6 questions on the CFPB plan to end Fannie and Freddie’s ‘patch’
WASHINGTON — The Consumer Financial Protection Bureau caught many in the mortgage industry off guard Thursday when the agency said it will retire a policy that gives Fannie Mae and Freddie Mac a competitive advantage in complying with underwriting rules.
The CFPB's ability-to-repay rule includes a class of loans known as "qualified mortgages" that automatically meet underwriting criteria in light of certain features, such as a 43% debt-to-income limit. But the government-sponsored enterprises have been exempt from that stipulation since 2014; all Fannie- and Freddie-backed loans are QM.
But changes are on the horizon. The CFPB asked for public comment Thursday on possible changes to the QM rule. They include whether the agency will adjust the DTI limit. Any such proposal would have to be subject to more public comment before a new rule is finalized.
Yet one thing is for sure. Even though the GSEs' exemption — now slated for January 2021 — may get temporary extensions, the CFPB is set on eventually letting it expire.
Because of the exemption, known as the GSE QM "patch," nearly one-third of GSE-backed loans exceed 43% DTI but are still compliant. Letting the patch expire therefore raises questions about the future of a large chunk of the GSEs' business, just as the Trump administration prepares to unveil a plan on how to release the two companies from conservatorship.
Here are six key questions about the future of qualified mortgages and the GSE patch.