In what appears to be a response to requests made by some of the nation’s largest lenders and housing groups to change QM lending rules, Consumer Financial Protection Bureau Director Kathy Kraninger announced in a letter to members of Congress last week a proposed amendment to the Ability to Repay/Qualified Mortgage rule that would decrease the emphasis on debt-to-income (DTI) as a determining factor in mortgage underwriting. Kraninger said that the update to the rule would shift from the DTI standard and to more of an “alternative, such as a pricing threshold” or adding a seasoning component.
Following the financial crisis of 2008, the CFPB enacted the ATR/QM rule, which verifies the borrower’s ability to repay a mortgage. The rule included a review of the borrower’s debts and assets, with a stipulation that the DTI ratio does not exceed 43%. Fannie Mae and Freddie Mac, however, were not bound to this stipulation and could back loans that exceeded a 43% DTI because of a condition called the QM Patch. Many in the industry felt like the QM Patch gave Fannie and Freddie an unfair advantage, which led to special interest groups to lobby the CFPB to make changes to the QM rule to level the playing field. And now it seems the change will be happening with the proposed amendment.
While the QM Patch was originally set to expire in 2021, Kraninger said in her letter the CFPB is considering extending the deadline, “until the effective date of the proposed alternative or until one or more of the GSEs exit conservatorship, whichever comes first.”
A ruling on the proposal should be announced no later than May 2020, according to the letter.