The Consumer Financial Protection Bureau is finalizing its proposal to extend until October 1, 2022 the mandatory effective date of the new Qualified Mortgage definition based largely on a loan’s annual percentage rate (the “APR-Based QM”). For applications received prior to that date, lenders seeking to make QMs may opt for either the original QM definition based largely on the debt-to-income ratio (the “DTI-Based QM”) or the new APR-Based QM. In fact, the CFPB also extended the availability of QM status for loans eligible for purchase by Fannie Mae or Freddie Mac (the “Temporary GSE QM”), although as explained below, the availability of that option will be limited by forces outside the CFPB’s control.
After a significant public outreach process, the CFPB under prior Director Kraninger was set to terminate the DTI-Based QM (and repeal the stodgy Appendix Q) as of March 1, 2020. The agency initially provided a four-month transition period (until July 1, 2021) during which both the DTI-Based QM and the newly-minted APR-Based QM would be available. Additionally, the CFPB extended the availability of the Temporary GSE QM (often called the “GSE Patch”) until July 1, 2021. The CFPB intended that the four-month period would provide for an orderly transition, but without unnecessary delay. However, after the change in the Presidential Administration, which brought new leadership to the CFPB, and after several more months of pandemic-related economic concerns, the agency proposed to lengthen that transition period with the stated goal of making affordable mortgage credit available to the greatest extent possible.
In the meantime, while the “new” CFPB has been considering whether to delay the mandatory compliance date of the “old” CFPB’s QM rule, the Department of Treasury amended its preferred stock purchase agreements (PSPAs), to which the GSEs’ are subject, to impose new limits on the GSEs’ loan purchases. Among other limitations, the amended PSPAs provide that as of July 1, 2021, the GSEs may only purchase QMs that comply with the new APR-Based definition. The GSEs have each subsequently clarified that in light of the PSPA restrictions, they will no longer acquire loans for which an application is received on and after July 1, 2021 that do not meet the APR-Based QM Rule. The CFPB recognized that while its recent rule would allow GSE Patch loans to be QMs until October 1, 2022, it cannot control or predict restrictions placed through the PSPAs or by the Federal Housing Finance Agency.
Some industry participants had urged the CFPB to allow the transition to the new APR-Based QM to take place in July, pointing out that is a good solution reached after months of input from all sides. Still, some lenders, vendors, investors, and ratings agencies are continuing to work through how to ensure compliance with the new standards and measure risk. As we approach what may be the end of the current forbearance era this fall, the CFPB asserts that the more options, the better.