On April 27, 2021, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a final rule formally delaying the mandatory compliance date for the rule defining a “qualified mortgage” (QM) (the General QM Final Rule) from July 1, 2021 to October 1, 2022.
We previously reported on this mortgage rulemaking that was finalized by the Bureau late last year. The General QM Final Rule drastically simplifies the definition of a QM by replacing the original definition of general QM loans (centered on the requirement that the consumer’s debt-to-income ratio (DTI) not exceed 43%) with a limit based on the loan’s 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 of July 1, 2021). We also previously reported on the Bureau’s February 23, 2021, statement that provided a status update and more specific guidance concerning the Bureau’s current and future plans for the QM rules.
In keeping with the February 23 statement, the Bureau issued a proposed rule on March 3 to delay the mandatory compliance date of the General QM Final Rule from July 1, 2021 to October 1, 2022 (about which we also previously reported). The CFPB has now moved forward to adopt the prior rule proposal.
For applications received on or after March 1, 2021, but before the mandatory compliance date of October 1, 2022, creditors that seek to originate General QM loans have the option of complying with either the revised, price-based General QM loan definition or the original, total monthly DTI-based General QM loan definition. Additionally, the final rule affects the expiration of the Temporary GSE QM loan definition or “Patch,” which is a temporary QM definition that also provides QM status to certain mortgage loans eligible for purchase or guarantee by either of the GSEs (Fannie Mae or Freddie Mac). Under the final rule, the Temporary GSE QM loan definition will expire on October 1, 2022, or the date the applicable GSE exits conservatorship, whichever comes first. Only the revised, price-based General QM loan definition, however, will be available for applications received on or after the October 1, 2022, mandatory compliance date.
The final rule is effective on June 30, 2021.
Takeaways
- It is important to note that while this final rule postpones the General QM Final Rule’s mandatory compliance date, it does not change the General QM Final Rule’s effective date (the General QM Final Rule was effective on March 1, 2021).
- As the Bureau itself acknowledges, future access-to-credit impacts of this delay are subject to uncertainty. The practical availability of the Temporary GSE QM loan definition after July 1, 2021, may be significantly affected by policies or agreements created by parties other than the Bureau, such as recent revisions to the Preferred Stock Purchase Agreements (PSPAs) entered into by the US Department of the Treasury and the Federal Housing Finance Agency, which include restrictions on GSE purchases that rely on the Temporary GSE QM loan definition after July 1, 2021. These amendments may prevent the GSEs from purchasing loans based on the Temporary GSE QM loan definition after July 1, 2021, and therefore may significantly limit the impact of the mandatory compliance date delay, absent revisions to the agreements. A delay in the mandatory compliance date may not provide additional implementation time because, in light of the PSPAs, creditors would likely need to comply with the revised, price-based General QM loan definition in order to sell their loans to the GSEs as of July 1, 2021. It remains to be seen whether, and if so, how many loans covered by the Temporary GSE QM loan definition will also be covered by the revised, price-based General QM loan definition.
- The Bureau has concluded that preserving flexibility to respond to the effects of the pandemic, by delaying the mandatory compliance date until October 1, 2022, outweighs concerns that a delay of the mandatory compliance date could stifle the development of private-sector approaches to underwriting or a rebound of the non-GSE private market in the near term. It remains to be seen, however, how the mortgage marketplace will react once the practical availability of the Temporary GSE QM loan definition is sharply constrained come July 1, 2021.
- This final rule does not make other changes to the General QM loan definition. The Bureau has stated that it plans to evaluate the General QM Final Rule’s amendments to the General QM loan definition and that it will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule. That said, continued uncertainty about potential reconsideration of the revised, price-based General QM loan definition may ultimately deter some creditors from implementing the revised General QM loan definition.