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NAFCU offered its support of the CFPB's proposed rule to delay mandatory compliance with its general qualified mortgage (QM) definition, which replaces the debt-to-income (DTI)-based calculation with one based upon an average prime offer rate (APOR), in a letter sent Friday. In addition, NAFCU President and CEO Dan Berger raised the issue to Federal Housing Finance Agency (FHFA) Director Dr. Mark Calabria related to credit unions' use of the temporary government-sponsored enterprises (GSE) QM loan (GSE patch).

The bureau's proposed 15-month deadline extension – to Oct. 1, 2022 – would also include use of the GSE patch.

In the letter to the CFPB, NAFCU Senior Regulatory Affairs Counsel Kaley Schafer wrote that the proposal allows credit unions to prioritize assisting members under ongoing pandemic conditions while adjusting to regulatory changes to the ability-to-repay (ATR)/QM rule.

“The additional flexibility will assist borrowers who may not have been otherwise able to obtain a mortgage loan under the APOR-based general QM definition due to the currently lending environment and impacts stemming from the COVID-19 pandemic,” Schafer observed.

Under the proposal, credit unions could opt to use the new APOR-based QM definition or the previous DTI-based general QM definition and use the GSE patch when qualifying mortgages to be sold to the GSEs. NAFCU has previously expressed opposition to the APOR-based definition and has asked the bureau to instead consider a modified DTI with compensating factors if the rule is reconsidered in the future.

One concern related to the APOR-based calculation is the potential for the mispricing of loans. The CFPB acknowledged this risk when it proposed the general QM rule and again when proposing the 15-month delay.

Given the current market conditions and high-volume of mortgage origination, there is concern that the APOR approach may create an incentive to misprice loans and increase rate spreads for higher-risk borrowers, Schafer said. The CFPB's new proposal would effectively disincentivize any mispricing of loans.

Credit unions provide more lending to low- and moderate-income earners at every DTI level, in part, because of their ability to utilize the GSE patch, Schafer noted. She cited findings from NAFCU's 2020 Annual Report on Credit Unions, in which respondents said 61 percent of their outstanding mortgages qualified to be sold to the GSEs. Furthermore, 19 percent said the GSE patch's looming July 1 expiration date would have a material impact on their credit union.

In the letter to Calabria, Berger flagged that recent amendments made to the GSEs' Preferred Stock Purchase Agreements (PSPAs) "may limit the utility of any GSE Patch extension that is ultimately finalized by the Bureau and may materially impact credit unions' ability to serve their members."

"In practical terms, this means the GSEs may only acquire GSE Patch loans before July 1, 2021, or the previous date on which the GSE Patch was set to expire," Berger said. "NAFCU remains concerned about the adverse impacts of the expiration of the GSE Patch given that many credit unions sell their loans to the GSEs and the number of credit unions that reported the expiration would have a 'material' impact on their institution."

NAFCU will continue to work with the CFPB and FHFA to address these concerns and find a viable alternative to the GSE patch during the extension period.