CFPB Proposes Alternative to the GSE Patch

June 23, 2020 at 9:28 am Leave a comment

With a January 21st statutory deadline fast approaching, the CFPB yesterday put forward a set of regulations which could have a dramatic impact on the mortgage industry.

Dodd-Frank and its accompanying regulations provide mortgage lenders with enhanced legal protections in the event that they must foreclose on a property.  For a mortgage to be classified as a Qualified Mortgages (QM), it must, among other things, have a debt-to-income ratio no higher than 43%.  Alternatively, any mortgage eligible for sale to Fannie Mae or Freddie Mac also qualifies as a QM mortgage even though the GSE’s have GTI ratios exceeding 43%.

The drafters of Dodd-Frank put the GSE exception into statute so that policy makers would have enough time to gradually ween the mortgage industry off of its GSE dependency.  The Dodd-Frank GSE authorization expires in January 2021 and, according to the CFPB, there are still 957,000 loans which qualify as QM loans because they are eligible for sale in the secondary market.  Consequently, without the GSE option, home buying is going to be a lot more expensive for a lot of lower income Americans.

Yesterday the GSE unveiled its post January 2021 proposal.  Based on the summaries I have read, including a statement from the CFPB, the Bureau is proposing doing away with the 43% DTI ratio and replacing it with a price based approach similar to that which is already in use for other categories of loans.  Specifically, whether or not a mortgage qualifies as a QM would be determined by comparing a loan’s annual percentage rate (APR) to the average prime offer rate (APOR) for a comparable transaction.

In a separate rulemaking, the CFPB is proposing extending the existing GSE authorization until April 2021.  In other words, after an election in which the future of the CFPB will be debated.  Needless to say, if you are looking for regulatory certainty in the mortgage market over the next year, you are in the wrong country.

Entry filed under: Compliance, Federal Legislation, Mortgage Lending. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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