CFPB seeking feedback on “GSE patch” rule


The Consumer Financial Protection Bureau (CFPB) is seeking feedback on a proposed rule related to the “GSE patch.”

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Specifically, the rule is related to the expiration of the temporary qualified mortgage provision applicable to certain mortgage loans eligible for purchase or guarantee by the Government Sponsored Enterprises (GSEs) in the CFPB’s Ability to Repay/Qualified Mortgage (ATR/QM) Rule. This provision is also known as the GSE patch. It is scheduled to expire on Jan. 10, 2021.

The CFPB plans to let the GSE patch expire in January 2021, as scheduled, or after a short extension, if necessary, to facilitate a smooth transition away from the GSE Patch.

“Loans backed by Fannie Mae and Freddie Mac make up a large portion of the U.S. mortgage market,” CFPB Director Kathleen Kraninger said. “The national mortgage market readjusting away from the Patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protection. We want to hear all perspectives on how to move beyond the GSE Patch, the impact on credit, the role of the private mortgage market, and possible modifications to the definition of qualified mortgages and the rules governing the documentation of debt and income. The Bureau is committed to ensuring a smooth and orderly mortgage market throughout its consideration of these issues and any resulting transition away from the GSE Patch.”

The CFPB is seeking comments on possible amendments to the ATR/QM Rule, including whether to revise Regulation Z’s definition of a qualified mortgage in light of the GSE Patch’s scheduled expiration. They also seek comment on whether the definition of qualified mortgage should retain a direct measure of a consumer’s personal finances and whether the definition should include an alternative method for assessing financial capacity.

The GSE Patch, adopted in the Ability to Repay/Qualified Mortgage Rule, expanded the definition of qualified mortgage to include certain mortgage loans eligible for purchase or guarantee by the GSEs. Earlier this year, the CFPB assessed the Ability to Repay/Qualified Mortgage Rule and found that GSE QM loans represent a “large and persistent” share of originations in the conforming mortgage market and that creditors generally offered a Temporary GSE QM loan even when a General QM loan could be originated.

Rep. Patrick McHenry (R-NC), minority leader of the House Financial Services Committee, supports the decision to end the Qualified Mortgage (QM) patch for GSEs.

“As I’ve said many times, we need to explore all paths that lead to responsibly ending the government sponsorship of Fannie Mae and Freddie Mac. The CFPB’s decision to end the QM patch for GSEs is a step toward ensuring taxpayers are protected. I look forward to working with this Administration to find a long-term solution that ensures access to affordable housing for all Americans,” McHenry said.

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