The Consumer Financial Protection Bureau today took a significant step to revise its Qualified Mortgage rule, issuing a proposal to replace the use of the 43% debt-to-income ratio as a QM qualification standard with a price-based approach. The bureau concluded that such an approach—which would compare the loan’s annual percentage rate to the average prime offer rate for a comparable transaction—provides “a strong indicator and more holistic and flexible measure of a consumer’s ability to repay than DTI alone.”
Specifically, loans would meet the general QM loan definition only if the APR exceeded APOR for a comparable transaction by less a than two percentage points as of the date the interest rate is set, the bureau noted. Creditors would still be required to consider the consumer’s income or assets, debt obligations and DTI ratio or residual income and verify the consumer’s current or reasonably expected income or assets other than the value of the dwelling that secures the loan and the consumer’s current debt obligations, alimony and child support. The proposal would also remove Appendix Q.
Additionally, the CFPB issued a second proposal that would extend the temporary “GSE patch,” which grants Qualified Mortgage status to loans eligible to be purchased or guaranteed by Fannie Me or Freddie Mac, until the QM rule changes are finalized and take effect. The CFPB will accept comments on the proposed changes to the QM rule for 60 days after publication in the Federal Register. The GSE patch extension proposal will have a 30-day comment period.
The American Bankers Association is currently in the process of reviewing both proposals and will submit comments. The association welcomed this long-awaited action by the CFPB to ensure market viability, provide greater clarity and reach a permanent solution with respect to the GSE patch.