The Consumer Financial Protection Bureau (CFPB) announced it is delaying the mandatory compliance for its new General Qualified Mortgage (QM) final rule until well into next year – Oct. 1, 2022.
Originally, the new QM rule was set to take effect on July 1, 2021. The delay for mandatory compliance adds a full year and three months. The CFPB said it is taking this action to help ensure access to responsible, affordable mortgage credit, and preserve flexibility for consumers affected by the COVID-19 pandemic and its economic effects.
“So many consumers have been hit hard by the pandemic and the economic downturn, and we want to ensure that responsible, affordable mortgages remain available,” CFPB Acting Director Dave Uejio said. “As the mortgage market navigates an uncertain and challenging time, extending the date by which lenders must comply with the CFPB’s new General QM definition will help provide options and flexibility for both lenders and borrowers.”
Early in March, the CFPB proposed to delay the mandatory compliance date for its General QM final rule. At this suggestion, the Mortgage Bankers Association quickly took a stand against the proposal, saying it would bring uncertainty to the housing market.
The CFPB issued final rules related to QM loans back in December. Lenders are required under the law to determine that consumers have the ability to repay mortgage loans before lenders make those loans. Loans that meet legal standards for QM loans are presumed to be loans for which consumers have such an ability to repay.
The CFPB said delaying the final rule’s compliance date would also give lenders more time to use the Government-Sponsored Enterprise (GSE) Patch, which provides QM status to loans that are eligible for sale to Fannie Mae or Freddie Mac. But the availability of the GSE Patch after July 1, 2021 may be limited by recent revisions to the Preferred Stock Purchase Agreements entered into by the Department of the Treasury and the Federal Housing Finance Agency.
Fannie Mae and Freddie Mac previously said they’ll adopt new underwriting standards for qualified mortgages on July 1, despite the CFPB’s proposal to give lenders a reprieve and push adoption back.
Drafted in the aftermath of the 2007-2008 mortgage meltdown, the 2014 qualified mortgage rule was intended to discourage lenders from offering risky loans, and encourage them to carefully evaluate each borrower’s ability to repay. Lenders meeting the QM rule receive some legal immunity from lawsuits by borrowers.
One way lenders can meet the QM rule today is to limit the borrower’s debt-to-income ratio to 43 percent. But because that cutoff was seen as arbitrary for some creditworthy borrowers, Fannie and Freddie were granted a “QM patch,” allowing them to purchase and guarantee loans exceeding 43 percent DTI.
Now, the GSE Patch is being removed, and the new QM rule will take its place, replacing the DTI requirement with a pricing threshold. While lenders can begin implementing the new rule, compliance will now no longer be mandatory until late next year.
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