Bureau decides to extend ‘GSE patch’ until it finalizes a rule amending general QM loan definition

The so-called government-sponsored enterprise (GSE) patch – giving mortgages guaranteed by Freddie Mac and Fannie Mae “qualified mortgage” (QM) status – will be extended until a final rule is approved amending the general QM loan definition in Regulation Z, the federal consumer financial protection agency said Tuesday.

In a release, the Consumer Financial Protection Bureau (CFPB) said a final rule amending the QM loan definition would contain a “mandatory compliance date.” The GSE patch was scheduled to expire Jan. 10.

However, the bureau also said it is not amending the provision in Regulation Z stating that the GSE Patch will expire if Fannie Mae and Freddie Mac exit conservatorship.

In June, the CFPB issued a proposal to amend the general QM loan definition, which was also the day the bureau proposed to extend the GSE patch. The bureau said it is now developing a final rule amending the general QM loan definition and is planning to issue it at a later date.

Tuesday’s action came in the form of a final rule from the agency. The CFPB said the rule represents the steps being taken by the bureau to “ensure a smooth and orderly transition away from the GSE patch and to maintain access to responsible, affordable mortgage credit upon its expiration.”

“Further, the Bureau is taking this action to ensure that responsible, affordable credit remains available to consumers who may be affected if the GSE patch expires before the mandatory compliance date of a final rule amending the general QM loan definition,” the CFPB said.

Loans covered under the GSE patch are eligible for QM status even if the debt-to-income (DTI) ratio exceeds 43%, the CFPB said. “Last year, the Bureau released an assessment of the ATR/QM Rule and found that GSE Patch loans represent a large and persistent share of mortgage originations,” the bureau stated. In fact, the CFPB stated, absent regulatory action keeping the GSE patch intact (at least for now), an estimated 957,000 mortgage loans would be affected by the expiration of the patch. The agency said that after the GSE patch expires, some of these loans would either not be made or would be made but at a higher price.

Consumer Financial Protection Bureau Issues Final Rule Extending the GSE Patch