On July 25, 2019, the Consumer Financial Protection Bureau (Bureau) issued an Advance Notice of Proposed Rulemaking seeking information relating to the expiration of the temporary qualified mortgage provision applicable to certain mortgage loans eligible for purchase or guarantee by the Government Sponsored Enterprises (GSEs), Fannie Mae, and Freddie Mac, in the Bureau’s Ability to Repay/Qualified Mortgage (ATR/QM) Rule. This provision, also known as the GSE patch, is scheduled to expire no later than January 10, 2021.

Background – The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Truth-in-Lending Act (TILA) to establish Ability-to-Repay (ATR) 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 repay or ATR. TILA also defines a category of loans called qualified mortgages for which creditors may presume compliance with the ATR requirements. The GSE Patch, adopted in the Ability to Repay/Qualified Mortgage Rule, expanded 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 legal liability in connection with the ATR requirements. These Temporary GSE QM loans typically qualify for that safe harbor from legal liability even if their debt-to-income ratio exceeds the 43 percent threshold otherwise generally required for loans to obtain qualified mortgage status.

Notice – The notice states that the Bureau 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 the GSE Patch. 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 ANPR 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.

Earlier this year, the Bureau released an assessment of its Ability to Repay/Qualified Mortgage Rule and found that 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.

 

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