CFPB's Director Kraninger Issues Letter to Congress Describing Planned Approach for Upcoming ATR/QM Proposed Rule to Address the GSE Patch Expiration

The Mortgage Bankers Association has noted in a recent update that the CFPB’s Director Kraninger sent a letter to Congress on January 17, 2020 summarizing the Bureau’s plan for its upcoming proposal to let the “GSE Patch” expire under the Ability-to-Repay/Qualified Mortgage rule.

As you probably know, and we’ve written about before, the “GSE Patch” is scheduled to expire in January 2021 and the CFPB plans to let it expire. Without the GSE Patch and no other changes to the rule, the industry would generally be left with the standard QM, which has the controversial 43% DTI ratio requirement and the rule’s less-than-user-friendly required calculation method under Appendix Q. In a July 2019 ANPR, the Bureau generally asked the public what it should do to the rule in light of the GSE Patch’s expiration. Commenters to the ANPR raised concerns regarding the expiration of the GSE Patch with no changes to the rule that included a potential loss of access to credit for consumers with DTIs over 43%, who may be disproportionately minority consumers, the legal risks of the non-QM market, and the compliance difficulties with Appendix Q and other potential replacement measures.

Director Kraninger’s January 17, 2020 letter reportedly states that the Bureau will propose to eliminate the DTI requirement for the standard QM and “instead include an alternative, such as a pricing threshold…” One could imagine this pricing threshold being a required differential between the APR and APOR, similar to other regulatory thresholds under Regulation Z. Such an idea has been suggested to the Bureau in response to the ANPR.

Another important issue Director Kraninger addressed in the letter is whether the GSE Patch will be extended to allow time for the rulemaking process and implementation of a final rule. The Director indicated the Bureau plans to provide for a short extension for the GSE Patch, to allow for implementation of the final rule. This should give industry some comfort that the patch will not be ripped off like a band-aid without any notice, and instead, the Bureau is interested in an orderly transition to the new rule.

Regarding timing of the proposal, which industry has expected to come soon, Director Kraninger stated that the proposal could be a ways off. She indicated that the Bureau expects to issue the proposed rule as late as May 2020.

Finally, and very interestingly, Director Kraninger also indicated that the Bureau is considering another new path to a QM safe harbor based on a “seasoning” approach for loans for which “the borrower has consistently made timely payments for a period.” Because such a seasoning approach would be an entirely new feature in the regulation, unlike pricing thresholds, it could be part of a separate rulemaking and potentially be on a much longer timeframe than the standard QM changes described above. But it would be a welcome addition to the paths to a safe harbor under the rule.

One issue that the letter does not address is what will happen to the QM points and fees cure, which is also expected to expire in January 2021. It will be interesting to see if the Bureau plans to extend or make permanent the cure provision.

Please contact Richard Horn at rich@garrishorn.com if you would like to discuss the ATR/QM rule.