On September 17th, 2019, NAR submitted a comment to the CFPB regarding its advanced notice of proposed rule making (ANPR) on the qualified mortgage rule "patch".
As a reminder, 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 DTI less than 43%. Back in 2013, 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.
This 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.
In the ANPR response, we note:
- NAR is for improvement of the general QM definition and patch, but an extension should be granted until a robust alternative is agreed upon
- Any replacement must build on the liquidity the GSEs provide in the space covered by the patch and extend that liquidity to the non-patch space.
- Any alternative (e.g. use of a lower DTI ratio, compensating factors, pre-approved underwriting model, or the spread over APOR) must be thoroughly vetted and the findings shared with the public before proceeding to final rule, and
- Any alternative must be holistic and look at the complete borrower, not just the DTI
NAR also commented on the need for a clear safe harbor to support liquidity and a revaluation of the 3% cap on points and fees which is anti-competitive and hurts consumers.
NAR will continue to monitor this issue as the CFPB takes the comments on its advanced notice of proposed rule making (ANPR) and moves to a notice of proposed rule making (NPRM).