{"id":651,"date":"2019-09-05T17:16:00","date_gmt":"2019-09-05T17:16:00","guid":{"rendered":"https:\/\/preprod.realtrends.com\/blog\/2019\/09\/05\/the-cfpb-moves-to-end-the-gse-patch\/"},"modified":"2025-03-13T02:06:19","modified_gmt":"2025-03-13T02:06:19","slug":"the-cfpb-moves-to-end-the-gse-patch","status":"publish","type":"post","link":"https:\/\/preprod.realtrends.com\/blog\/2019\/09\/05\/the-cfpb-moves-to-end-the-gse-patch\/","title":{"rendered":"The CFPB Moves to End the GSE Patch"},"content":{"rendered":"

The CFPB Moves to End the GSE Patch<\/h2>\n

The Consumer Financial Protection Bureau (CFPB) recently announced that it plans to terminate the GSE patch, a safe harbor under its Ability to Repay requirements for loans eligible for purchase by Fannie Mae or Freddie Mac, on its scheduled expiration date of January 10, 2021, or possibly after a short extension.<\/p>\n

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The announcement has triggered consternation within the industry over how the removal of Qualified Mortgage (QM) status for GSE loans with debt-to-income (DTI) ratios of over 43% will affect credit availability throughout the country. It also launches a rulemaking that ultimately could lead to a revamping of the QM regulation.<\/p>\n

The Reasons Why<\/h5>\n

The CFPB adopted the temporary GSE patch in its 2013 QM rule because it believed that as the mortgage market recovered from the prior decade\u2019s mortgage crisis, it would rely less on the patch and shift to standard QM loans or non-QM loans for consumers with DTI ratios above 43%.<\/p>\n

It now finds that these predictions were overly optimistic. It said in its Advance Notice of Proposed Rulemaking (Notice) that, contrary to its expectations, loans within the GSE patch represent a \u2018large and persistent\u2019 share of conforming mortgage originations. It also noted that lenders generally offer a QM loan under the GSE patch exemption even when a standard QM loan could be originated. \u201cAs long as [the GSE patch] continues, the private market is less likely to rebound,\u201d it said.<\/p>\n

The CFPB requests comment on how to minimize the disruption of the GSE patch expiration and on other portions of its QM rule, which are due 45 days after the proposal\u2019s publication in the Federal Register.<\/p>\n

The Potential Impact<\/h4>\n

In its Notice, the CFPB notes that Fannie Mae and Freddie Mac purchased nearly 52% of all closed-end first-lien residential mortgage loans made in 2018 and that 31% of these loans had DTI ratios that exceeded 43% – meaning that the loans would not qualify as a standard QM. It identifies three possible results of the GSE patch expiration for consumers with DTI ratios above 43%: (1) some will seek FHA loans; (2) some may be able to obtain loans in the private market; and (3) some may not be able to obtain loans.<\/p>\n

CoreLogic<\/a>, a housing analytics firm, has posted its three-part analysis of how the expiration of the GSE patch can affect credit availability, based on data involving borrowers with DTIs of over 43%. Its findings include the following:<\/p>\n