NAR signed onto a coalition letter sent to Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger expressing support for an extension of the Qualified Mortgage (QM) patch and NAR's support for an new market-wide QM definition that would utilize compensating factors, the same method used by the Government Sponsored Enterprises (GSEs) for the QM patch today.
The ability to repay (ATR) requires lenders to be able to prove that a borrower has the ability to pay back their mortgage at the time of consummation. Because this is vague, lenders requested and received a safe harbor called the qualified mortgage (QM). To comply with the market wide QM, a lender must comply with the ATR, comply with a number of product features, have total debt to income ratio (DTI) less than 43%. In 2013 as the law was written, the CFPB was concerned that lenders would be slow to adopt the market wide rule, so they created an alternative, temporary QM that allows any loan eligible for GSEs purchase (e.g. it gets an accept indicator from the automated system regardless of whether the GSEs purchase it) to be a QM.
The patch expires on January 10th, 2021, and some argue it gives too much power to the GSEs and inhibits the private sector. Others argue that it helps small lenders compete and without it, prices would be higher and access reduced. However, ending it abruptly and allowing the market to fall back to the hard 43% DTI would likely result in market turmoil.
As an alternative to letting the QM-patch expire and revert to the hard 43% DTI requirement, the letter requests the CFPB to:
- Specify no hard DTI limit
- Create a set of compensating factors that mimic those the GSEs currently use
- Turn the process over to a third party to refine/run such as the Federal Housing Finance Agency (FHFA), CFPB, GSEs or some private industry setting organization
- Improve appendix Q which defines how income is calculated or allow lenders to use another reliable definition such as the FHA's guide or GSEs' standard
- Oppose a rule based on originators pricing, a method that is untested for this purpose and which includes factors not related to a borrower's ability to repay.