Potential for Larger Changes of QM Rule at CFPB

Some industry participants are increasingly considering more significant revisions to the Qualified Mortgage (QM) rule after CFPB Director Mick Mulvaney signaled his desire to “bring sanity” to it, first according to American Banker, then covered further in Asset Securitization Report. 

The QM, rule seen as a binary determination for most of the secondary mortgage market, determines whether or not a loan can be sold to Fannie Mae or Freddie Mac. When sold to the GSE’s, the loan becomes automatically deemed QM via what is known as the patch, which is set to expire at the beginning of 2021. The CFPB has a significant say in defining what makes a QM loan, and under new leadership, will have significant sway in redefining that determination. Additionally, in the regulatory relief bill signed by President Trump, there was a provision relaxing QM for portfolio loans for lenders with less than $10 billion in assets. 

Many, including SFIG, submitted comments on the rule in 2017. However, of the 485 comments submitted to the CFPB as part of their comment period, most proposed only modest changes, as reported in Asset Securitization Report. 

Others, such as Larry Platt at Mayer Brown, were curious why market participants requested only modest changes when the CFPB has broad authority to eliminate many aspects of the rule, such as the points and fees test. In his words, “the CFPB has the authority to completely eliminate the total points and fee test. So why argue about what should be in the test when you can get rid of the whole test?” as quoted in Asset Securitization Report.

Were the CFPB to simply loosen QM requirements, many argue that it could help the private market serve those that are currently deemed unqualified for QM, whether it be through gig employment or other compensating factors that make them credit-worthy borrowers. This could provide additional legal protections and regulatory certainty for lenders attempting to support underserved communities. 

A current Request for Information, titled “Bureau Guidance and Implementation Support,” solicits feedback on, “the overall effectiveness and accessibility of its guidance materials and activities (including implementation support) to members of the general public, including regulated entities.” For further information, please contact William.Innes@sfindustry.org. 

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