The Federal Housing Finance Agency is pulling back on the loans that Fannie Mae and Freddie Mac can purchase, noting that beginning Jan. 10, 2014, the enterprises will no longer purchase a mortgage that is subject to the ability-to-repay rule if its not fully amortizing, has a loan term longer than 30 years or includes points and fees in excess of 3% of the total loan amount.
In addition, home loans will not be acquired if other limits outlined in Dodd-Frank’s ability-to-repay provisions are not met.
Essentially, the conservator informed the market today that after this year, the enteprises will not acquire any loan that is not a qualified mortgage under the Consumer Financial Protection Bureau's definition outlined earlier this year.
"Fannie Mae and Freddie Mac will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides," the FHFA said.
"This includes loans that are processed through their automated underwriting systems and loans with a debt-to- income ratio of greater than 43 percent. Loans with a debt-to-income ratio of more than 43 percent are not eligible for protection as qualified mortgages under the CFPB’s final rule unless they are eligible for purchase by Fannie Mae and Freddie Mac under the special or temporary qualified mortgage definition," the FHFA said.
Despite reports of the GSEs obtaining temporary waivers from certain Dodd-Frank and QM requirements during the transitional period, this announcement shows the conservator FHFA moving towards a market where GSE loan volumes continue to shrink.
"Adoption of these new limitations by Fannie Mae and Freddie Mac is in keeping with FHFA’s goal of gradually contracting their market footprint and protecting borrowers and taxpayers," the FHFA concluded.