[Federal Register Volume 86, Number 82 (Friday, April 30, 2021)]
[Rules and Regulations]
[Pages 22844-22860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09028]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2021-0003]
RIN 3170-AA98
Qualified Mortgage Definition Under the Truth in Lending Act
(Regulation Z): General QM Loan Definition; Delay of Mandatory
Compliance Date
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretation.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing this final rule to delay until October 1, 2022 the mandatory
compliance date for the final rule titled Qualified Mortgage Definition
under the Truth in Lending
[[Page 22845]]
Act (Regulation Z): General QM Loan Definition (General QM Final Rule).
The Bureau is taking this action to help ensure access to responsible,
affordable mortgage credit and to preserve flexibility for consumers
affected by the COVID-19 pandemic and its economic effects.
DATES: Effective date: This final rule is effective on June 30, 2021.
Compliance date: Compliance with the final rule published December
29, 2020, at 85 FR 86308, is delayed until October 1, 2022.
FOR FURTHER INFORMATION CONTACT: Waeiz Syed, Counsel or Ben Cady,
Senior Counsel, Office of Regulations, at 202-435-7700. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires
a creditor to make a reasonable, good faith determination of a
consumer's ability to repay a residential mortgage loan according to
its terms. Loans that meet the ATR/QM Rule's requirements for qualified
mortgages (QMs) obtain certain protections from liability. The ATR/QM
Rule defines several categories of QMs.
One QM category defined in the ATR/QM Rule is the General QM
category. General QMs must comply with the ATR/QM Rule's prohibitions
on certain loan features, points-and-fees limits, and underwriting
requirements. Under the original ATR/QM Rule, the ratio of the
consumer's total monthly debt to total monthly income (DTI or DTI
ratio) could not exceed 43 percent for a loan to meet the General QM
loan definition (original, DTI-based General QM loan definition).\1\ In
December 2020, the Bureau issued the General QM Final Rule, which
amended Regulation Z by replacing the original, DTI-based General QM
loan definition with a limit based on loan pricing and by making other
changes to the General QM loan definition (revised, price-based General
QM loan definition).\2\ The General QM Final Rule took effect on March
1, 2021, and it provided a mandatory compliance date of July 1, 2021.
Under the General QM Final Rule, as issued in December 2020, for
covered transactions for which creditors receive an application on or
after the March 1, 2021 effective date but prior to the July 1, 2021
mandatory compliance date, creditors had the option of complying with
either the original, DTI-based General QM loan definition or the
revised, price-based General QM loan definition. Only the revised,
price-based General QM loan definition would have been available for
applications received on or after the July 1, 2021 mandatory compliance
date.
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\1\ 12 CFR 1026.43(e)(2)(vi), as was in effect on February 26,
2021.
\2\ 85 FR 86308 (Dec. 29, 2020).
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On March 3, 2021, the Bureau released for public comment a proposal
to delay the General QM Final Rule's mandatory compliance date from
July 1, 2021 to October 1, 2022. After considering the comments, the
Bureau is issuing this final rule delaying the General QM Final Rule's
mandatory compliance date as proposed. Specifically, this final rule
amends comments 43-2 and 43(e)(4)-2 and -3 to reflect a delay of the
mandatory compliance date by changing the date ``July 1, 2021'' where
it appears in those comments to ``October 1, 2022.'' The final rule
also adds new comment 43(e)(2)-1 to clarify the General QM loan
definitions available to creditors for applications received on or
after March 1, 2021, but prior to October 1, 2022.
For covered transactions for which creditors receive an application
on or after March 1, 2021, but prior to October 1, 2022, creditors will
have the option of complying with either the original, DTI-based
General QM loan definition or the revised, price-based General QM loan
definition. Under the final rule, only the revised, price-based General
QM loan definition will be available for applications received on or
after the October 1, 2022 mandatory compliance date.
The ATR/QM Rule also defines a temporary category of QMs that is
also affected by this final rule. That temporary category of QMs
includes mortgages that (1) comply with the same loan-feature
prohibitions and points-and-fees limits as General QMs and (2) are
eligible to be purchased or guaranteed by either the Federal National
Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage
Corporation (Freddie Mac) (collectively, the government-sponsored
enterprises or GSEs), while operating under the conservatorship or
receivership of the Federal Housing Finance Agency (FHFA). This final
rule refers to these loans as Temporary GSE QM loans, and the provision
that created this loan category is commonly known as the GSE Patch. In
October 2020, the Bureau issued a final rule stating that the Temporary
GSE QM loan definition will be available only for covered transactions
for which the creditor receives the consumer's application before the
mandatory compliance date of the General QM Final Rule.\3\ Under the
General QM Final Rule, the Temporary GSE QM loan definition would have
expired on the earlier of July 1, 2021 or the date the applicable GSE
exits Federal conservatorship. Under this final rule, the Temporary GSE
QM loan definition will expire upon the earlier of October 1, 2022, or
the date the applicable GSE exits Federal conservatorship.
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\3\ 85 FR 67938 (Oct. 26, 2020).
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As discussed below, this final rule delays the mandatory compliance
date of the General QM Final Rule to help ensure access to responsible,
affordable mortgage credit and to preserve flexibility for consumers
affected by the COVID-19 pandemic and its economic effects. This final
rule does not make any other changes to the General QM loan definition.
The Bureau plans to evaluate the General QM Final Rule's amendments to
the General QM loan definition and will consider at a later date
whether to initiate another rulemaking to reconsider other aspects of
the General QM loan definition.
The effective date of this final rule is June 30, 2021.
II. Background
A. Dodd-Frank Act Amendments to the Truth in Lending Act and the
General QM Loan Definition
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) \4\ amended the Truth in Lending Act (TILA) \5\ to
establish, among other things, ability-to-repay (ATR) requirements in
connection with the origination of most residential mortgage loans.\6\
As amended by the Dodd-Frank Act, TILA prohibits a creditor from making
a residential mortgage loan unless the creditor makes a reasonable and
good faith determination based on verified and documented information
that the consumer has a reasonable ability to repay the loan.\7\ TILA
identifies the factors a creditor must consider in making a reasonable
and good faith
[[Page 22846]]
assessment of a consumer's ability to repay. These factors are the
consumer's credit history, current and expected income, current
obligations, DTI ratio or residual income after paying non-mortgage
debt and mortgage-related obligations, employment status, and other
financial resources other than equity in the dwelling or real property
that secures repayment of the loan.\8\
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\4\ Pub. L. 111-203, 124 Stat. 1376 (2010).
\5\ 15 U.S.C. 1601 et seq.
\6\ Dodd-Frank Act sections 1411-12, 1414, 124 Stat. 1376, 2142-
49; 15 U.S.C. 1639c.
\7\ 15 U.S.C. 1639c(a)(1). TILA section 103 defines
``residential mortgage loan'' to mean, with some exceptions
including open-end credit plans, ``any consumer credit transaction
that is secured by a mortgage, deed of trust, or other equivalent
consensual security interest on a dwelling or on residential real
property that includes a dwelling.'' 15 U.S.C. 1602(dd)(5). TILA
section 129C also exempts certain residential mortgage loans from
the ATR requirements. See, e.g., 15 U.S.C. 1639c(a)(8) (exempting
reverse mortgages and temporary or bridge loans with a term of 12
months or less).
\8\ 15 U.S.C. 1639c(a)(3).
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A creditor may not be certain whether its ATR determination is
reasonable in a particular case. TILA addresses this potential
uncertainty by defining a category of loans--called QMs--for which a
creditor ``may presume that the loan has met'' the ATR requirements.\9\
The statute generally defines a QM to mean any residential mortgage
loan for which:
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\9\ 15 U.S.C. 1639c(b)(1).
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The loan does not have negative amortization, interest-
only payments, or balloon payments;
The loan term does not exceed 30 years;
The total points and fees generally do not exceed 3
percent of the loan amount;
The income and assets relied upon for repayment are
verified and documented;
The underwriting uses a monthly payment based on the
maximum rate during the first five years, uses a payment schedule that
fully amortizes the loan over the loan term, and takes into account all
mortgage-related obligations; and
The loan complies with any guidelines or regulations
established by the Bureau relating to the ratio of total monthly debt
to monthly income or alternative measures of ability to pay regular
expenses after payment of total monthly debt.\10\
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\10\ 15 U.S.C. 1639c(b)(2)(A).
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In January 2013, the Bureau issued a final rule amending Regulation
Z to implement TILA's ATR requirements and define several categories of
QM loans (January 2013 Final Rule).\11\ This final rule refers to the
January 2013 Final Rule and later amendments \12\ to it collectively as
the ATR/QM Rule or the Rule. One category of QMs defined by the ATR/QM
Rule consists of General QMs. The January 2013 Final Rule provided that
a loan was a General QM if:
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\11\ 78 FR 6408 (Jan. 30, 2013).
\12\ As discussed in part II.C below, the Bureau made several
amendments to the ATR/QM Rule in 2020. Prior to 2020, the Bureau
made several other amendments to the ATR/QM Rule. See 78 FR 35429
(June 12, 2013); 78 FR 44686 (July 24, 2013); 78 FR 60382 (Oct. 1,
2013); 79 FR 65300 (Nov. 3, 2014); 80 FR 59944 (Oct. 2, 2015); 81 FR
16074 (Mar. 25, 2016); 85 FR 67938 (Oct. 26, 2020).
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The loan does not have negative-amortization, interest-
only, or balloon-payment features, a term that exceeds 30 years, or
points and fees that exceed specified limits; \13\
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\13\ 12 CFR 1026.43(e)(2)(i) through (iii).
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The creditor underwrites the loan based on a fully
amortizing schedule using the maximum rate permitted during the first
five years; \14\
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\14\ 12 CFR 1026.43(e)(2)(iv).
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The creditor considers and verifies the consumer's income
and debt obligations in accordance with appendix Q; \15\ and
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\15\ 12 CFR 1026.43(e)(2)(v), as was in effect on February 26,
2021.
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The consumer's DTI ratio is no more than 43 percent,
determined in accordance with appendix Q.\16\
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\16\ 12 CFR 1026.43(e)(2)(vi), as was in effect on February 26,
2021.
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Appendix Q contained standards for calculating and verifying debt
and income for purposes of determining whether a mortgage satisfies the
43 percent debt-to-income ratio limit (DTI limit) for General QMs. The
standards in appendix Q were adapted from guidelines maintained by the
Federal Housing Administration (FHA) when the January 2013 Final Rule
was issued.\17\
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\17\ 78 FR 6408, 6527-28 (Jan. 30, 2013) (noting that appendix Q
incorporates, with certain modifications, the definitions and
standards in HUD Handbook 4155.1, Mortgage Credit Analysis for
Mortgage Insurance on One-to-Four-Unit Mortgage Loans).
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As discussed above, another category of QMs defined by the January
2013 Final Rule, Temporary GSE QMs, consists of mortgages that (1)
comply with the ATR/QM Rule's prohibitions on certain loan features and
its limitations on points and fees \18\ and (2) are eligible to be
purchased or guaranteed by either GSE while under the conservatorship
of FHFA.\19\ Unlike for General QMs, the January 2013 Final Rule did
not prescribe a DTI limit for Temporary GSE QMs nor did it require use
of appendix Q to verify and calculate debt, income, and DTI ratios. The
January 2013 Final Rule provided that the Temporary GSE QM loan
definition would expire with respect to each GSE when that GSE ceases
to operate under conservatorship or on January 10, 2021, whichever
occurred first.\20\
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\18\ 12 CFR 1026.43(e)(2)(i) through (iii).
\19\ 12 CFR 1026.43(e)(4), as was in effect on February 26,
2021.
\20\ 12 CFR 1026.43(e)(4)(ii)(A) and 1026.43(e)(4)(iii)(B), as
was in effect on February 26, 2021.
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In 2020, the Bureau issued three final rules amending the ATR/QM
Rule, two of which relate to this final rule.\21\ These two final rules
are discussed below.
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\21\ The third rule amending the ATR/QM Rule that the Bureau
issued in 2020 was the Seasoned QM Final Rule. See 85 FR 86402 (Dec.
29, 2020).
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1. The Patch Extension Final Rule
The Bureau issued the Patch Extension Final Rule on October 20,
2020. It was published in the Federal Register on October 26, 2020.\22\
The Patch Extension Final Rule amended Regulation Z to replace the
January 10, 2021 sunset date of the Temporary GSE QM loan definition
with a provision stating that the Temporary GSE QM loan definition will
be available only for covered transactions for which the creditor
receives the consumer's application before the mandatory compliance
date of final amendments to the General QM loan definition in
Regulation Z. The Patch Extension Final Rule did not amend the clause
providing that the Temporary GSE QM loan definition expires on the date
the applicable GSE exits Federal conservatorship. Therefore, under the
Patch Extension Final Rule, the Temporary GSE QM loan definition will
expire on the mandatory compliance date of final amendments to the
General QM loan definition or the date the applicable GSE exits Federal
conservatorship, whichever comes first.
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\22\ 85 FR 67938 (Oct. 26, 2020).
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2. The General QM Final Rule
The Bureau issued the General QM Final Rule on December 10, 2020.
It was published in the Federal Register on December 29, 2020.\23\ The
General QM Final Rule amended Regulation Z to remove the General QM
loan definition's DTI limit (and appendix Q) and replace it with limits
based on the loan's pricing. Under the amended rule, a loan meets the
General QM loan definition only if the annual percentage rate (APR)
exceeds the average prime offer rate (APOR) for a comparable
transaction by less than 2.25 percentage points as of the date the
interest rate is set. The General QM Final Rule provided higher
thresholds for loans with smaller loan amounts, for certain
manufactured housing loans, and for subordinate-lien transactions. The
General QM Final Rule requires the creditor to consider the consumer's
DTI ratio or residual income and to consider and verify the consumer's
income or assets other than the value of the dwelling and the
consumer's debts. The General QM Final Rule also provides a safe harbor
for compliance with this verification requirement if a creditor
complies with verification standards in
[[Page 22847]]
certain manuals listed in the rule.\24\ The General QM Final Rule had
an effective date of March 1, 2021, and a mandatory compliance date of
July 1, 2021.
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\23\ 85 FR 86308 (Dec. 29, 2020).
\24\ See comment 43(e)(2)(v)(B)-3.i.
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B. February 2021 Statement Regarding General QM and Seasoned QM Final
Rules
On February 23, 2021, the Bureau issued a statement titled
``Statement on Mandatory Compliance Date of General QM Final Rule and
Possible Reconsideration of General QM Final Rule and Seasoned QM Final
Rule'' (February 23, 2021 Statement or Statement).\25\ The Statement
was published in the Federal Register on February 26, 2021.\26\ In it,
the Bureau stated, in relevant part, that it expected to issue a
proposal to delay the July 1, 2021 mandatory compliance date of the
General QM Final Rule. The Bureau stated that it would consider at a
later date whether to initiate another rulemaking to reconsider other
aspects of the General QM loan definition. The Statement also indicated
that the Bureau is considering whether to initiate a rulemaking to
revisit another final rule that it issued in December 2020, the
Seasoned QM Final Rule.\27\
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\25\ Bureau of Consumer Fin. Prot., Statement on Mandatory
Compliance Date of General QM Final Rule and Possible
Reconsideration of General QM Final Rule and Seasoned QM Final Rule
(Feb. 23, 2021), https://www.consumerfinance.gov/documents/9505/cfpb_qm-statement_2021-02.pdf.
\26\ 86 FR 11623 (Feb. 26, 2021).
\27\ 85 FR 86402 (Dec. 29, 2020).
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C. The General QM Mandatory Compliance Date Delay Proposal
On March 3, 2021, the Bureau released a proposal to delay the
General QM Final Rule's mandatory compliance date from July 1, 2021 to
October 1, 2022 (the proposal). The proposal was published in the
Federal Register on March 5, 2021.\28\ In the proposal, the Bureau
preliminarily concluded that delaying the mandatory compliance date to
October 1, 2022 would help ensure access to responsible, affordable
mortgage credit and preserve flexibility for consumers affected by the
COVID-19 pandemic and its economic effects. The comment period for the
proposal ended on April 5, 2021. The Bureau received 24 unique comments
on the proposal. The Bureau summarizes and responds to these comments
in part IV below.
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\28\ 86 FR 12839 (Mar. 5, 2021).
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D. The Effects of the COVID-19 Pandemic on the Mortgage Markets
As discussed above and in the proposal, the Bureau is delaying the
General QM Final Rule's mandatory compliance date to help those
affected by the COVID-19 pandemic and its economic effects. The General
QM Final Rule acknowledged that the COVID-19 pandemic has had a
significant effect on the U.S. economy. In the early months of the
pandemic, economic activity contracted, millions of workers became
unemployed, and mortgage markets were affected. Although the
unemployment rate has declined from a high of 14.8 percent in April
2020 to 6.0 percent in March 2021,\29\ unemployment remains elevated
relative to the pre-pandemic rate of 3.5 percent in February 2020, and
the labor force participation rate remains below pre-pandemic levels,
at 61.5 percent in March 2021 versus 63.3 percent in February 2020. The
housing market has seen a significant rebound in mortgage-origination
activity, buoyed by historically low interest rates and by an
increasingly large share of GSE-backed loans. However, the share of
origination activity outside the GSE-backed origination channel has
declined from pre-pandemic levels, and mortgage-credit availability for
many consumers--including those who would be dependent on the non-QM
market for financing--remains tighter than prior to the pandemic.\30\
The pandemic's impact on both the secondary market for new originations
and on the servicing of existing mortgages is described below.
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\29\ News Release, Bureau of Labor Statistics, U.S. Dep't of
Labor, USDL-21-0582, The Employment Situation (Apr. 2, 2021),
https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm, and https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm (charts
related to the Apr. 2, 2021 The Employment Situation news release).
\30\ Brandon Ivey, Expanded-Credit Originations See Recovery in
4Q20, Inside Mortg. Fin. (Mar. 12, 2021), https://www.insidemortgagefinance.com/articles/220770-expanded-credit-mortgage-originations-slowly-recovering-from-shock.
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1. Secondary Market Impacts and Implications for Mortgage Origination
Markets
The early economic disruptions associated with the COVID-19
pandemic restricted the flow of credit in the U.S. economy,
particularly as uncertainty rose in mid-March 2020, and investors moved
rapidly towards cash and government securities.\31\ The lack of
investor demand to purchase mortgages, combined with a large supply of
agency mortgage-backed securities (MBS) entering the market,\32\
resulted in widening spreads between the rates on a 10-year Treasury
note and mortgage interest rates.\33\ This dynamic made it difficult
for creditors to originate loans, as many creditors rely on the ability
to profitably sell loans in the secondary market to generate the
liquidity to originate new loans. This resulted in mortgages becoming
more expensive for both homebuyers and homeowners looking to refinance.
After the actions taken by the Board of Governors of the Federal
Reserve System (Board) in March 2020 to purchase agency MBS ``in the
amounts needed to support smooth market functioning and effective
transmission of monetary policy to broader financial conditions and the
economy,'' \34\ market conditions improved substantially.\35\ This
helped to stabilize the MBS market and resulted in a decline in
mortgage rates and a significant increase in refinance activity since
the Board's intervention.
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\31\ The Coronavirus Aid, Relief, and Economic Security Act,
CARES Act: Hearing on The Quarterly CARES Act Report to Congress
Before the S. Comm. on Banking, Hous., & Urban Affairs, 116th Cong.
2-3 (2020) (statement of Jerome H. Powell, Chairman, Bd. of
Governors of the Fed. Reserve Sys.), https://www.banking.senate.gov/imo/media/doc/Powell%20Testimony%205-19-20.pdf (CARES Act Hearing).
\32\ Agency MBS are backed by loans guaranteed by Fannie Mae,
Freddie Mac, and the Government National Mortgage Association
(Ginnie Mae).
\33\ Laurie Goodman et al., Urban Inst., Housing Finance at a
Glance, Monthly Chartbook (Mar. 26, 2020), https://www.urban.org/sites/default/files/publication/101926/housing-finance-at-a-glance-a-monthly-chartbook-march-2020.pdf (Housing Finance at a Glance) (on
file).
\34\ Press Release, Bd. of Governors of the Fed. Reserve Sys.,
Federal Reserve announces extensive new measures to support the
economy (Mar. 23, 2020), https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm.
\35\ CARES Act Hearing, supra note 30, at 3.
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Because non-agency MBS \36\ are generally perceived by investors as
riskier than agency MBS, the market for non-agency and non-QM mortgage
credit significantly contracted in the early months of the pandemic.
Issuance of non-agency MBS declined by 8.2 percent in the first quarter
of 2020, with nearly all the transactions completed in January and
February before the COVID-19 pandemic began to affect the economy
significantly.\37\ Nearly all major non-QM creditors ceased making
loans in March and April 2020. The non-QM market has since been
recovering, with strong investor demand for non-QM MBS due to better-
than-expected performance during the pandemic.\38\ Many non-QM
creditors--
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which largely depend on the ability to sell loans in the secondary
market in order to fund new loans--have resumed originations, although
some continue to maintain tighter underwriting requirements compared to
prior to the pandemic.\39\ Other creditors that have typically
specialized in non-QM financing have shifted their focus to GSE
originations due to historically low interest rates and the relative
speed and ease with which GSE loans can be originated. Nonetheless,
many non-QM creditors and investors expect the non-agency market to
continue to strengthen in 2021 and recover to its pre-pandemic levels
of production.\40\ Because many of these loans that were historically
considered non-QM may qualify for QM status under the revised, price-
based General QM loan definition, it is unclear how quickly the market
for non-QM loans that fall outside of existing QM definitions will
develop.
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\36\ Non-agency MBS are not backed by loans guaranteed by Fannie
Mae, Freddie Mac, or Ginnie Mae. This includes securities
collateralized by non-QM loans.
\37\ Brandon Ivey, Non-Agency MBS Issuance Slowed in First
Quarter, Inside Mortg. Fin. (Apr. 3, 2020), https://www.insidemortgagefinance.com/articles/217623-non-agency-mbs-issuance-slowed-in-first-quarter (on file).
\38\ Bandon Ivey, Non-QM MBS Issuers Ready. But Where Are the
Loans?, Inside Mortg. Fin. (Jan. 29, 2021), https://www.insidemortgagefinance.com/articles/220373-non-qm-originations-and-mbs-ready-to-rebound-after-the-refi-boom (on file).
\39\ Brandon Ivey, Expanded-Credit Lending Inches Up in Third
Quarter, Inside Mortg. Fin. (Nov. 25, 2020), https://www.insidemortgagefinance.com/articles/219861-expanded-credit-lending-ticks-up-in-3q-amid-slow-recovery (on file).
\40\ Brandon Ivey, Outlook on Non-Agency MBS Issuance: Bright
and Gloomy, Inside Mortg. Fin. (Jan. 15, 2021), https://www.insidemortgagefinance.com/articles/220261-mixed-views-on-the-outlook-for-non-agency-mbs-issuance-in-2021 (on file).
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As illustrated in Figure 1, the GSEs continue to play a dominant
role in the market recovery, with the GSE share of first-lien mortgage
originations at 59 percent in 2020, up from 43 percent in 2019. One
analysis found that the FHA and U.S. Department of Veterans Affairs
(VA) share declined slightly to 18 percent from 19 percent a year
prior.\41\ Portfolio lending declined to 21 percent in 2020, down from
36 percent in the third quarter of 2019, and private label
securitizations declined to 1 percent from 2 percent a year prior.
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\41\ Laurie Goodman et al., Urban Inst., Housing Finance at a
Glance, Monthly Chartbook (Feb. 2021), https://www.urban.org/sites/default/files/publication/103746/housing-finance-at-a-glance-a-monthly-chartbook-february-2021_0.pdf (Housing Finance at a Glance).
[GRAPHIC] [TIFF OMITTED] TR30AP21.004
2. Servicing Market Impacts and Implications for Origination Markets
In addition to the direct impact on origination volume and
composition, the pandemic's impact on the mortgage servicing market has
downstream effects on mortgage originations, as many of the same
entities both originate and service mortgages. Anticipating that a
number of homeowners would struggle to pay their mortgages due to the
pandemic and related economic impacts, Congress passed and the
President signed into law the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act) \42\ in March 2020. The CARES Act provides
certain protections for borrowers with federally backed mortgages, such
as those whose mortgages are purchased or securitized by a GSE or
insured or guaranteed by the FHA, VA, or U.S. Department of Agriculture
(USDA). The CARES Act mandated a 60-day foreclosure moratorium for such
mortgages and allowed borrowers to request up to 180 days of
forbearance due to a COVID-19-related financial hardship, with an
option to extend the forbearance period for an additional 180 days.
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\42\ Public Law 116-136, 134 Stat. 281 (2020).
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[[Page 22849]]
FHFA recently announced that borrowers with a mortgage backed by
the GSEs may be eligible for two additional three-month forbearance
extensions, for a total of up to 18 months of forbearance, for certain
borrowers who began a COVID-19 forbearance on or before February 28,
2021. On February 16, 2021, FHA, VA, and USDA also provided up to six
months of additional mortgage forbearance, in three-month increments,
for borrowers who entered forbearance on or before June 30, 2020. FHA,
VA, and USDA also extended the foreclosure moratorium on government-
insured and guaranteed loans until June 30, 2021, from the previous
expiration date of March 31, 2021, and the GSEs announced a similar
extension on February 25, 2021.\43\ The government agencies also
announced an extension in the forbearance enrollment window until June
30, 2021, to provide additional time for borrowers to request a COVID-
19 forbearance. FHFA has not yet announced a deadline for borrowers
with mortgages backed by the GSEs to enroll in a COVID-19 forbearance
plan.
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\43\ Press Release, The White House, Fact Sheet: Biden
Administration Announces Extension of COVID-19 Forbearance and
Foreclosure Protections for Homeowners (Feb. 16, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/. See also
Press Release, Fed. Hous. Fin. Agency, FHFA Extends COVID-19
Forbearance Period and Foreclosure and REO Eviction Moratoriums
(Feb. 25, 2021), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx.
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Following the passage of the CARES Act, some mortgage servicers
remain obligated to make some principal and interest payments to
investors in GSE and Ginnie Mae securities, even if consumers are not
making payments.\44\ Servicers also remain obligated to make escrowed
real estate tax and insurance payments to local taxing authorities and
insurance companies. While servicers are required to hold liquid
reserves to cover anticipated advances, early in the pandemic there
were significant concerns that higher-than-expected forbearance rates
over an extended period of time could lead to liquidity shortages,
particularly among many non-bank servicers. While forbearance rates
remain elevated at 4.66 percent for the week ending April 4, 2021, they
have decreased since reaching their high of 8.55 percent on June 7,
2020, as illustrated in Figure 2 below.\45\
---------------------------------------------------------------------------
\44\ The GSEs typically repurchase loans out of the trust after
they fall 120 days delinquent, after which the servicer is no longer
required to advance principal and interest, but Ginnie Mae requires
servicers to advance principal and interest until the default is
resolved. On April 21, 2020, FHFA confirmed that servicers of GSE
loans will only be required to advance four months of mortgage
payments, regardless of whether the GSEs repurchase the loans from
the trust after 120 days of delinquency. Fed. Hous. Fin. Agency,
FHFA Addresses Servicer Liquidity Concerns, Announces Four Month
Advance Obligation Limit for Loans in Forbearance (Apr. 21, 2020),
https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-Forbearance.aspx.
\45\ Press Release, Mortg. Bankers Ass'n, Share of Mortgage
Loans in Forbearance Decreases to 4.66% (April 12, 2021), https://www.mba.org/2021-press-releases/april/share-of-mortgage-loans-in-forbearance-decreases-to-466-percent.
[GRAPHIC] [TIFF OMITTED] TR30AP21.005
Because many mortgage servicers also originate the loans they
service, many creditors, as well as several warehouse providers,\46\
initially responded to the risk of elevated forbearances and higher-
than-expected monthly advances by imposing credit overlays--i.e.,
additional underwriting standards--for new originations. These new
underwriting standards included more stringent requirements for non-QM,
jumbo, and government loans.\47\ An
[[Page 22850]]
``adverse market fee'' of 50 basis points on most refinances became
effective for new originations delivered to the GSEs on or after
December 1, 2020, to cover projected losses due to forbearances, the
foreclosure moratoria, and other default servicing expenses.\48\
However, due to refinance origination profits resulting from
historically low interest rates, the leveling off in forbearance rates,
and actions taken at the Federal level to alleviate servicer liquidity
pressure,\49\ concerns over non-bank liquidity and related credit
overlays have eased, although Federal regulators continue to monitor
the situation.\50\ Nonetheless, access to credit for higher-risk but
creditworthy consumers remains an ongoing concern given continued
uncertainty over the impact of the expiration of foreclosure moratoria
and COVID-19 forbearance plans on the mortgage market as well as
creditor capacity constraints due to strong refinance demand.\51\
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\46\ Warehouse providers are creditors that provide financing to
mortgage originators and servicers to fund and service loans.
\47\ Maria Volkova, FHA/VA Lenders Raise Credit Score
Requirements, Inside Mortg. Fin. (Apr. 3, 2020), https://www.insidemortgagefinance.com/articles/217636-fhava-lenders-raise-fico-credit-score-requirements (on file).
\48\ Press Release, Fed. Hous. Fin. Agency, Adverse Market
Refinance Fee Implementation now December 1 (Aug. 25, 2020), https://www.fhfa.gov/Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspx.
\49\ On April 10, 2020, Ginnie Mae released guidance on a Pass-
Through Assistance Program whereby Ginnie Mae will provide financial
assistance at a fixed interest rate to servicers facing a principal
and interest shortfall as a last resort. Ginnie Mae, All Participant
Memorandum (APM) 20-03: Availability of Pass-Through Assistance
Program for Participants in Ginnie Mae's Single-Family MBS Program
(Apr. 10, 2020), https://www.ginniemae.gov/issuers/program_guidelines/Pages/mbsguideapmslibdisppage.aspx?ParamID=105.
On April 7, 2020, Ginnie Mae also announced approval of a servicing
advance financing facility, whereby mortgage servicing rights are
securitized and sold to private investors. Press Release, Ginnie
Mae, Ginnie Mae approves private market servicer liquidity facility
(Apr. 7, 2020), https://www.ginniemae.gov/newsroom/Pages/PressReleaseDispPage.aspx?ParamID=194.
\50\ Fin. Stability Oversight Council, U.S. Dep't of the
Treasury, 2020 Annual Report, at 169 (2020), https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
\51\ Nat'l Mortg. News, Opinion: The originations feast and
credit famine (Oct. 4, 2020), https://www.nationalmortgagenews.com/opinion/the-originations-feast-and-credit-availability-famine (on
file). This final rule is separate from the Bureau's pending
proposal to amend certain provisions of Regulation X to assist
borrowers affected by the COVID-19 pandemic, which was published in
the Federal Register on April 9, 2021. Because the purpose of this
final rule complements the purpose of the Bureau's pending proposal,
the Bureau believes that it is appropriate to finalize this rule
regardless of how it proceeds with the its pending proposal.
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III. Legal Authority
The Bureau is issuing this final rule to amend Regulation Z
pursuant to its authority under TILA and the Dodd-Frank Act. Section
1061 of the Dodd-Frank Act transferred to the Bureau the ``consumer
financial protection functions'' previously vested in certain other
Federal agencies, including the Board. The Dodd-Frank Act defines the
term ``consumer financial protection function'' to include ``all
authority to prescribe rules or issue orders or guidelines pursuant to
any Federal consumer financial law, including performing appropriate
functions to promulgate and review such rules, orders, and
guidelines.'' \52\ Title X of the Dodd-Frank Act (including section
1061), along with TILA and certain subtitles and provisions of title
XIV of the Dodd-Frank Act, are Federal consumer financial laws.\53\
---------------------------------------------------------------------------
\52\ 12 U.S.C. 5581(a)(1)(A).
\53\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14)
(defining ``Federal consumer financial law'' to include the
``enumerated consumer laws'' and the provisions of title X of the
Dodd-Frank Act), Dodd-Frank Act section 1002(12)(O), 12 U.S.C.
5481(12)(O) (defining ``enumerated consumer laws'' to include TILA).
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A. TILA
TILA section 105(a). Section 105(a) of TILA directs the Bureau to
prescribe regulations to carry out the purposes of TILA and states that
such regulations may contain such additional requirements,
classifications, differentiations, or other provisions and may further
provide for such adjustments and exceptions for all or any class of
transactions that the Bureau judges are necessary or proper to
effectuate the purposes of TILA, to prevent circumvention or evasion
thereof, or to facilitate compliance therewith.\54\ A purpose of TILA
is ``to assure a meaningful disclosure of credit terms so that the
consumer will be able to compare more readily the various credit terms
available to him and avoid the uninformed use of credit.'' \55\
Additionally, a purpose of TILA sections 129B and 129C is to assure
that consumers are offered and receive residential mortgage loans on
terms that reasonably reflect their ability to repay the loans and that
are understandable and not unfair, deceptive, or abusive.\56\ The
Bureau is issuing this final rule pursuant to its rulemaking,
adjustment, and exception authority under TILA section 105(a).
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\54\ 15 U.S.C. 1604(a).
\55\ 15 U.S.C. 1601(a).
\56\ 15 U.S.C. 1639b(a)(2).
---------------------------------------------------------------------------
TILA section 129C(b)(2)(A). TILA section 129C(b)(2)(A)(vi) provides
the Bureau with authority to establish guidelines or regulations
relating to ratios of total monthly debt to monthly income or
alternative measures of ability to pay regular expenses after payment
of total monthly debt, taking into account the income levels of the
borrower and such other factors as the Bureau may determine relevant
and consistent with the purposes described in TILA section
129C(b)(3)(B)(i).\57\ The Bureau is issuing this final rule pursuant to
its authority under TILA section 129C(b)(2)(A)(vi).
---------------------------------------------------------------------------
\57\ 15 U.S.C. 1639c(b)(2)(A).
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TILA section 129C(b)(3)(A), (B)(i). TILA section 129C(b)(3)(B)(i)
authorizes the Bureau to prescribe regulations that revise, add to, or
subtract from the criteria that define a QM upon a finding that such
regulations are necessary or proper to ensure that responsible,
affordable mortgage credit remains available to consumers in a manner
consistent with the purposes of TILA section 129C; or are necessary and
appropriate to effectuate the purposes of TILA sections 129B and 129C,
to prevent circumvention or evasion thereof, or to facilitate
compliance with such sections.\58\ In addition, TILA section
129C(b)(3)(A) directs the Bureau to prescribe regulations to carry out
the purposes of section 129C.\59\ The Bureau is issuing this final rule
pursuant to its authority under TILA section 129C(b)(3)(B)(i).
---------------------------------------------------------------------------
\58\ 15 U.S.C. 1639c(b)(3)(B)(i).
\59\ 15 U.S.C. 1639c(b)(3)(A).
---------------------------------------------------------------------------
B. Dodd-Frank Act
Dodd-Frank Act section 1022(b). Section 1022(b)(1) of the Dodd-
Frank Act authorizes the Bureau to prescribe rules to enable the Bureau
to administer and carry out the purposes and objectives of the Federal
consumer financial laws, and to prevent evasions thereof.\60\ TILA and
title X of the Dodd-Frank Act are Federal consumer financial laws.
Accordingly, the Bureau is exercising its authority under Dodd-Frank
Act section 1022(b) to prescribe rules that carry out the purposes and
objectives of TILA and title X and prevent evasion of those laws.
---------------------------------------------------------------------------
\60\ 12 U.S.C. 5512(b)(1).
---------------------------------------------------------------------------
IV. Section-by-Section Analysis
1026.43 Minimum Standards for Transactions Secured by a Dwelling
The General QM Final Rule established a March 1, 2021 effective
date and a July 1, 2021 mandatory compliance date. Comment 43-2
explains that, for transactions for which a creditor received the
consumer's application on or after March 1, 2021, but prior to July 1,
2021, creditors seeking to originate General QMs have the option of
complying with either the revised, price-based General QM loan
definition or the original, DTI-based General QM loan definition. This
comment also explains that, for
[[Page 22851]]
transactions for which a creditor received the consumer's application
on or after July 1, 2021, creditors seeking to originate General QMs
must use the revised, price-based General QM loan definition.
Additionally, under the Patch Extension Final Rule, the Temporary
GSE QM loan definition expires upon the earlier of the General QM Final
Rule's mandatory compliance date or the date the applicable GSE ceases
to operate under conservatorship. Therefore, under the mandatory
compliance date established by the General QM Final Rule, creditors
seeking to originate QMs had the additional option of complying with
the Temporary GSE QM loan definition, but only if the application for
the covered transaction was received before either July 1, 2021, or the
date the applicable GSE ceased to operate under conservatorship,
whichever came first.
This final rule delays the General QM Final Rule's mandatory
compliance date from July 1, 2021 to October 1, 2022, as the Bureau
proposed. Specifically, the final rule amends comments 43-2 and
43(e)(4)-2 and -3 to reflect a delay of the mandatory compliance date
by changing the date ``July 1, 2021'' where it appears in those
comments to ``October 1, 2022.'' The Bureau is also adding comment
43(e)(2)-1 to clarify that both the original, DTI-based General QM loan
definition and the revised, price-based General QM loan definition are
available to creditors for transactions for which a creditor received
an application on or after March 1, 2021, but prior to October 1, 2022.
The specific amendments to the commentary are the same as the
amendments the Bureau proposed. The Bureau is also correcting a
typographical error in comment 43(e)(4)-2 by replacing ``thorough''
with ``through.''
With these changes, creditors seeking to originate General QMs will
have the option of complying with either the revised, price-based
General QM loan definition or the original, DTI-based General QM loan
definition for transactions for which a creditor received the
consumer's application on or after March 1, 2021, but prior to October
1, 2022. For transactions for which a creditor received the consumer's
application on or after October 1, 2022, creditors seeking to originate
General QMs will have to use the revised, price-based General QM loan
definition. Additionally--because the Temporary GSE QM loan definition
expires on the mandatory compliance date of the General QM Final Rule
or the date the applicable GSE ceases to operate under conservatorship,
whichever comes first--creditors seeking to originate QMs will have the
additional option of complying with the Temporary GSE QM loan
definition, if the application for the covered transaction was received
before either October 1, 2022, or the date the applicable GSE ceases to
operate under conservatorship, whichever comes first. The Bureau
recognizes that the practical availability of the Temporary GSE QM loan
definition may be affected by policies or agreements created by parties
other than the Bureau, such as the Preferred Stock Purchase Agreements
(PSPAs), which include restrictions on GSE purchases that rely on the
Temporary GSE QM loan definition after July 1, 2021.\61\
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\61\ On January 14, 2021, the U.S. Department of the Treasury
and FHFA amended the terms of the PSPAs for Fannie Mae and Freddie
Mac. Section 5.14(c) was added to the agreement and limits the GSEs'
acquisition of certain loans on or after July 1, 2021, including
loans that are not qualified mortgages as defined by 12 CFR
1026.43(e)(2), (5), (6), (7) or (f) with certain exceptions. See
Letter of Treasury Secretary Steven T. Mnuchin to FHFA Director Mark
Calabria (Jan. 14, 2021), https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Fannie-Mae.pdf.
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Reasons for Delaying the Mandatory Compliance Date to October 1, 2022
The Bureau is issuing this final rule because it has concluded that
maintaining the July 1, 2021 mandatory compliance date may leave some
struggling homeowners with fewer options by reducing the flexibility of
creditors to respond to the effects of the pandemic. In the Patch
Extension Final Rule and the General QM Final Rule, the Bureau noted
the disruptive effects of the pandemic on the mortgage market but
nevertheless concluded that these effects did not justify the adoption
of a mandatory compliance date later than July 1, 2021. Upon further
evaluation, the Bureau has concluded that it may not have given
sufficient weight to the potential risk that mandating the transition
to the price-based approach in the revised General QM loan definition
on July 1, 2021 could restrict options for consumers struggling with
the disruptive effects of the pandemic. The Bureau has concluded that
preserving flexibility to respond to the effects of the pandemic, by
delaying the mandatory compliance date until October 1, 2022, outweighs
concerns that a delay of the mandatory compliance date could stifle the
development of private-sector approaches to underwriting or a rebound
of the non-GSE private market in the near term.
The Bureau also concludes that the adverse impact of the pandemic
on mortgage markets may persist longer than anticipated at the time of
publication of the General QM Final Rule. In particular, as discussed
in more detail below, with the extension of certain forbearance
programs and foreclosure moratoria, the Bureau has concluded that the
potential for disruption in the mortgage market will persist well past
July 2021.
The Bureau notes that this rulemaking does not reconsider the
revised, price-based General QM loan definition that was adopted in the
General QM Final Rule. This definition went into effect on March 1,
2021, and creditors have the option of using it to originate QMs.
Rather, this final rule concludes that it would be appropriate in light
of the continuing disruptive effects of the pandemic to help facilitate
greater creditor flexibility and expanded availability of responsible,
affordable credit options for some struggling consumers by also
providing QM status to loans originated under the original, DTI-based
General QM loan definition and, potentially, under the Temporary GSE QM
loan definition until October 1, 2022.
The Bureau is issuing this final rule due to concerns that
requiring creditors seeking to make QM loans to shift to the revised,
price-based General QM loan definition could reduce access to credit,
particularly for certain consumer segments. As discussed in detail in
part IV of the proposal, the Bureau has two concerns related to access
to responsible, affordable mortgage credit.
First, as discussed in the proposal, the Bureau believes that
ongoing regulatory interventions to assist consumers who may have
suffered an income disruption related to the pandemic--such as COVID-19
forbearance plans and foreclosure moratoria--and potential disruptions
in the market when those interventions expire warrant a delay of the
mandatory compliance date.\62\ The Bureau is concerned that the impact
of the eventual expiration of foreclosure moratoria and COVID-19
forbearance plans described in part II.D above has the potential to
lead to additional disruptions in the mortgage markets. The Bureau has
concluded that it may not have given sufficient weight to these issues
in mandating that creditors comply with the price-based approach on
July 1, 2021. In addition, the Bureau has concluded that the extension
of certain forbearance programs and foreclosure moratoria may result in
these effects continuing longer than the Bureau anticipated at the time
of the General QM Final Rule, and the Bureau
[[Page 22852]]
concludes that delaying the mandatory compliance date of the General QM
Final Rule to October 1, 2022 will provide additional flexibility to
creditors originating QM loans.
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\62\ 86 FR 12839, 12848-50 (Mar. 5, 2021).
---------------------------------------------------------------------------
Second, as discussed in the proposal, the Bureau has concerns about
mortgage credit availability for some creditworthy consumers who would
qualify for a mortgage but for the disruptive market effects of the
pandemic, and believes that such concerns warrant a delay of the
mandatory compliance date.\63\ The Bureau seeks to avoid a reduction in
credit access for certain consumers who have been unable to purchase or
refinance due to the effects of the pandemic on the origination market.
As described in the proposal, the Bureau is concerned that, despite the
record origination volumes, access to low interest-rate refinances and
purchase mortgages in these unique circumstances may be less widely
available for consumers with weaker credit relative to consumers with
stronger credit in part due to creditor capacity constraints as opposed
to the standard risk-based pricing adjustments that creditors typically
charge. The Bureau is finalizing this proposal because it is concerned
that requiring creditors to transition to the revised, price-based
General QM loan definition on July 1, 2021--and eliminating the
Temporary GSE QM loan definition and the original, DTI-based General QM
loan definition at that time--will exacerbate these credit-access
concerns.
---------------------------------------------------------------------------
\63\ Id. at 12850-53.
---------------------------------------------------------------------------
For the reasons described above, the Bureau is finalizing the
proposed revisions to the commentary. The mandatory compliance date for
the General QM Final Rule is October 1, 2022. For covered transactions
for which creditors receive an application on or after the March 1,
2021 effective date and before the October 1, 2022 mandatory compliance
date, creditors have the option of complying with either the revised,
price-based General QM loan definition or the original, DTI-based
General QM loan definition. Additionally--because the Temporary GSE QM
loan definition expires on the mandatory compliance date of the General
QM Final Rule or the date the applicable GSE ceases to operate under
conservatorship, whichever comes first--creditors seeking to originate
QMs will have the additional option of complying with the Temporary GSE
QM loan definition, if the application for the covered transaction was
received before either October 1, 2022 or the date the applicable GSE
ceases to operate under conservatorship, whichever comes first.\64\
This final rule will be effective on June 30, 2021.
---------------------------------------------------------------------------
\64\ As noted above, however, the availability of the Temporary
GSE QM loan definition may be affected by policies or agreements
created by parties other than the Bureau, such as the PSPAs, which
include restrictions on GSE purchases that rely on the Temporary GSE
loan QM definition after July 1, 2021. See supra note 61 and
accompanying text.
---------------------------------------------------------------------------
Comments and Responses
The Bureau received 24 unique comments on the proposal. The Bureau
summarizes and responds to these comments below.
Comments on the Bureau's reasons for delaying the compliance date.
The Bureau received many comments on the reasons that it described in
the proposal for delaying the mandatory compliance date, which are
related to the impact of the COVID-19 pandemic on the mortgage market.
Commenters varied in their views as to whether delaying the mandatory
compliance date would have the desired effect of mitigating the
pandemic-related disruptions identified in the proposal.
Nearly all commenters agreed with the Bureau's concerns that
pandemic-related disruptions have significantly impacted the mortgage
market, and several commenters agreed that delaying the mandatory
compliance date to October 1, 2022 would help ensure access to
responsible, affordable mortgage credit and preserve flexibility for
consumers affected by the COVID-19 pandemic and its economic effects,
as the Bureau stated in the proposal. One industry commenter stated
that the proposed delay of the mandatory compliance date would prove
especially helpful to small institutions such as community banks in
providing access to credit, as they may not be ready to comply with the
revised, price-based General QM loan definition by July 1, 2021. This
commenter also stated that the Temporary GSE QM loan definition, in
particular, has played an important role in providing access to credit
for minority, younger, millennial, non-W-2, and low-income consumers.
Another industry commenter suggested that the Bureau delay the
mandatory compliance date for as long as possible. The commenter
recommended that, if the Bureau delays the mandatory compliance date to
October 1, 2022, the Bureau set up a future review to ensure the
sufficiency of that date.
Another industry commenter stated that the additional flexibility
afforded to credit unions by a delay of the mandatory compliance date
will assist consumers who may not have otherwise been able to obtain a
mortgage under the revised, price-based General QM loan definition due
to the current lending environment and impacts of the pandemic. This
commenter stated that it agreed with the Bureau that delaying the
mandatory compliance date would disincentivize the mispricing of loans
for higher-risk borrowers that the comment stated is occurring as a
result of pandemic-related market conditions, such as the high volume
of mortgage originations as the proposal discussed.
A coalition of consumer advocates stated that delaying the
mandatory compliance date would give creditors the flexibility to
provide credit and allow servicers to focus on assisting consumers with
post-forbearance options. The commenter stated that, with relatively
high unemployment rates and 2.5 million consumers in active forbearance
plans, the industry and the Bureau should remain focused on resolving
forbearance plans to minimize unnecessary foreclosures. The commenters
added that, given the resources necessary to move these borrowers into
a post-forbearance accommodation, allowing the continued use of
multiple QM definitions will mitigate the extent to which disruptions
in the servicing market affect the origination market. An industry
commenter stated that servicers are currently focused on assisting the
unprecedented number of borrowers exiting forbearance, noting that the
reperformance of loans currently in forbearance is of critical
importance to overall market stability. This commenter also stated that
the current economic conditions do not create an environment conducive
to the implementation of major regulatory changes. These commenters and
another industry commenter stated generally that the flexibility
afforded to creditors by keeping multiple QM definitions available is
warranted given the uncertain trajectory of the United States' economic
recovery from the pandemic.
One industry commenter stated that recent market trends related to
the pandemic necessitate additional time for implementation beyond the
time that is typically needed. Specifically, the commenter stated that
the early-2021 increase in mortgage interest rates may cause a decline
in profits as creditors are required to simultaneously implement many
post-forbearance loss mitigation and resolution requirements as
forbearance plans come to an end. This commenter also stated that the
GSEs are preparing to implement new capital standards that are
estimated to increase mortgage rates and that the Bureau should study
the impact on pricing, consumers, and the market as
[[Page 22853]]
well as allow creditors time to adapt to the multiple challenges
presented.
Many commenters opposed the Bureau's proposal to delay the
mandatory compliance date and stated that the proposed delay would not
result in the credit-access benefits cited by the Bureau. Several
industry commenters stated that loans that obtain QM status through the
revised, price-based General QM loan definition overlap significantly
with loans that obtained QM status through the Temporary GSE QM loan
definition and the original, DTI-based General QM loan definition. They
stated that, as a result, the impact on access to credit of delaying
the mandatory compliance date would be minimal at best. While these
commenters acknowledged the economic stress the pandemic has placed on
the industry and on consumers, they argued that the Bureau has not
identified a sufficient basis to conclude that delaying the mandatory
compliance date would mitigate these disruptions. These commenters
asserted that the proposal did not provide data or analysis
demonstrating the need for the Temporary GSE QM loan definition and the
original, DTI-based General QM loan definition for an extended period
of time, given the expansive nature of the revised, price-based General
QM loan definition. These commenters also stated that recent purchase
restrictions in the PSPAs for Fannie Mae and Freddie Mac will limit the
effects of a delay of the mandatory compliance date, as discussed
further below. A coalition comprised primarily of consumer advocates
stated that despite their belief that extending the Temporary GSE QM
loan definition through an extension of the mandatory compliance date
is not necessary, they also believe that such an extension will do no
harm.
Several industry commenters asserted that the Bureau failed to
identify a clear nexus between the consumers who would be affected by
the pandemic and those who could specifically benefit from the
original, DTI-based General QM loan definition. One commenter stated
that few loans with DTI ratios below 43 percent would be priced with an
interest rate spread more than 2.25 percentage points above APOR. This
commenter also stated that the burden of complying with appendix Q can
have an adverse impact on access to credit. This commenter also stated
that borrowers most likely to have been impacted by the pandemic
include those who suffered an income disruption or increased debt
loads, and that the Bureau had not explained how those particular
borrowers are likely to benefit from the original, DTI-based General QM
loan definition, which requires substantial income documentation.
While no commenters disputed that the pandemic has disrupted the
mortgage industry, some commenters disagreed with the Bureau's
explanations of how delaying the mandatory compliance date would
address the two types of market problems it identified in the proposal.
With regard to the first issue identified in the proposal--the upcoming
expiration of forbearance plans and foreclosure moratoria--one industry
commenter stated that the GSEs and government agencies are offering
streamlined post-forbearance loss mitigation options that should assist
families in keeping their homes and that high levels of home equity
should make it possible for many consumers who seek to sell their homes
to do so, which would mitigate the need for a delay in the mandatory
compliance date. Another industry commenter stated that delaying the
mandatory compliance date is unlikely to materially increase access to
credit and also noted that the supply of available homes falls far
short of purchaser demand, and therefore they expect no shortage of
qualified borrowers.
With regard to the second issue identified in the proposal relating
to access to credit--the availability of mortgage credit for some
creditworthy consumers who would qualify for a mortgage but for the
disruptive market effects of the pandemic--one commenter acknowledged
the supporting data the Bureau put forward in the proposal but noted
the proposal lacked quantitative data specifically related to creditor
capacity constraints and credit overlays. This commenter reiterated
that even if these capacity constraints and overlays are substantiated,
the Bureau has not provided evidence that a delay of the mandatory
compliance date would mitigate these identified concerns. A separate
industry commenter stated that industry-wide adoption of the revised,
price-based General QM loan definition may actually make the market
more efficient, alleviating some of the pandemic-related capacity
constraints that some creditors are facing and that the Bureau
identified in the proposed rule. This commenter asserted that the
revised, price-based General QM loan definition should provide ample
access to credit for creditworthy consumers during the pandemic
recovery.
Many industry and consumer advocate commenters addressed the impact
of recent amendments to the PSPAs on the proposed rationale for
delaying the mandatory compliance date. Commenters stated that these
amendments may prevent the GSEs from purchasing loans based on the
Temporary GSE QM loan definition after July 1, 2021, and therefore may
significantly limit the impact of the mandatory compliance date delay,
absent revisions to the agreements.\65\
---------------------------------------------------------------------------
\65\ On January 14, 2021, the U.S. Department of the Treasury
and FHFA amended the terms of the PSPAs for Fannie Mae and Freddie
Mac. Section 5.14(c) was added to the agreement and limits the GSEs'
acquisition of certain loans on or after July 1, 2021, including
loans that are not qualified mortgages as defined by 12 CFR
1026.43(e)(2), (5), (6), (7) or (f) with certain exceptions.
---------------------------------------------------------------------------
Many industry and consumer advocate commenters that supported
delaying the mandatory compliance date suggested that the Bureau also
advocate for a change to the PSPAs that would allow for the purchase of
Temporary GSE QM loans during the proposed delay of the mandatory
compliance date. They stated that loans originated under the Temporary
GSE QM loan definition are crucial to maintaining market stability and
access to credit for certain segments of the market, such as minorities
and low- to moderate-income consumers. One industry commenter suggested
that credit unions, in particular, rely on the Temporary GSE QM loan
definition to lend in their communities and stated that their internal
industry survey data suggest that 61 percent of their outstanding
mortgages qualified to be sold to the GSEs and that 19 percent of
survey respondents indicated that the expiration of the Temporary GSE
QM loan definition would have a material impact on their credit
union.\66\
---------------------------------------------------------------------------
\66\ The comment did not provide a copy of or citation to the
survey described.
---------------------------------------------------------------------------
Several industry commenters that opposed delaying the mandatory
compliance date stated that certain ways in which the Bureau stated the
delay would address market disruptions, such as by providing the GSEs
with the flexibility to tailor programs to meet challenges specific to
the COVID-19 pandemic, may be thwarted by restrictions on Temporary GSE
QM loans in the PSPAs. Moreover, they stated that the existing language
in the PSPAs would not constrict access to credit, as most loans
covered by the Temporary GSE QM loan definition would also be covered
by the revised, price-based General QM loan definition. One industry
commenter also argued that a delay in the mandatory compliance date
would not provide additional implementation time because, in light of
the PSPAs, creditors
[[Page 22854]]
would likely need to comply with the revised, price-based General QM
loan definition in order to sell their loans to the GSEs as of July 1,
2021.
A few industry commenters noted that additional provisions were
included in the PSPAs that restrict access to credit such as certain
limitations on the purchases of second homes, investor properties, and
higher-risk single-family loans. Specifically, these commenters cited
the PSPA limitation on the acquisitions of loans with two out of three
high-risk characteristics, defined as a loan-to-value ratio (LTV) of 90
percent or greater, a DTI of 45 percent or greater, and a credit score
of 680 or less. These commenters were concerned that such limitations
would impair access to credit and noted that a quick implementation of
the revised, price-based General QM loan definition may mitigate some
of these impacts.
Response. The Bureau is finalizing the proposed rule to delay the
mandatory compliance date until October 1, 2022 because it has
concluded that delaying the mandatory compliance date until that date
will help ensure access to responsible, affordable mortgage credit and
will help preserve flexibility for consumers affected by the COVID-19
pandemic and its economic effects. While the Bureau acknowledges that
future access-to-credit impacts of this delay are subject to
uncertainty, providing additional options to originate loans with
multiple pathways to QM status will increase flexibility for creditors
and secondary market participants to serve emerging market needs and
will help increase access to mortgage credit for consumers during a
period of significant economic stress. With respect to the commenter
recommendation to set up a future review of the delayed mandatory
compliance date, the Bureau will continue to monitor for any
unanticipated effects of the COVID-19 pandemic on market conditions to
determine if future changes are warranted.
The Bureau has concluded that delaying the mandatory compliance
date will expand access to credit and allow industry participants to
focus on offering struggling consumers post-forbearance options. No
commenters disputed the disruptive impact of the pandemic on the
mortgage industry. In the proposed rule, the Bureau focused its
analysis on the impact of expanded access to credit on facilitating
interest rate-reducing refinances as well as allowing creditworthy
purchasers to absorb some of the distressed properties that may enter
the market due to the inability of the seller to maintain a post-
forbearance payment. But as noted above, several industry and consumer
advocate commenters stated that allowing creditors more time to
implement the revised, price-based General QM loan definition will
allow servicers to focus their efforts on keeping struggling consumers
in their homes, which will likely reduce the number of distressed
properties that enter the market. The Bureau determines that this
rationale provided by commenters is an additional, although not
necessary, reason to delay the mandatory compliance date to October 1,
2022. The Bureau has concluded that, given the significant uncertainty
in the mortgage market with regard to the effects of forbearance plans
and foreclosure moratoria expiring, delaying the mandatory compliance
date will provide both servicers and creditors with the flexibility to
use multiple QM definitions and reallocate resources between
origination and servicing departments to best assist consumers. The
Bureau believes this may reduce some operational capacity constraints
in the servicing market, although the Bureau expects servicer
operational capacity constraints to continue at least through the end
of this year.
The Bureau further concludes that the pandemic has had the effect
of restricting access to credit for higher-risk, yet creditworthy
consumers and that delaying the mandatory compliance date may ease
these credit-access concerns by providing multiple pathways to QM
status. The Bureau notes that, with the exception of one industry
commenter,\67\ commenters did not question the Bureau's findings that
access to credit has been constrained for higher-risk, yet creditworthy
borrowers due to creditor capacity limitations and creditor precautions
intended to ensure that new originations are less likely to request a
COVID-19 forbearance in the future. Several industry commenters agreed
with the proposal's analysis of this issue. The Bureau acknowledges
that, given the continually evolving nature of both the pandemic's
impact on the mortgage market and responses by regulators, there is
uncertainty as to the extent to which delaying the mandatory compliance
date will increase access to credit. However, the Bureau concludes
that, to some extent, the additional flexibility provided by this final
rule will increase--rather than decrease--access to credit.
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\67\ This industry commenter did not challenge the Bureau's
findings that access to credit has been restricted for higher-risk
consumers, but asserted that the Bureau did not provide quantitative
data in support of creditor capacity constraints.
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Moreover, the Bureau is concerned that temporarily, non-agency
market constraints created by the pandemic could make it more difficult
for some creditworthy borrowers with the ability to repay mortgage
loans that currently qualify for QM status under the original, DTI-
based General QM loan definition to obtain such loans if those loans no
longer qualify for QM status based on the revised, price-based General
QM loan definition. For example, as discussed in the section 1022(b)
analysis in part V, of the 33,000 additional consumers expected to
obtain conventional QM loans priced 2.25 percentage points or higher
above APOR due to this rule, 28,000 are expected to obtain QM status
through the original, DTI-based General QM loan definition. The Bureau
estimates that the continued availability of the original, DTI-based
General QM loan definition and, potentially, the Temporary GSE QM loan
definition each separately provide beneficial access to credit under
this final rule. As a result, even if the PSPAs continue to restrict
GSE purchases that rely on the Temporary GSE loan QM definition after
July 1, 2021, as some commenters noted, the Bureau concludes that the
final rule will increase access to mortgage credit relative to the
current rule under which the original, DTI-based General QM loan
definition would no longer be available starting July 1, 2021. The
benefits from leaving the Temporary GSE QM loan definition in place
until October 1, 2022 and the benefits from creditors using the
original, DTI-based General QM loan definition during that period are,
in the Bureau's view, each independently sufficient reasons for
delaying the mandatory compliance date.
As the proposal stated, while the Bureau acknowledges that
policies, agreements, or legislation created by parties other than the
Bureau--including the PSPAs--may limit the impact of the mandatory
compliance date delay, the Bureau is unable to predict how such
agreements or restrictions might change in the future. The Bureau also
notes that sections 5.14(c)(iii)-(vi) of the letter agreements amending
the PSPAs appear to provide FHFA with the authority to allow the GSEs
to purchase certain loans that do not comply with the QM definitions
listed in section 5.14(c)(i).\68\ These include loans secured by
investment
[[Page 22855]]
properties, high-LTV streamlined refinances, and single family loans
secured by manufactured housing. The letter agreements also appear to
provide broad authority for FHFA and the GSEs to establish temporary
underwriting flexibilities during times of exigent circumstances. While
the agreement appears to provide FHFA discretion to determine whether
it will allow the GSEs to exercise these additional purchase
flexibilities, issuing this final rule to delay the mandatory
compliance date will confer QM status to these loans if FHFA decides it
is necessary to exercise this authority. QM status may prove valuable
in the future given the uncertain market outlook as a result of the
COVID-19 pandemic. Absent this final rule, if FHFA and the GSEs
exercised this authority, it would permit the GSEs to purchase certain
non-QM loans. The Temporary GSE QM loan definition confers QM status on
loans eligible for sale to the GSEs. Therefore, finalizing this rule
will allow FHFA to exercise this authority for the GSEs and other
secondary market participants to instead purchase these loans with QM
status, which may increase access to credit through lower pricing and
greater secondary market liquidity.
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\68\ Section 5.14(c)(i) limits GSE loan purchases after July 1,
2021 to loans that satisfy the General QM loan definition, Small
Creditor QM loan definition, Seasoned QM loan definition, or Balloon
Payment QM loan definition.
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Comments on uncertainty about the General QM loan definition.
Several industry commenters stated that the proposal has created
uncertainty with respect to whether the Bureau will permit the revised,
price-based General QM loan definition to remain in effect. For
example, several industry commenters stated that the Bureau's primary
purpose in delaying the mandatory compliance date is to facilitate
reconsideration of the General QM loan definition. Several commenters
stated that the Bureau's February 23, 2021 Statement \69\ has
contributed to this uncertainty.
---------------------------------------------------------------------------
\69\ See supra part II.B.
---------------------------------------------------------------------------
Commenters also stated that this uncertainty may deter creditors
and vendors from continuing to invest in the resources and training
necessary to implement the revised, price-based General QM loan
definition. One commenter stated that this uncertainty will likely
result in market participants experiencing compliance challenges that
may divert resources away from other needs, in particular from
responding to borrower requests for assistance due to hardships
experienced under the COVID-19 pandemic, until there is assurance that
the Bureau will permit the revised, price-based General QM loan
definition to remain in effect. Industry commenters also asserted that
delays in implementing the price-based approach could negatively affect
access to credit; for example, they suggested that it could inhibit
innovative underwriting approaches that, in the view of these
commenters, would benefit minority borrowers in particular.
Response. The Bureau understands that some industry uncertainty has
resulted from the Bureau's Statement providing transparency about its
plans to consider at a later date whether to reconsider other aspects
of the General QM Final Rule, as well as from the Bureau's reiteration
in the proposal of the applicable language from the Statement. However,
this final rule concerns the delay of the mandatory compliance date
from July 1, 2021 to October 1, 2022. Commenters did not explain why
delaying the mandatory compliance date to October 1, 2022, in and of
itself, would meaningfully increase uncertainty in the market about
whether the Bureau will reconsider other aspects of the General QM
Final Rule, and the Bureau does not believe that delaying the mandatory
compliance date to October 1, 2022 would have this effect.
The Bureau also notes that, while many industry commenters stated
that uncertainty about potential reconsideration of the revised, price-
based General QM loan definition will deter creditors from implementing
the revised General QM loan definition (and therefore mitigate benefits
from that final rule), commenters did not identify examples of this
occurring in the market. In contrast, the Bureau understands that
several larger creditors have already implemented the revised, priced-
based General QM loan definition and announced new products that are
underwritten in accordance with the revised definition that went into
effect on March 1, 2021.\70\ Even if uncertainty results in some
creditors choosing to delay implementation of the revised, price-based
General QM loan definition, and even if that result could be attributed
to the rule, the Bureau concludes that such delays are unlikely to
result in significant limitations on access to responsible, affordable
mortgage credit under the price-based approach and do not outweigh the
potential credit-access benefits of delaying the mandatory compliance
date.
---------------------------------------------------------------------------
\70\ See, e.g., Brandon Ivey, Some Non-Agency Lenders Embracing
New QM Rule, Inside Mortg. Fin. (Mar. 26, 2021), https://www.insidemortgagefinance.com/articles/220914-some-non-agency-lenders-embracing-cfpbs-qm-changes.
---------------------------------------------------------------------------
Comments on general implementation issues. Several industry
commenters stated that they supported the Bureau's proposal to delay
the mandatory compliance date because the delay would give them more
time to prepare to comply with the revised, priced-based General QM
loan definition. In contrast, one industry commenter stated that
delaying the mandatory compliance date would disrupt market
participants' efforts to bring their systems into compliance with the
price-based approach and cause market participants to incur additional
compliance-related costs for training, Loan Origination System
adjustments, secondary market integrations, and amendments to policies
and procedures. Other industry commenters stated that delaying the
mandatory compliance date was not necessary because many creditors have
already implemented the price-based approach and several others have
made preparations to implement it by the original mandatory compliance
date of July 1, 2021. One commenter stated that creditors and vendors
have slowed or paused implementation efforts in anticipation of the
Bureau's decision to delay the mandatory compliance date and urged the
Bureau to issue a final rule to restore certainty to the market and
allow all market participants time to adapt. One industry commenter
requested that the Bureau clarify whether creditors may use either the
original, DTI-based General QM loan definition or the revised, price-
based General QM loan definition on a loan-by-loan basis prior to the
mandatory compliance date, or whether they must use one definition or
the other for all their loans.
Response. Regarding the comment that delaying the mandatory
compliance date would disrupt market participants' efforts to bring
their systems into compliance with the price-based approach and impose
additional compliance-related costs, the Bureau notes that, with or
without this final rule, creditors that wish to originate General QM
loans must implement the revised, price-based General QM loan
definition before October 1, 2022 and thus face the same compliance
requirements. In addition, the Bureau reiterates that the purpose of
this final rule is to preserve flexibility by allowing creditors to
continue to use the original, DTI-based General QM loan definition and
the Temporary GSE QM loan definition until October 1, 2022.
Accordingly, creditors that wish to use the revised, price-based
General QM loan definition exclusively by July 1, 2021, as was
originally required under the General QM Final Rule, may still do so
and avoid any additional compliance-related costs associated
[[Page 22856]]
with the flexibility provided by this final rule. As many commenters
noted, delaying the compliance date will simply provide market
participants with more time to bring their systems into compliance with
the revised, price-based General QM loan definition.
With respect to the comment stating that delaying the mandatory
compliance date is not necessary because many creditors have already
implemented the revised, price-based General QM loan definition and
several others are prepared to implement it by the original mandatory
compliance date, the Bureau notes that these creditors will not be
harmed by delaying the mandatory compliance date. Moreover, as
discussed above under ``Comments on the Bureau's Reasons for Delaying
the Mandatory Compliance Date,'' some commenters have reported that
creditors have experienced challenges implementing the revised, price-
based General QM loan definition because of resource constraints due to
the recent forebearance plan and foreclosure moratoria extensions and
the need to find sustainable post-forebearance alternatives to keep
consumers in their homes. As noted above, the Bureau concludes that
these challenges identified by these commenters provide an additional,
although not necessary, reason for delaying the mandatory compliance
date.
Regarding the comment asking the Bureau to clarify that the
original, DTI-based General QM loan definition and the revised, priced-
based General QM loan definition are available on a loan-by-loan basis,
the Bureau notes that, as new comment 43(e)(2)-1 states, both the
original, DTI-based General QM loan definition and the revised, price-
based General QM loan definition are available to creditors for
transactions for which the creditor receives an application on or after
March 1, 2021, but prior to October 1, 2022.
Finally, the Bureau received many comments about the merits of the
General QM loan definition and the Seasoned QM loan definition. The
purpose of this rulemaking is not to address the merits of the General
QM loan definition or the Seasoned QM loan definition. These comments
are therefore outside the scope of this rulemaking. As the Bureau
stated in the Statement and states in this final rule, the Bureau will
consider at a later date whether to initiate a rulemaking to revisit
others aspects of the General QM loan definition and the Seasoned QM
loan definition.
V. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
As discussed above, this final rule will delay the mandatory
compliance date of the General QM loan definition from July 1, 2021 to
October 1, 2022. In developing this final rule, the Bureau has
considered the potential benefits, costs, and impacts as required by
section 1022(b)(2)(A) of the Dodd-Frank Act. Specifically, section
1022(b)(2)(A) of the Dodd-Frank Act calls for the Bureau to consider
the potential benefits and costs of a regulation to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products or services, the impact on
depository institutions and credit unions with $10 billion or less in
total assets as described in section 1026 of the Dodd-Frank Act, and
the impact on consumers in rural areas. The Bureau consulted with the
prudential regulators and other appropriate Federal agencies regarding
the consistency of the final rule with prudential, market, or systemic
objectives administered by such agencies as required by section
1022(b)(2)(B) of the Dodd-Frank Act.
B. Data and Evidence
The discussion in this impact analysis relies on data from a range
of sources. These include data collected or developed by the Bureau,
including HMDA \71\ data, as well as other publicly available sources.
In particular, as indicated in the proposal, the data and evidence
published in the Bureau's General QM Final Rule inform this analysis.
Also as indicated in the proposal, the Bureau conducted an assessment
of the ATR/QM Rule and published its ATR/QM Rule Assessment Report as
required under section 1022(d) of the Dodd-Frank Act.\72\ The
Assessment Report provides quantitative and qualitative information on
questions relevant to the final rule, including the effect of QM status
relative to non-QM status on access to credit. Consultations with other
regulatory agencies, industry, and research organizations inform the
Bureau's impact analyses.
---------------------------------------------------------------------------
\71\ HMDA requires many financial institutions to maintain,
report, and publicly disclose loan-level information about
mortgages. These data help show whether creditors are serving the
housing needs of their communities; they give public officials
information that helps them make decisions and policies; and they
shed light on lending patterns that could be discriminatory. HMDA
was originally enacted by Congress in 1975 and is implemented by
Regulation C. See Bureau of Consumer Fin. Prot., Mortgage Data
(HMDA), https://www.consumerfinance.gov/data-research/hmda/.
\72\ Bureau of Consumer Fin. Prot., Ability to Repay and
Qualified Mortgage Assessment Report (Jan. 2019), https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf.
---------------------------------------------------------------------------
The data the Bureau relied upon provide detailed information on the
number, characteristics, pricing, and performance of mortgage loans
originated in recent years. While these data allow the Bureau to
estimate the number of mortgage loans historically that would have
satisfied the different QM definitions applicable under the baseline or
the final rule, the Bureau cannot estimate with precision how consumers
may respond to changes in the QM definitions by obtaining alternative
loan products or how creditors may respond by changing loan pricing or
product offerings.
The Bureau received several comments on the proposal's impact
analysis. Two industry commenters stated that the Bureau provided
insufficient explanation or support for its estimate that 33,000
additional consumers would obtain high-priced conventional QM loans due
to the rule. As stated in the proposal's impact analysis, the Bureau
relied on HMDA data and the evidence published in the Bureau's General
QM Final Rule for its analysis. The Benefits to Consumers section of
the proposal stated that between July 1, 2021 and October 1, 2022,
approximately 33,000 additional consumers would obtain conventional QM
loans priced 2.25 percentage points or higher above APOR under the
final rule due to the availability of the original, DTI-based General
QM loan definition and the Temporary GSE QM loan definition.
In addition, an industry commenter stated that the Bureau's 1022(b)
analysis did not account for the effect of the GSE PSPAs when
estimating the impacts of the rule. The proposal's impact analysis
included a footnote estimating that if the GSEs do not purchase loans
above the General QM Final Rule's pricing thresholds during the
duration of the mandatory compliance date delay, approximately 28,000
additional consumers would obtain conventional QM loans priced 2.25
percentage points or higher above APOR under the proposal.\73\ This
estimate reflects possible impacts of the rule if the GSE PSPAs prevent
the GSEs from purchasing loans above the pricing thresholds established
in the General QM Final Rule.
---------------------------------------------------------------------------
\73\ 86 FR 12839, 12855 n.98 (Mar. 5, 2021).
---------------------------------------------------------------------------
Regarding potential compliance costs, as noted above, a trade
association commented that delaying the mandatory compliance date would
disrupt market
[[Page 22857]]
participants' efforts to bring their systems into compliance with the
General QM Final Rule and cause market participants to incur additional
compliance-related costs. However, as noted above, with or without this
final rule, creditors that wish to originate General QM loans must
implement the revised, price-based General QM loan definition before
October 1, 2022 and thus face the same compliance requirements. The
final rule benefits creditors by providing additional time to implement
these requirements.
As discussed above, many industry commenters stated that
uncertainty about potential reconsideration of the revised, price-based
General QM loan definition will deter creditors from implementing the
revised General QM loan definition (and therefore mitigate benefits
from that final rule). However, commenters did not identify examples of
this occurring in the market, which tends to reduce the credibility of
this concern. Moreover, as discussed above, the Bureau understands that
several larger creditors have already implemented the revised, priced-
based General QM loan definition and announced new products that are
underwritten in accordance with the revised definition.\74\ And as
already noted, the Bureau does not believe this final rule delaying the
mandatory compliance date will meaningfully increase uncertainty in the
market. Even if uncertainty results in some creditors choosing to delay
implementation of the revised, price-based General QM loan definition,
and even if that result could be attributed to the rule, the Bureau is
not aware of any reason to believe that the effect would be large
enough to result in significant limitations on access to responsible,
affordable mortgage credit.
---------------------------------------------------------------------------
\74\ The Bureau does recognize that some creditors have
experienced implementation challenges, as discussed above, from
resource constraints due to the recent forebearance plan and
foreclosure moratoria extensions and the need to find sustainable
post-forebearance alternatives to keep consumers in their homes.
---------------------------------------------------------------------------
Finally, several industry, trade association, and consumer group
commenters requested that the Bureau expand public access to the
National Mortgage Database for market monitoring and research purposes.
The Bureau acknowledges these comments but considers them to be outside
the scope of this final rule.
C. Description of the Baseline
The Bureau considers the benefits, costs, and impacts of the final
rule against the baseline in which the Bureau takes no action and
compliance with the revised General QM loan definition becomes
mandatory on July 1, 2021, when the Temporary GSE QM loan definition
and the original, DTI-based General QM loan definition expire and can
no longer be used by creditors to obtain QM status on new mortgage
loans. Under the final rule, the Temporary GSE QM loan definition and
the original, DTI-based General QM loan definition can continue to be
used until October 1, 2022, the new mandatory compliance date of the
revised General QM loan definition. As a result, the final rule's
direct market impacts will occur only during the period between July 1,
2021 and October 1, 2022. The impact analyses assume the GSEs will
remain in conservatorship for the duration of this period, and,
therefore, that the conservatorship condition in the Temporary GSE QM
loan definition will not trigger its expiration.
Under the baseline, when the Temporary GSE QM loan definition and
the original, DTI-based General QM loan definition expire on July 1,
2021, conventional loans could only receive QM status under the
Bureau's rules by underwriting according to the revised General QM
requirements, Small Creditor QM requirements, Balloon Payment QM
requirements, the expanded portfolio QM amendments created by the 2018
Economic Growth, Regulatory Relief, and Consumer Protection Act,\75\ or
the Seasoned QM definition.\76\ The revised General QM loan definition,
which will be the only type of QM available at origination to all
creditors following the mandatory compliance date, generally requires
loans to be priced less than 2.25 percentage points above APOR.\77\
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\75\ Public Law 115-174, 132 Stat. 1296 (2018).
\76\ Other than the mandatory compliance date delay implemented
by this final rule, the Bureau's analysis assumes an otherwise
identical market and policy environment under both the baseline and
the final rule. As such, estimates under both the baseline and final
rule assume the same effects of any separate policy proposals,
including the Bureau's pending proposal to amend certain provisions
of Regulation X to assist borrowers affected by the COVID-19
pandemic, which was published in the Federal Register on April 9,
2021. The Bureau notes in this respect that it expects any
interactions of the pending proposal and this final rule to be both
difficult to quantify and very limited relative to the direct
effects of this final rule.
\77\ The comparable thresholds are 6.5 percentage points over
APOR for loans priced under $66,156, 3.5 percentage points over APOR
for loans priced under $110,260 but at or above $66,156, and 6.5
percentage points over APOR for loans for manufactured housing
priced under $110,260. 12 CFR 1026.43(e)(2)(vi)(A) through (D).
---------------------------------------------------------------------------
The Bureau anticipates that when the mandatory compliance date is
reached, the main loans affected will be those priced 2.25 percentage
points or higher above APOR that are either conventional loans with DTI
ratios at or below 43 percent (Under-43-Percent-DTI conventional loans)
or GSE-eligible loans. Retaining the July 1, 2021 mandatory compliance
date would have affected these loans because they are currently
originated as QM loans due to either the original, DTI-based General QM
loan definition or the Temporary GSE QM loan definition but, absent
changes in pricing, could not be originated as QM loans and may not be
originated at all after the mandatory compliance date.
The Bureau's analysis of the market under the baseline focuses on
loans priced 2.25 percentage points or higher above APOR that are
either Under-43-Percent-DTI conventional loans or GSE-eligible loans
because the Bureau estimates most loans newly obtaining QM status due
to the final rule fall within those categories. A smaller number of
GSE-eligible loans will not fall within the revised General QM loan
definition because they do not satisfy the consider and verify
requirements in the revised General QM loan definition. The Bureau
lacks the loan-level documentation and underwriting data necessary to
estimate with precision the number of GSE-eligible loans that do not
satisfy the consider and verify requirements in the revised General QM
loan definition. These loans are largely restricted to certain
streamlined refinance loans offered by the GSEs, and the Bureau
estimates that in the current market such loans are considerably less
numerous than Under-43-Percent-DTI conventional loans and GSE-eligible
loans priced 2.25 percentage points or higher above APOR.\78\ However,
demand for such loans could increase if housing market conditions
deteriorate.
---------------------------------------------------------------------------
\78\ As of Q4 2020, only 140 loans had been originated through
the GSEs' High-LTV Refinance Option since the inception of the
program. See FHFA Foreclosure Prevention and Refinance Report (Q4
2020), https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/4Q2020FPR.pdf.
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D. Benefits and Costs to Covered Persons and Consumers
1. Benefits to Consumers
The primary benefit to consumers of the final rule is the
availability of conventional QM loans priced 2.25 percentage points or
higher above APOR--including both Under-43-Percent-DTI conventional
loans and GSE-eligible loans--during the period from July 1, 2021 to
October 1, 2022. The Bureau uses HMDA data to estimate the number of
loans that would not have been QM under the baseline, but would have
been QM under the final rule due to their eligibility for either the
original,
[[Page 22858]]
DTI-based General QM loan definition or the Temporary GSE QM loan
definition.\79\ Relative to the baseline, the Bureau estimates that
between July 1, 2021 and October 1, 2022, approximately 33,000
additional consumers will obtain conventional QM loans priced 2.25
percentage points or higher above APOR under the final rule due to the
availability of the original, DTI-based General QM loan definition and
the Temporary GSE QM loan definition.\80\ While many of these consumers
may have obtained mortgages of some kind under the baseline, the
largest benefits to consumers accrue to the consumers who will obtain a
conventional QM loan under the final rule but would not have obtained a
mortgage under the baseline.
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\79\ Specifically, among HMDA loans originated in 2018, the
Bureau estimates that approximately 2,200 loans per month would have
been QM under the original, DTI-based General QM loan definition or
the Temporary GSE QM loan definition due to DTI ratios at or below
43 percent or purchase by a GSE, but would not have been QM under
the revised, price-based General QM loan definition due to rate
spreads over APOR exceeding the applicable price thresholds.
Multiplying this estimate by the 15-month length of the mandatory
compliance date delay yields the Bureau's total estimate of 33,000.
\80\ This estimate assumes that the GSEs continue to originate
loans priced 2.25 percentage points or higher above APOR between
July 1, 2021 and October 1, 2022. If the GSEs do not originate loans
above the General QM Final Rule's pricing thresholds during this
period, the Bureau estimates that approximately 28,000 additional
consumers would obtain conventional QM loans priced 2.25 percentage
points or higher above APOR under the proposal. This estimate
reflects possible impacts of the rule if the GSE PSPAs prevent the
GSEs from purchasing loans above the pricing thresholds established
in the General QM Final Rule.
---------------------------------------------------------------------------
Under the baseline, some of these 33,000 consumers may have been
able to obtain General QM loans priced below 2.25 percentage points
over APOR due to creditor responses to the revised General QM loan
definition or obtained QM loans under the Small Creditor QM definition.
Others may instead have obtained FHA loans, likely paying higher total
loan costs as discussed in the General QM Final Rule. Finally, a
portion of these consumers may have obtained non-QM loans under the
baseline, but the Bureau expects some consumers may not have been able
to obtain a mortgage at all.
2. Benefits to Covered Persons
The final rule's primary benefit to covered persons, specifically
mortgage creditors, is the continued profits from originating QM loans
priced 2.25 percentage points or higher above APOR, particularly Under-
43-Percent-DTI conventional loans and GSE-eligible loans. For the
estimated 33,000 additional conventional QM loans priced 2.25
percentage points or higher above APOR under the final rule, the Bureau
estimates an average loan size of $190,000 and thus a total loan volume
of $6.3 billion. Under the baseline, after July 1, 2021, creditors
would have been unable to originate such loans under the original, DTI-
based General QM loan definition or the Temporary GSE QM loan
definition and would instead have had to originate such loans as FHA,
Small Creditor QM, or non-QM loans, or originate at a price at or below
2.25 percentage points over APOR as General QM loans. Creditors'
current preference for originating QM loans priced 2.25 percentage
points or more over APOR likely reflects advantages in a combination of
costs or guarantee fees (particularly relative to FHA loans), liquidity
(particularly relative to Small Creditor QM), or litigation and credit
risk (particularly relative to non-QM). Moreover, QM loans are exempt
from the Dodd-Frank Act risk retention requirement whereby creditors
that securitize mortgage loans are required to retain at least 5
percent of the credit risk of the security, which adds significant
cost. As a result, the final rule conveys benefits to mortgage
creditors originating General QM and Temporary GSE QM loans on each of
these dimensions.
Given creditors' preference for originating QM loans, the final
rule may allow lenders to avoid price reductions on some loans that
would have been necessary to satisfy the revised General QM loan
definition under the baseline. This will increase revenue for creditors
on such loans originated during the July 1, 2021 to October 1, 2022
period.
3. Costs to Consumers
For the duration of the July 1, 2021 to October 1, 2022 period,
creditors that would have reduced prices on some loans to satisfy the
revised General QM loan definition under the baseline may delay
reducing loan prices under the final rule. This is likely to occur for
some uncertain fraction of the estimated 33,000 additional conventional
loans within the original, DTI-based General QM loan definition and the
Temporary GSE QM loan definition. Consumers obtaining such loans will
pay higher prices for these conventional QM loans relative to the
baseline.
In addition, consumers who would have obtained non-QM loans under
the baseline but instead obtain QM loans under the final rule forgo the
benefit of retaining the ATR causes of action and defenses against
foreclosure.
4. Costs to Covered Persons
The final rule will involve minimal costs to covered persons. The
most sizable potential costs to covered persons are effectively
transfers between creditors for the duration of the mandatory
compliance date delay, reflecting temporarily reduced loan origination
volume for creditors that primarily originate FHA or Under-43-Percent-
DTI non-QM loans and temporarily increased origination volume for
lenders who primarily originate Under-43-Percent-DTI conventional loans
priced 2.25 percentage points or more over APOR.
5. Other Benefits and Costs
In delaying the expiration of the original, DTI-based General QM
loan definition and the Temporary GSE QM loan definition, the final
rule will delay any effects of the expiration on the development of the
secondary market for private (non-GSE) mortgage loan securities. When
the Temporary GSE QM loan definition expires, those loans that do not
fit within the revised General QM loan definition represent a potential
new market for private securitizations. Thus, the final rule will
slightly reduce the scope of the potential non-QM market for the
duration of the mandatory compliance date delay, likely lowering
profits and revenues for participants in the private secondary market.
This will effectively be a transfer from these private secondary market
participants to participants in the agency secondary market.
E. Specific Impacts of the Final Rule
1. Impact on Depository Institutions and Credit Unions With $10 Billion
or Less in Total Assets, as Described in Section 1026
The final rule's expected impact on depository institutions and
credit unions that are also creditors making covered loans (depository
creditors) with $10 billion or less in total assets is similar to the
expected impact on larger creditors and non-depository creditors. Those
smaller creditors originating portfolio loans can originate Small
Creditor QM loans priced 2.25 percentage points or higher above APOR,
and thus may rely less on the original, DTI-based General QM loan
definition and the Temporary GSE QM loan definition for originating
such loans. If the General QM Final Rule's mandatory compliance date
will confer a competitive advantage to these small creditors in their
origination of loans priced 2.25 percentage points or higher
[[Page 22859]]
above APOR, the final rule will delay this outcome.
2. Impact of the Proposed Provisions on Consumers in Rural Areas
The final rule's expected impact on consumers in rural areas is
similar or slightly larger than the expected impact on non-rural areas.
Based on 2018 HMDA data, the Bureau estimates that loans priced 2.25
percentage points or higher above APOR that are either Under-43-
Percent-DTI conventional loans or GSE-eligible loans reflect a slightly
larger share of the conventional loan market in rural areas (0.8
percent) relative to non-rural areas (0.6 percent).\81\
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\81\ These statistics are estimated based on originations from
the first nine months of the year, to allow time for loans to be
sold before HMDA reporting deadlines.
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VI. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA),\82\ as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996,\83\ requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations. The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration pursuant to the Small Business Act.\84\
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\82\ 5 U.S.C. 601 et seq.
\83\ Public Law 104-121, tit. II, 110 Stat. 857 (1996).
\84\ 5 U.S.C. 601(3) (the Bureau may establish an alternative
definition after consultation with the Small Business Administration
and an opportunity for public comment).
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The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule
would not have a significant economic impact on a substantial number of
small entities.\85\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\86\
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\85\ 5 U.S.C. 603 through 605.
\86\ 5 U.S.C. 609.
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In the proposal, the Bureau certified that an IRFA was not required
because the proposal, if adopted, would not have a significant economic
impact on a substantial number of small entities. The Bureau did not
receive comments on its analysis of the impact of the proposal on small
entities. The Bureau does not expect the final rule to impose costs on
small entities relative to the baseline. Under the baseline, on July 1,
2021, the Temporary GSE QM loan definition and the original, DTI-based
General QM loan definition expire, and therefore no creditor--including
small entities--would have been able to originate QM loans under either
definition after that date. Under the final rule, small entities that
would otherwise not have been able to originate QM loans under these
definitions will be able to originate such loans with QM status until
October 1, 2022. Thus, the Bureau anticipates that the final rule will
only reduce burden on small entities relative to the baseline.
Accordingly, the Acting Director certifies that this final rule
will not have a significant economic impact on a substantial number of
small entities.
VII. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\87\ Federal
agencies are generally required to seek, prior to implementation,
approval from the Office of Management and Budget (OMB) for information
collection requirements. Under the PRA, the Bureau may not conduct or
sponsor, and, notwithstanding any other provision of law, a person is
not required to respond to, an information collection unless the
information collection displays a valid control number assigned by OMB.
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\87\ 44 U.S.C. 3501 et seq.
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The final rule will amend 12 CFR part 1026 (Regulation Z), which
implements TILA. OMB control number 3170-0015 is the Bureau's OMB
control number for Regulation Z. The Bureau has determined that this
final rule does not contain any new or substantively revised
information collection requirements other than those previously
approved by OMB under that OMB control number 3170-0015.
VIII. Congressional Review Act
Pursuant to the Congressional Review Act,\88\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States at least 60 days prior to the rule's
published effective date. The Office of Information and Regulatory
Affairs has designated this rule as a ``major rule'' as defined by 5
U.S.C. 804(2).
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\88\ 5 U.S.C. 801 et seq.
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IX. Signing Authority
The Acting Director of the Bureau, David Uejio, having reviewed and
approved this document, is delegating the authority to electronically
sign this document to Laura Galban, a Bureau Federal Register Liaison,
for purposes of publication in the Federal Register.
List of Subjects in 12 CFR Part 1026
Advertising, Banks, banking, Consumer protection, Credit, Credit
unions, Mortgages, National banks, Reporting and recordkeeping
requirements, Savings associations, Truth-in-lending.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends
Regulation Z, 12 CFR part 1026, as set forth below:
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353,
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
0
2. In supplement I to part 1026:
0
a. Under Section 1026.43--Minimum Standards for Transactions Secured by
a Dwelling, revise introductory paragraph 2;
0
b. Under section 43(e)(2) Qualified mortgage defined--general, add
paragraph 1; and
0
c. Revise section 43(e)(4) Qualified mortgage defined--other agencies.
The revisions and addition read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Section 1026.43--Minimum Standards for Transactions Secured by a
Dwelling
* * * * *
2. General QM Amendments Effective on March 1, 2021. The
Bureau's revisions to Regulation Z contained in Qualified Mortgage
Definition Under the Truth in Lending Act (Regulation Z): General QM
Loan Definition published on December 29, 2020 (2021 General QM
Amendments) apply with respect to transactions for which a creditor
received an application on or after March 1, 2021 (effective date).
Compliance with the 2021 General QM Amendments is mandatory with
respect to transactions for which a creditor received an application
on or after October 1, 2022 (mandatory compliance date). For a given
transaction for which a creditor received an application on or after
March 1, 2021 but prior to October 1, 2022, a person has the option
of complying either: With 12 CFR part 1026 as it is in effect; or
with 12 CFR part 1026 as it was in effect on February 26, 2021,
together with any amendments to 12 CFR part 1026 that become
effective after February 26, 2021, other than the 2021 General QM
Amendments. For transactions subject to
[[Page 22860]]
Sec. 1026.19(e), (f), or (g), creditors determine the date the
creditor received the consumer's application, for purposes of this
comment, in accordance with Sec. 1026.2(a)(3)(ii). For transactions
that are not subject to Sec. 1026.19(e), (f), or (g), creditors can
determine the date the creditor received the consumer's application,
for purposes of this comment, in accordance with either Sec.
1026.2(a)(3)(i) or (ii).
* * * * *
43(e)(2) Qualified mortgage defined--general.
1. General QM Amendments Effective on March 1, 2021. Comment 43-
2 provides that, for a transaction for which a creditor received an
application on or after March 1, 2021 but prior to October 1, 2022,
a person has the option of complying either: With 12 CFR part 1026
as it is in effect; or with 12 CFR part 1026 as it was in effect on
February 26, 2021, together with any amendments to 12 CFR part 1026
that become effective after February 26, 2021, other than the
revisions to Regulation Z contained in Qualified Mortgage Definition
Under the Truth in Lending Act (Regulation Z): General QM Loan
Definition published on December 29, 2020 (2021 General QM
Amendments). Prior to the effective date of the 2021 General QM
Amendments, Sec. 1026.43(e)(2) provided a qualified mortgage
definition that, among other things, required that the ratio of the
consumer's total monthly debt to total monthly income at the time of
consummation not exceed 43 percent. The 2021 General QM Amendments
removed that requirement and replaced it with the annual percentage
rate thresholds in Sec. 1026.43(e)(2)(vi), among other revisions.
Both the qualified mortgage definition in Sec. 1026.43(e)(2) that
was in effect prior to the 2021 General QM Amendments and the
qualified mortgage definition in Sec. 1026.43(e)(2) as amended by
the 2021 General QM Amendments are available to creditors for
transactions for which a creditor received an application on or
after March 1, 2021 but prior to October 1, 2022. See comment 43-2
for an explanation of how creditors determine the date the creditor
received the consumer's application for purposes of that comment.
* * * * *
43(e)(4) Qualified mortgage defined--other agencies.
1. General. The Department of Housing and Urban Development,
Department of Veterans Affairs, and the Department of Agriculture
have promulgated definitions for qualified mortgages under mortgage
programs they insure, guarantee, or provide under applicable law.
Cross-references to those definitions are listed in Sec.
1026.43(e)(4) to acknowledge the covered transactions covered by
those definitions are qualified mortgages for purposes of this
section.
2. Mortgages for which the creditor received the consumer's
application prior to October 1, 2022. Covered transactions that met
the requirements of Sec. 1026.43(e)(2)(i) through (iii), were
eligible for purchase or guarantee by the Federal National Mortgage
Association (Fannie Mae) or the Federal Home Loan Mortgage
Corporation (Freddie Mac) (or any limited-life regulatory entity
succeeding the charter of either) operating under the
conservatorship or receivership of the Federal Housing Finance
Agency pursuant to section 1367 of the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617), and for
which the creditor received the consumer's application prior to the
mandatory compliance date of October 1, 2022, continue to be
qualified mortgages for the purposes of this section, including
those covered transactions that were consummated on or after October
1, 2022.
3. Mortgages for which the creditor received the consumer's
application on or after March 1, 2021 but prior to October 1, 2022.
For a discussion of the optional early compliance period for the
2021 General QM Amendments, please see comment 43-2.
4. [Reserved].
5. [Reserved].
* * * * *
Dated: April 26, 2021.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2021-09028 Filed 4-29-21; 8:45 am]
BILLING CODE 4810-AM-P