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Comments due on CFPB proposal to change QM definition

09/08/2020
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The Consumer Financial Protection Bureau has issued two Notices of Proposed Rulemaking to address the impending expiration of the Government-Sponsored Enterprises Patch (GSE Patch). The GSE Patch, which was a temporary definition in Regulation Z § 1026.43(e)(4)(ii)(A) that provides qualified mortgage status to certain mortgage loans eligible for purchase or guarantee by either Freddie Mac or Fannie Mae (the Government Sponsored Enterprises or GSEs) is scheduled to expire in January 2021 or when the GSEs exit conservatorship, whichever comes first.

In the first NRPM [published July 10, 2020, at 85 FR 41716], the Bureau proposes to amend the general QM definition in Regulation Z to replace the 43% DTI limit with a price-based approach. The Bureau is proposing a price-based approach because it preliminarily concludes that a loan’s price, as measured by comparing a loan’s annual percentage rate to the average prime offer rate for a comparable transaction, is a strong indicator and more holistic and flexible measure of a consumer’s ability to repay than DTI alone. For eligibility for QM status under the General QM definition, the Bureau is proposing a price threshold for most loans as well as higher price thresholds for smaller loans, which can be important for manufactured housing and for minority consumers. The proposal would also require that lenders take into account a consumer’s income, debt, and DTI ratio or residual income and verify the consumer’s income and debts.

In addition, although the Bureau is proposing to remove the 43 percent DTI limit and adopt a price-based approach for the General QM loan definition, the first NPRM also requests comment on certain alternative approaches that would retain a DTI limit but would raise it above the current limit of 43 percent and provide a more flexible set of standards for verifying debt and income in place of appendix Q. The proposal suggests a final rule would not be effective before April 1, 2021, and (perhaps mindful of adjustments of effective dates of past amendments) asks for comment on whether there is a day of the week or time of month that would most facilitate implementation of the proposed changes.

In the second NPRM [published July 10, 2020, at 85 FR 41448], the Bureau proposes 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. The Bureau is proposing to take this action to ensure that responsible, affordable credit remains available to consumers who may be affected if the GSE Patch expires before the amendments take effect as defined in the first NPRM (which is almost certainly to be the case, given the suggested April 1 effective date for the changes in the first proposal).

Comments on the first NPRM will be open for 60 days [ending 9/8/2020] and those on the second NPRM for 31 days [ending 8/10/2020] following publication in the Federal Register.

UPDATE: Updated to include publication and comment deadline information.

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