary could be interpreted as indicating that any QM loan could be investigated or challenged on the basis of the reasonableness or good faith of the creditor. when determining the appropriate DTI ratio of a QM loan. This result would significantly undermine the benefits of QM status for lenders and investors, introducing significant legal uncertainty into a regime that is supposed to provide clear eligibility parameters. Such a provision in the general definition of quality management could lead to credit crunch overlays or a rise in prices as lenders and investors attempt to quantify risk. “
The MBA also urged the CFPB to adopt appropriate safe-haven limits, calling on the Bureau to “increase the safe harbor threshold for first-tier transactions in the general definition of quality management at a rate gap of 200 basis points. In doing so, the Bureau should completely eliminate the quality management category of rebuttable presumption for first lien transactions. “
The MBA also asked the Bureau to remove or change the special rule for MRAs.
Other organizations that have left public comments include United States Chamber of Commerce, National Consumer Law Center, National Fair Housing Alliance, Center for Responsible Lending, National Association of Home Builders, American Bankers Association, Urban Institute, National Association of Mortgage Brokers, National Association of Federal Credit Unions, Housing Policy Council, Quicken Loans, Credit Union National Association, and Manufactured Housing Institute.
In September 2019, several prominent members of the industry called for the elimination of the QM patch and reform of qualified mortgages. After the commentary on the proposed regulation ended, some organizations indicated that while the latest revision is a step in the right direction, it is not yet the concrete replacement needed for good market stability.
According to a report by the Urban Institute, on a net basis, if the two proposed changes were in place in 2019, approximately 297,000 non-qualified loans would have been classified as qualified mortgages. The institute notes that “all of this gain in QM loans would come from the conventional non-GSE channel, partially offset by a relatively small number of GSE loans losing the QM designation.”