CFPB Grants A Stay of Execution to GSE Patch

October 21, 2020 at 9:55 am Leave a comment

One of the biggest issues in the mortgage industry is the approaching expiration of the so-called GSE Patch on January 10, 2021. The patch refers to regulations which stipulate that any mortgage sold to Fannie Mae or Freddie Mac is automatically a qualified mortgage. Yesterday, the CFPB issued a final regulation which will extend the GSE Patch past its expiry date, but there’s a catch. The patch will only last until a new regulation doing away with it takes effect sometime next year. 

There’s actually more going on here than a simple question of extending an expiring regulation. Under the CFPB’s regulations, in order for a mortgage not being sold to the GSEs to be considered a qualified mortgage, it cannot exceed a 43% debt to income limit. In addition, Appendix Q imposes strict guidelines on how that debt and income is to be determined. At the time these regulations were promulgated, the CFPB considered using criteria other than DTI, or utilizing a higher debt to income threshold. 

In June, the CFPB proposed a replacement to the GSE Patch. Under this proposal, debt to income would be replaced as a condition. Instead, a mortgage would be considered a qualified mortgage “only if the APR exceeds APOR for a comparable transaction by less than two percentage points as of the date the interest rate is set.” To be clear, this is just one of several conditions that would have to be satisfied. This regulation has not been finalized yet, but it will be in the coming weeks. Under the initial proposal, which could of course change in the final regulation, the new definition of qualified mortgage would take effect six months after the regulation is enacted. This proposal also undoubtedly warms the heart of those who want to see the outsized role that the GSEs play in the mortgage market reduced, since it would end a built in regulatory advantage they currently have.

 Like everything else, the election hangs over this proposal. If Joe Biden wins the presidency, you can bet that one of the first things a new CFPB Director will do is put a hold on all pending regulations. But in the meantime, you should at least start considering how your credit union would be impacted by this new QM rule. Six months isn’t that much time to prepare

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