The Client Monetary Safety Bureau (CFPB or Bureau) on October 20 issued a final rule to increase the government-sponsored enterprises patch (GSE Patch), i.e., the “non permanent certified mortgage” exemption throughout the certified mortgage/ability-to-repay rule.
This last rule resolves lingering uncertainty concerning the upcoming expiration of the GSE Patch, which was scheduled to run out on January 10, 2021 or when the GSEs (Fannie Mae and Freddie Mac) exit conservatorship, whichever comes first. Regardless of its technical-sounding options, this rule impacts an enormous portion of mortgage originations in the USA and has the potential to supply significant regulatory reduction for mortgage originators and securitization members.
The ultimate rule largely follows the CFPB’s proposed rule on this matter, about which we previously reported. The Bureau has amended Regulation Z to interchange the January 10, 2021 sundown date of the GSE Patch with a provision stating that the GSE Patch will likely be accessible just for lined transactions for which the creditor receives the buyer’s utility earlier than the necessary compliance date of ultimate amendments to the Common QM mortgage definition in Regulation Z, which date is forthcoming. Thus, the Bureau’s method as adopted aligns the GSE Patch extension sundown date with the proposed efficient date of ultimate amendments to the Common QM mortgage definition based mostly on the date the creditor obtained the buyer’s utility and prevents a spot between the 2 definitions. The Bureau is not extending the GSE Patch past the date collectors are required to transition from the present Common QM mortgage definition to the revised Common QM mortgage definition.
- Because the Bureau acknowledges, the mortgage market has advanced otherwise than the Bureau predicted when it issued the January 2013 ATR/QM rule. Opposite to the Bureau’s expectations in 2013, the market has not shifted away from Momentary GSE QM originations and the non-public market stays comparatively small. Momentary GSE QM originations proceed to symbolize “a big and chronic” share of originations within the conforming phase of the mortgage market, and a sturdy and sizable market to assist non-QM lending has not emerged.
- The Bureau’s evaluation famous that, a minimum of for loans meant on the market within the secondary market, collectors typically provide a Momentary GSE QM mortgage even when a Common QM mortgage may very well be originated. Accordingly, the GSE Patch extension ought to assist present some certainty—a minimum of for the subsequent a number of months till last amendments to the Common QM mortgage definition in Regulation Z are effected—to collectors and traders who’ve been involved concerning the looming (and quick approaching) expiration of the GSE Patch.
- Trade members ought to intently observe the Bureau’s rulemaking course of for the Common QM mortgage definition and any follow-on litigation difficult the rulemaking, for the reason that timing of that rulemaking will have an effect on the expiration of the newly prolonged GSE Patch. The Bureau notes that within the unlikely occasion that such a rule isn’t finalized and the present Common QM mortgage definition stays in place, the Bureau would revisit the Momentary GSE QM mortgage definition and take acceptable motion. The Bureau states that it “doesn’t intend to take care of indefinitely a presumption that loans eligible for buy or assure by both of the GSEs have been originated with acceptable consideration of the buyer’s capability to repay.”
- This last rule doesn’t amend the availability stating that the Momentary GSE QM mortgage definition expires with respect to a GSE when that GSE exits conservatorship.
- The ultimate rule additionally doesn’t have an effect on the QM definitions that apply to Federal Housing Administration (FHA), US Division of Veterans Affairs (VA), US Division of Agriculture (USDA), or Rural Housing Service (RHS) loans.