With a change in Administration, the Consumer Financial Protection Bureau changes its mind about qualified mortgage rules for residential mortgages. Our Financial Services & Products Group reviews how the Biden CFPB’s last-minute delay may upend the Trump Administration’s last-minute changes to the qualified mortgage rules.
- December’s two rulemakings: the general QM rule and the seasoned QM rule
- What is the immediate impact of the delays?
- What will the new CFPB ultimately do with the new rules?
As we previously reported, on December 10, 2020, the CFPB issued two significant rulemakings. In the first, known as the general QM rule, the CFPB terminated the “QM Patch” and significantly revised the criteria for what constitutes a QM loan. Notably, in this rule, the CFPB replaced the dreaded Appendix Q and strict 43% debt-to-income underwriting threshold with a priced-based QM loan definition. The rule was to take effect on March 1, 2021, with compliance not mandatory until July 1, 2021. The QM Patch will expire on the earlier of July 1, 2021 or the date that the government-sponsored enterprises (GSEs) exit conservatorship.
In the second rulemaking, known as the “seasoned QM rule,” the CFPB issued an innovative final rulemaking that creates a pathway to “safe harbor” QM status for performing non-QM and “rebuttable presumption” QM loans that meet certain performance criteria portfolio requirements over a seasoning period of at least 36 months and that satisfy certain product restrictions, points and fees limits, and underwriting requirements before consummation. The seasoned QM rule was to become effective for applications received on or after March 1, 2021.
The CFPB’s Intension to Delay Compliance Date of the General QM Final Rule
The CFPB expects to issue a proposed rulemaking that would delay the July 1, 2021 mandatory compliance date of the general QM rule ostensibly to “ensure consumers have the options they need during the pandemic … as well as to provide maximum flexibility to the market.” The impact of this rulemaking is significant because, if implemented, lenders will have the option of originating QM loans under the new general QM rule standards or, alternatively, adhering to the preexisting QM rules that require, among other things, that the loans be underwritten to Appendix Q with a hard 43% debt-to-income ratio or be eligible for sale to Fannie Mae or Freddie Mac.
Notably, the CFPB anticipates that the QM Patch will remain in effect until the new mandatory compliance date—unless the GSEs exist conservatorship before that date.
Further, the CFPB indicated that at a later date it may initiate another rulemaking to “reconsider other aspects of the General QM Final Rule.”
The CFPB Will Amend or Reject the Seasoned QM Rule
In its statement, the CFPB ominously noted that it may initiate a new rulemaking to “revisit” the seasoned QM rule. The CFPB indicated that if promulgated, this rulemaking would consider whether “any potential final rule revoking or amending the Seasoned QM Final Rule should affect covered transactions for which an application was received during the period from March 1, 2021, until the effective date of such a final rule.”
The CFPB issued the general QM rule and the seasoned QM rule in the waning days of the Trump Administration, and the Biden CFPB clearly wants to reexamine these rulemakings. While it is likely that in the short term the general QM rule will be implemented as enacted, albeit with a delayed mandatory compliance date, it is possible that the CFPB could ultimately amend the rule at a later date. It is also noteworthy that the impact of this delay will be an extension of the controversial QM Patch.
By contrast, the CFPB is likely to substantively amend the seasoned QM rule or jettison the rulemaking altogether. In the comments to the final seasoned QM rule, consumer groups opposed not only significant aspects of the rule but also the concept of a seasoned QM. These groups will likely have a sympathetic ear in the Biden CFPB, and hence the rule faces an uncertain fate at best.
Please contact Stephen Ornstein at firstname.lastname@example.org or 202.239.3844 with any questions.