We previously reported on recent mortgage rulemakings that were finalized by the Consumer Financial Protection Bureau (CFPB or Bureau) late last year. Of the two final rules from the Bureau, one drastically simplifies the definition of a “qualified mortgage” (QM) (the General QM Final Rule), and the other provides an alternate pathway to QM safe harbor status for certain seasoned mortgage loans (the Seasoned QM Final Rule). Both of these final rules—with potentially major impacts on the housing market—were published in the Federal Register on December 29, 2020, with effective dates of March 1, 2021 (although the General QM Final Rule contains a mandatory compliance date of July 1, 2021).
On February 4, CFPB Acting Director Dave Uejio publicly disclosed that he had directed the Bureau’s Research, Markets, and Regulations (RMR) Division to focus rulemaking on the pandemic response and to preserve, where possible, maximum policy flexibility for President Joe Biden’s CFPB director nominee once confirmed. To that end, Acting Director Uejio asked the RMR Division to “[e]xplore options for preserving the status quo” with respect to the recently issued QM rules.
The Bureau released a statement on February 23 providing a status update and more specific guidance concerning the Bureau’s current and future plans for these QM rules. The Bureau’s statement about its upcoming plans appears to be largely driven by its desires to ensure that consumers have the options they need during the COVID-19 pandemic and the financial crisis it has caused, as well as to provide maximum flexibility to the market. The details of this statement are included below.
General QM Final Rule
The Bureau expects to soon issue a proposed rule that would delay the July 1, 2021 mandatory compliance date of the General QM Final Rule. If such a proposed rule were finalized, creditors would be able to use either the current General QM loan definition or the revised General QM loan definition contained in the General QM Final Rule for applications received during the period from March 1, 2021, until the delayed mandatory compliance date. The Bureau notes that an extension of the compliance deadline would allow lenders more time in which they could make QM loans based on a debt-to-income (DTI) ratio or whether the loans are eligible for sale to Fannie Mae or Freddie Mac (the GSEs), and not just a pricing cutoff.
The Bureau stated that it will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule.
Seasoned QM Final Rule
In the February 23 statement, the Bureau also noted that it is considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule. If the Bureau decides to do so, it expects that it will consider in that rulemaking whether any potential final rule revoking or amending the Seasoned QM Final Rule should affect covered transactions for which an application was received during the period from March 1, 2021, until the effective date of such a final rule.
GSE Patch QMs
Another category of QMs currently available under Regulation Z consists of loans that are eligible for purchase or guarantee by the GSEs, while operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA) (Temporary GSE QM loan definition). Pursuant to a separate final rule issued in October 2020, the Temporary GSE QM loan definition is scheduled to expire on (1) the mandatory compliance date of the General QM Final Rule or (2) with respect to each GSE, when that GSE ceases to operate under the conservatorship of the FHFA, whichever happens earlier.
In the February 23 statement, the Bureau also announced that it anticipates that the Temporary GSE QM loan definition will remain in effect until the delayed mandatory compliance date of the General QM Final Rule, except that the Temporary GSE QM loan definition would expire with respect to a GSE if that GSE ceases to operate under conservatorship prior to the delayed mandatory compliance date.
Takeaways
For the time being, this CFPB guidance restores the QM status quo and helps to alleviate some lingering uncertainty in the mortgage marketplace, including the secondary market, regarding mortgage originations and compliance. The continuation of the Temporary GSE QM loan definition for the time being should also help prevent any potential marketplace disruption.
Although the Bureau has not delayed the March 1 effective date of the Seasoned QM Final Rule, we note that the impact of that rule (assuming it is not revised or rescinded) on the existing residential mortgage market will be muted, at least in the short term, since it does not apply to existing and older loans that have been performing for 36 months, but were originated prior to the effective date of the new rule. Rather, the Seasoned QM category will apply to covered transactions for which creditors receive an application on or after the effective date. Industry participants should closely watch any further CFPB QM actions in the coming weeks and months.