June 23, 2020

CFPB issues proposed rules to address QM definition, GSE Patch expiration

housingThe CFPB Monday issued two notices of proposed rulemaking (NPRMs) related to the General QM definition and upcoming expiration of the Government-Sponsored Enterprises Patch (GSE) QM Patch. NAFCU recently joined with nine other organizations to urge CFPB Director Kathy Kraninger to delay rulemakings on the General QM definition and extend of the patch in the wake of the coronavirus pandemic.

Earlier this month, NAFCU also called on Congress to establish an emergency QM standard with flexible requirements and extend the patch if the CFPB did not provide one.

In the first NPRM, the CFPB seeks to amend the QM definition in Regulation Z by replacing the current 43 percent debt to income (DTI) threshold with a price-based threshold.

Under the proposal, a safe harbor and rebuttable presumption QM will still exist. A loan would meet the QM definition’s safe harbor if the APR is no more than the average prime offer rate (APOR) plus 1.5 bps. Loans that otherwise meet the general QM definition and the APR exceeds APOR by more than 1.50 bps but not more than 2.00 bps would maintain a rebuttable presumption of compliance.

Of note, Appendix Q is removed; however, lenders are still required to consider the borrower's income, assets, and DTI ratio.

NAFCU advocated for the bureau to provide credit unions with flexibility and  "implement a QM definition that relies on measurable underwriting thresholds and the use of compensating factors for higher risk mortgages rather than either a pricing-based QM definition that uses the spread between the annual percentage rate (APR) and the Average Prime Offer Rate (APOR) as a proxy for underwriting requirements (the “APOR approach”) or a hard cut-off at either 43% or 45% DTI."

Through the second NPRM, the bureau proposes to extend the GSE Patch until the effective date of a final rule regarding the first notice’s proposed amendments to the General QM loan definition in Regulation Z. 

NAFCU has previously met with representatives at the CFPB to discuss the QM patch. The association has also highlighted the benefits of the GSE patch in providing credit unions with the ability to sell their loans into the secondary market – generating "vital" liquidity enabling credit unions to make more loans to their members, especially those of low- or moderate-income.