Fannie, Freddie Announce Effective End of ‘GSE Patch’

In lender letters issued this week, Fannie Mae and Freddie Mac announced that any loans purchased by the GSEs after July 1, must conform to the requirements outlined in the Consumer Financial Protection Bureau’s recently finalized QM final rule—effectively signaling the end of the so-called “GSE-patch.”

This change was required by recent amendments to the GSEs’ preferred stock purchase agreements with the Treasury Department, which stated that Fannie and Freddie may no longer acquire loans that do not meet these new standards. The GSEs said they would provide details about these changes and their implementation in future lender letters.

Fannie and Freddie clarified, however, that they will continue to buy loans that fall under the patch that have application dates on or before June 30 and are purchased as whole loans on or before Aug. 31 or in mortgage-backed securities pools with an issue date on or before Aug. 1.

This action by the GSEs comes shortly after the CFPB proposed to delay the mandatory compliance date of the general QM rule until Oct. 1, 2022. If finalized, this delay—coupled with the PSPA provisions—would mean that the GSE safe harbor can continue, but under the new general QM requirements, until the new compliance date or until the GSEs exit conservatorship, whichever comes first.