Since 2008, Fannie Mae and Freddie Mac have had what is known as the QM patch. The patch has exempted the GSE-backed loans from having to follow the Ability to Repay / Qualified Mortgage rule to its full extent. Presently, the patch is set to expire in January 2021, and although there is still plenty of time, the topic has brought on an array of opinions.
The QM patch allows for a borrower’s DTI to exceed 43%. A recent study by the CFPB showed that lenders were offering GSE QM loans to borrowers who could not qualify for non GSE QM loans. Seeing how much shift has happened in the market due the patch the CFPB is inclined to let the rule expire in order to level the playing field.
What will this mean to our HFA Partners? A whole segment of borrowers that would qualify today would not qualify under regular QM regulations. The QM patch serves low-income and minority borrowers. According to the National Association of Realtors, an estimated 3.3 million homes were purchased since 2014 under this QM patch. Doing away with the QM patch would mean that a segment of creditworthy borrowers will not have access to purchase a home. Letting the QM patch expire leaves FHA loans as a borrower’s only option, and those loans can be more expensive as well as limiting consumer choices.
The CFPB is currently seeking advice on how to best transition from the QM patch without causing disruption in the housing market. Many have submitted a comment letter in hopes that when the QM patch expires, the CFPB will make changes to the ATR/QM rule. The biggest consensus is the request to have the DTI requirement removed. Some major lenders are involved in requesting changes to the rule as well – Bank of America, Wells Fargo, Caliber Home Loans, just to name a few. NCHSA submitted comments to the CFPB on Monday, September 23, asking for the elimination of the 43% DTI which would affect a large portion of first-time homebuyers.
There is still plenty of uncertainty surrounding the QM patch. eHousingPlus will continue to monitor the news and keep you informed.