On March 3, 2021, the CFPB issued a proposed rule to delay the mandatory compliance date with the December 2020 amendments to the General QM rule (“Amended General QM Rule”), from July 1, 2021 to October 1, 2022. Comments on the proposed rule must be received on or before April 5, 2021.
Substantively, the delay is proposed to be accomplished by an amendment to the CFPB’s Official Interpretations to Regulation Z, in Supplement I to Part 1026, Section 1026.43.
Specifically, Comment 43-2 and Comment 43(e)(2)-2 are proposed to be revised to reflect that mandatory compliance with the Amended General QM Rule will be required with respect to transactions for which the creditor received applications on or after October 1, 2022 (instead of July 1, 2021). Also, with respect to transactions for which a creditor received applications between March 1, 2021 and prior to October 1, 2022, the creditor would have the option to comply with either the General QM rule that was in effect on February 26, 2021, or with the Amended General QM Rule.
In addition, proposed Comment 43(e)(4)-2, clarifies that the GSE Patch will remain available with respect to transactions for which a creditor received applications between March 1, 2021 and prior to October 1, 2022, unless the GSEs exit conservatorship before October 1, 2022 in which case until such shorter date.
The issuance of this proposed rule is consistent with the statement issued by CFPB on February 23, 2021, where it indicated that it was considering delaying the mandatory compliance date with the Amended General QM Rule and the possible reconsideration of the Amended General QM Rule and of the new Seasoned QM rule, which took effect on March 1, 2021.
Evidently, according to the proposed rule, one of the reasons for this proposed delay and possible reconsideration of the Amended General QM Rule, is the CFPB’s concern that the Amended General QM Rule utilization of pricing thresholds in determining QM eligibility would have an unintended result of temporarily reducing credit access for some higher-risk yet creditworthy consumers in the near future. According to the CFPB, this concern could arise from the combined effects of strong refinance demand, capacity constraints, and the volume of consumers with COVID-19 forbearance plans, which could incentivize creditors to increase mortgage interest rate spreads for some higher-risk consumers relative to consumers with cleaner credit.
In other words, the CFPB is concerned that certain borrowers with higher risk records, for example borrowers with prior COVID-19 forbearances, that would otherwise meet the pre-Amended General QM Rule requirement, based on the 43% DTI threshold, would fail the new pricing thresholds of the Amended General QM Rule, if they will be subject to some risk-based pricing adjustment by lenders, and therefore such borrowers may not be able to refinance their loans.
Takeaways
The CFPB’s concern discussed above, exposes a flaw in the Amended General QM Rule utilization of only a pricing threshold as a benchmark. Interestingly, a combined approach of alternative standards based on pricing or DTI thresholds, as creditors would be able to use during the proposed optional compliance period, may be the better approach for the General QM Rule. Such approach appears to allow a greater number of qualified borrowers to have access to mortgage credit while having reasonable ability to repay it. The CFPB should be urged by industry and consumers to follow through its intention to reconsider and fix the General QM Rule.
Until such time , if this rule is finalized as proposed, it will keep the GSE Patch potentially available through September 30, 2022. Lenders and secondary market participants are expected to have a longer run time to implement and test loan programs under the Amended General QM Rule, hopefully as amended.
If you have any questions concerning this proposed rule, please contact Solomon Maman.
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