CFPB Proposes Two Rules to Address GSE Patch

Codes and Standards

The Consumer Financial Protection Bureau (CFPB) issued two rulemaking proposals today to address the Government-Sponsored Enterprises patch (GSE Patch) that is set to expire in January 2021. The GSE Patch allows mortgage loans that are eligible for purchase by Fannie Mae and Freddie Mac to receive a safe harbor granted to qualified mortgages (QMs).

The CFPB established a general QM standard for loans where the consumer’s debt-to-income (DTI) ratio is 43% or less, but the GSE Patch allows certain loans to exceed the 43% DTI ratio. The CFPB estimates that approximately 957,000 mortgage loans would be affected by the expiration of the GSE Patch in January if no alternative was proposed. The agency estimates that after the patch expires, many of these loans with debt-to-income ratios above 43% either would not be made or would be made but at a higher price.

In a press release, the CFPB says it is releasing the two rule proposals to take “steps to ensure a smooth and orderly transition away from the Temporary GSE QM loan definition and to maintain access to responsible, affordable mortgage credit upon its expiration.”

The first proposal would amend the QM definition to replace the 43% debt-to-income limit with a price-based approach that would seek a price threshold for most loans as well as higher price thresholds for smaller loans.

The second proposal would extend the GSE Patch so that it would not expire until the first proposal went into effect.

View the first rulemaking proposal.

View the second rulemaking proposal.

For more information, contact Curtis Milton at 1-800-368-5242 x8597.

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