On Thursday, July 25th, the Consumer Financial Protection Bureau (CFPB) published their long-anticipated Advanced Notice of Proposed Rulemaking (ANPR) on the Ability to Repay/Qualified Mortgage (ATR-QM) rule, which is available here. This ANPR gives industry participants and the public the first insight into how the CFPB will approach the scheduled expiration of the “QM Patch,” presents potential options for transitioning away from the patch and creates a framework for the industry to provide feedback in preparation for this transition.
Fortunately, the Structured Finance Association (SFA) has been taking steps to ensure we’re able to help with this important transition. In late June, along with Andrew Davidson & Co., Inc., we organized a symposium in Washington, D.C. to discuss the potential implications of this looming deadline in order to help regulators, industry stakeholders, and market participants move towards a solution.
The ATR-QM rule states that mortgage lenders must make “a reasonable, good faith determination” of each borrower’s ability to repay the proposed loan. The ATR portion of the rule was designed to prevent lenders from knowingly making predatory loans. The QM portion of the rule provides protection against allegations the lender failed to verify the borrower’s ability to repay. As part of the rulemaking, the CFPB allowed any loan eligible for purchase by the GSEs to achieve QM status. This temporary exemption afforded to the GSEs, also known as the GSE QM Patch, will expire in January of 2021. A sudden expiration of the Patch without a thoughtful transition by industry participants and policymakers could have potential negative consequences for borrowers and the industry at large.
At SFA’s recent symposium, co-hosted by Andrew Davidson & Co., Inc., we brought together market stakeholders – including issuers, investors, regulators, consumer advocacy groups, legislators, rating agencies, diligence firms, and the GSEs themselves – to share their experiences, concerns and perspective on the QM Patch and the future of QM lending. We were also privileged to hear from a number of advocates who represent borrowers and communities. They spoke about why it is important that any QM changes serve to expand – and not shrink – access to credit for creditworthy borrowers. Importantly, regulators from the CFPB, the Federal Housing Finance Agency, and Ginnie Mae attended, with the CFPB staff presenting their research demonstrating the impact of the GSE QM Patch.
Bringing together a diverse cross-section of the industry also served as a catalyst for producing new research among industry participants. In addition to the Five-Year Lookback assessment report published earlier this year by the CFPB, Corelogic presented analysis on the current state of the QM Patch, as well as the potential implications of its expiration. Moody’s Investors Service also published a report on the risk in private-label deals from exposure to the QM Patch.
Presenters provided symposium participants with insights on the nuances of the expiration of the QM Patch, what options might be available now, and what steps still need to be taken—both by regulators and industry stakeholders—to ensure the goals of the ATR/QM rule are met in a way that provides clarity to industry participants and promotes access to credit for creditworthy borrowers across the country. Click here for a full summary of the event.
SFA recently formed a QM Task Force that will be engaged in soliciting members’ feedback on different QM Patch proposals and establishing consensus views on the optimal path forward, and we will be working with the CFPB, FHFA, and other Washington policymakers as this process continues to move forward. If you would like to learn more about SFA’s QM advocacy, or join the task force, please contact [email protected].