On April 27, 2021, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a definitive rule making the mandatory compliance date for the “Qualifying Mortgage” (QM) definition rule (the general QM final rule) from July 1 2021 formally delayed until October 1, 2022.
We previously reported about this mortgage regulation, which was finalized by the Bureau at the end of last year. The general QM final rule simplifies the definition of a QM drastically by replacing the original definition of general QM credits (based on the requirement that the consumer debt-to-income ratio (DTI) does not exceed 43%) with a credit-based one Limit is replaced by pricing. The rule was published in the Federal Register on December 29, 2020 with an effective date of March 1, 2021 (although the rule contained an original mandatory compliance date on July 1, 2021). We also previously reported in the Declaration of the Presidium of February 23, 2021, which contained a status update and more specific guidelines on the current and future plans of the Presidium for the QM rules.
In accordance with the declaration of February 23, the Presidium issued a rule proposal on March 3 to postpone the mandatory compliance date of the general QM final rule from July 1, 2021 to October 1, 2022 (which we are also talking about) previously reported). The CFPB has now accepted the previous rule proposal.
For applications received on or after March 1, 2021, but before the mandatory compliance deadline on October 1, 2022, creditors wishing to take out general QM loans have the option of either complying with the revised, price-based general QM loan definition or the original monthly DTI-based general QM credit definition. In addition, the last rule affects the expiry of the temporary GSE-QM credit definition or the “patch”. This is a temporary QM definition that also gives QM status to certain mortgage loans that can be bought or guaranteed by any of the GSEs (Fannie Mae or Freddie (Mac). Under the final rule, the definition of the Temporary GSE QM Loan expires on October 1, 2022 or the date the applicable GSE leaves the Conservatory, whichever comes first. However, only the revised, price-based definition of the general QM loan is available for applications received on or after October 1, 2022, the mandatory compliance date.
The final regulation will come into force on June 30, 2021.
- It is important to note that while this final rule postpones the mandatory compliance date of the general QM final rule, it does not change the effective date of the general QM final rule (the general QM final rule was in effect on March 1, 2021 ).
- As the Bureau itself recognizes, the future impact of this delay on access to credit is subject to uncertainty. The practical availability of the definition of the GSE QM Temporary Loan after July 1, 2021 can be significantly affected by policies or agreements made by parties other than the Presidium, such as: For example, recent revisions to the U.S. Treasury Department and Federal Housing Finance Agency’s Preferred Stock Purchase Agreements (PSPAs) that include restrictions on GSE purchases based on the GSE QM Temporary Loan definition after July 1, 2021. These changes may prevent GSEs from purchasing loans based on the GSE-QM Temporary Loan definition after July 1, 2021 July 1, 2021 and therefore may significantly limit the impact of the mandatory compliance delay unless changes are made to it the agreements are made. Delaying the mandatory compliance date may not provide additional implementation time as the PSPAs will likely require creditors to adhere to the revised, price-based general QM credit definition to sell their loans to the GSEs on July 1, 2021. It remains to be seen if and if Yes, how many loans that fall under the definition of the temporary GSE QM loan also fall under the revised, price-based general QM loan definition.
- The Bureau concluded that maintaining flexibility in responding to the impact of the pandemic by delaying the mandatory compliance date through October 1, 2022 outweighs concerns that delaying the mandatory compliance date will encourage the development of private sector approaches to underwriting or this could hinder a recovery of the non-GSE private market in the short term. However, it remains to be seen how the mortgage market will react if the practical availability of the definition of the temporary GSE-QM loan is severely restricted from July 1, 2021.
- This last rule does not make any further changes to the general QM credit definition. The Presidium has stated that it plans to evaluate the changes to the General QM Final Rule to the definition of the General QM Loan and that it will examine at a later date whether further rules should be introduced to address other aspects of the General Rethink the final QM rule. However, the ongoing uncertainty about a possible review of the revised, price-based general QM credit definition may ultimately deter some creditors from implementing the revised general QM credit definition.