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Special Alert: CFPB redefines Qualified Mortgage; “GSE Patch” to expire
The Consumer Financial Protection Bureau last week released two final rules further defining what types of loans can be a “qualified mortgage loan” for purposes of the bureau’s Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule). The General QM Final Rule substantially revamps the general rules defining what constitutes a General QM and removes the existing debt-to-income threshold over which a loan cannot be considered a General QM. The Seasoned QM Final Rule creates a new class of QM that allows certain rebuttable presumption QMs and non-QMs to achieve “safe harbor” QM status three years after origination provided the consumer has strong repayment history.
Importantly, the “GSE Patch,” which provides QM status to loans qualifying for sale to Fannie Mae or Freddie Mac, expires for applications submitted before July 1, 2021, at which point the General QM Rule will take effect (although compliance with both rules is permitted 60 days after publication in the Federal Register).
CFPB amends General QM loan definition, creates definition for Seasoned QMs
On December 10, the CFPB issued two final rules related to qualified mortgage (QM) loans. The first of the two final rules, the General QM Final Rule, amends Regulation Z and revises the definition of a General QM by eliminating the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replacing it with bright-line price-based thresholds. The General QM Final Rule also eliminates QM status resulting solely from loans meeting qualifications for sale to Fannie or Freddie Mac (GSEs), known as the so-called “GSE Patch.” The Bureau’s second final rule, the Seasoned QM Final Rule, creates a new category of safe-harbor QMs applicable to first-lien, fixed-rate mortgages that are held in portfolio by the originating creditor or first purchaser for a 36-month period while meeting certain performance requirements, and comply with general restrictions on product features and points and fees.
Both final rules become effective 60 days after publication in the Federal Register. The mandatory compliance date for the General QM Final Rule is July 1, 2021; however, the Bureau notes that, between the effective date and the mandatory compliance date, there will be an optional early compliance period during which creditors will be able to use either the current General QM definition or the revised General QM definition. In addition, the GSE Patch will be available only for transactions where the creditor receives the consumer’s application before July 1, 2021 (or earlier if the GSEs exit conservatorship). Further, the Seasoned QM Final Rule applies to covered transactions for which creditors receive an application on or after the effective date, but will not apply retroactively to loans already in a lender’s portfolio.
Buckley will follow up with a more detailed summary of the final rules soon.
CFPB extends GSE Patch
On October 20, the CFPB issued a final rule extending the expiration of the GSE Patch until the mandatory compliance date of final amendments to the General Qualified Mortgage (QM) loan definition in order to facilitate a smooth and orderly transition away from the GSE Patch. As previously covered by a Buckley Special Alert, in June, the Bureau released two Notices of Proposed Rulemaking (NPRM) to address the January 2021 expiration of the GSE Patch for the QM Rule. The first NPRM proposed to remove the General QM loan definition’s 43 percent debt-to-income ratio (DTI) limit and replace it with a price-based threshold and the second proposed to extend the expiration of the GSE Patch.
The final rule replaces the original expiration of the GSE Patch (January 1, 2021) until the mandatory compliance date of the final amendments to the QM loan definition. The final rule also provides that the current QM definition “will be available only for covered transactions for which the creditor receives the consumer’s application before the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z.” Notably, the NPRM for the new QM loan definition proposes an effective date of six months after the final rule is published in the Federal Register and the rule has not yet been published; it does not discuss a mandatory compliance date.