The Consumer Financial Protection Bureau has issued an advance notice of proposed rulemaking (ANPR) seeking information relating to the expiration of temporary qualified mortgage provisions.
The proposal applies to certain mortgage loans eligible for purchase or guarantee by the government-sponsored enterprises Fannie Mae and Freddie Mac and the Bureau’s Ability-to-Repay/Qualified Mortgage Rule. This provision, also known as the GSE patch, is scheduled to expire no later than Jan. 10, 2021.
“Loans backed by Fannie Mae and Freddie Mac make up a large portion of the U.S. mortgage market,” CFPB Director Kathleen Kraninger said in a statement. “The national mortgage market readjusting away from the Patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protection. We want to hear all perspectives on how to move beyond the GSE Patch, the impact on credit, the role of the private mortgage market, and possible modifications to the definition of qualified mortgages and the rules governing the documentation of debt and income.”
The Dodd-Frank Act amended the Truth in Lending Act to establish ability-to-repay requirements for most residential mortgage loans. TILA identifies factors a creditor must consider in making a reasonable and good faith assessment of a consumer’s ability to do so.
TILA also defines a category of loans called qualified mortgages for which creditors may presume compliance with the ability-to-repay requirements. The GSE patch expands the definition of qualified mortgage to include certain mortgage loans eligible for purchase or guarantee by the GSEs, and in most cases these loans are granted a safe harbor from ATR requirements.
Earlier this year, the CFPB found GSE QM loans represent a “large and persistent” share of originations in the conforming mortgage market and that creditors generally offered a temporary GSE QM loan even when a general QM loan could be originated.
The ANPR states the CFPB currently plans to allow the GSE patch to expire in January 2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition away from its provisions. In the ANPR, the Bureau solicits comments on possible amendments to the ATR/QM Rule, including whether to revise Regulation Z’s definition of a qualified mortgage in light of the GSE patch’s scheduled expiration.
The Bureau also seeks information and comment on whether the definition of qualified mortgage should retain a direct measure of a consumer’s personal finances (for example, debt-to-income ratio) and whether the definition should include an alternative method for assessing financial capacity.