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High-Debt Home Borrowers May No Longer Qualify in 2021

The “Qualified Mortgage Patch” helps Fannie- and Freddie-backed lenders qualify people with higher debt-to-income ratios, but it expires, at least for now, in Jan. 2021.

WASHINGTON – The Consumer Financial Protection Bureau (CFPB) issued an Advance Notice of Proposed Rulemaking (ANPR) relating to its QM Rule, commonly called the qualified mortgage patch. Should the QM Rule expire in January 2021, home borrowers with enough debt to exceed the QM debt-to-income test will likely be turned down for a loan.

The QM patch was designed as a temporary provision applicable to certain mortgage loans eligible for purchase or guarantee by the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Fannie and Freddie back loans for more than 50% of all U.S. mortgages.

“On Thursday, members of NAR’s (National Association of Realtors®) policy staff, Joe Ventrone and Ken Fears, were briefed by Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger on the agency’s review of the Qualified Mortgage Patch,” says NAR President John Smaby.

“The QM patch was intended as a temporary measure to prevent turmoil in the mortgage and real estate market as the CFPB implemented the Ability to Repay rule,” Smaby explains. “Analysts estimate that as much as 30% of mortgages for home purchases fall into this market segment, and its disruption could result in higher costs and/or reduced access to mortgages for otherwise creditworthy homebuyers. This, in turn, could send ripples throughout the U.S. housing market.

Through the ANPR, the CFPB will solicit comments on possible amendments to the rule, including whether to revise Regulation Z’s definition of a qualified mortgage in light of the GSE Patch’s scheduled expiration. The ANPR seeks information and comment on whether the definition of qualified mortgage should retain a direct measure of a consumer’s personal finances (for example, debt-to-income ratio), and whether that definition should include an alternative method for assessing financial capacity.

“The national mortgage market readjusting away from the patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protection,” says CFPB Director Kathleen L. Kraninger. “We want to hear all perspectives on how to move beyond the GSE Patch, the impact on credit, the role of the private mortgage market, and possible modifications to the definition of qualified mortgages and the rules governing the documentation of debt and income. The Bureau is committed to ensuring a smooth and orderly mortgage market throughout its consideration of these issues and any resulting transition away from the GSE Patch.”

“Going forward, NAR will continue to advocate for an extension of the patch and a permanent solution that will prevent disruption as we work with CFPB to secure stability in the housing market,” says Smaby.

A copy of the ANPR with instructions on how to submit a comment are posted online.

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