Government LendingRegulatory

MBA asks CFPB to extend GSE patch

But doesn't support tying it to when conservatorship ends for Fannie and Freddie

The Mortgage Bankers Association sent a letter on Monday to the Consumer Financial Protection Bureau asking for a six-month extension to the so-called “GSE patch” that allows Fannie Mae and Freddie Mac home loans to borrowers with high debt levels to be considered Qualified Mortgages.

“The GSE patch serves a crucial role in the mortgage market,” MBA said in the letter to CFPB Director Kathy Kraninger. “By providing an exception to the general QM loan definition’s strict 43% debt-to-income ratio threshold and rigid income and debt verification criteria, the GSE patch facilitates access to affordable mortgage credit for credit-worthy borrowers who fall outside the requirements of the general QM definition.”

The GSE patch is a temporary measure set to expire on Jan. 10, 2021, or on the day the GSEs exit conservatorship, whichever occurs first. The MBA is asking for a six-month extension after the January date.

The MBA was responding to a CFPB notice in June of proposed rulemaking that would remove the debt-to-income requirement from qualified mortgages. The bureau asked for industry input, and the MBA submitted its letter on the last day of the comments period.

Back in January, Kraninger sent a letter to Congress saying the bureau had decided to propose an amendment to the QM Rule that would “move away” from DTI as a factor in mortgage underwriting.

Specifically, Kraninger said at the time that the CFPB has decided to shift from the DTI standard and move to an “alternative, such as a pricing threshold,” meaning the difference between the loan’s annual percentage rate and the average prime offer rate for a comparable transaction.

In its letter this week, MBA said the GSE patch should not extend indefinitely.

“The GSE patch served to ensure stability in the mortgage market, as it was intended to do, in the years following its inception,” the MBA letter said. “The flexibility that it afforded consumers, lenders, and investors helped to maintain broad access to responsible mortgage credit. The GSE patch was not, however, intended to become a permanent feature of the housing finance system.”

MBA also said the time frame for the GSE patch should not be linked to the end of the conservatorship for Fannie Mae and Freddie Mac.

“The conservatorships have already lasted many years beyond the expectations in place at their onset, and the path to ending the conservatorships will be influenced by significant regulatory, legislative, and market factors that are difficult to predict,” MBA said. “Given the prospect that the GSEs could be in conservatorship for a lengthy period of time, the GSE patch should not be tied to the end of the conservatorships.”

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