The CFPB issued today, June 22, 2020, two Notices of Proposed Rulemaking (“NPRM”) to deal with the expiration of the “GSE Patch” under the ATR/QM rule, which is set to “sunset” on January 10, 2021. As with all proposals on such complex issues, the devil is in the details, but I am providing a quick, general overview in this post.
The CFPB proposed in the first of the two NPRMs to amend the definition of a General QM under the ATR/QM rule to move away from the current 43% debt-to-income ratio (“DTI”) threshold towards a price-based approach. In the second NPRM, the Bureau proposed to extend the sunset date of the GSE Patch to the effective date of the final amendments to the General QM definition. The comment periods for the NPRM regarding the General QM definition and the second NPRM to extend the sunset of the GSE Patch end 60 days and 30 days after publication in the Federal Register, respectively.
The proposal would amend the General QM definition to remove the 43% DTI threshold and replace it with a price-based threshold based on a comparison of the annual percentage rate (“APR”) to the average prime offer rate (“APOR”). The proposal has different thresholds for first lien and subordinate lien loans of different amounts, but generally the threshold for first lien loans of $109,898 or greater (indexed to the CPI for inflation), is that the APR may not exceed APOR by 2% or more. The proposal would remove Appendix Q. The proposal also would leave intact the safe harbor/rebuttable presumption thresholds of 1.5% and 3.5% for first lien and subordinate lien loans, respectively. The proposal would include a special rule for calculating the APR for this purpose for loans in which the APR can adjust in the first five years. The CFPB stated that it is proposing this price-based approach because it is a “strong indicator of a consumer’s ability to repay and is a more holistic and flexible measure of a consumer’s ability to repay than DTI alone.”
Regarding the effective date for these rulemakings, the CFPB proposed an effective date for the General QM amendments of 6 months after publication of the final amendments in the Federal Register (based on the date of receipt of an application). It also proposed, as noted above, to extend the sunset date for the GSE Patch until the General QM amendments are effective. The CFPB said it “tentatively determines that a six-month period between Federal Register publication of a final rule and the final rule’s effective date would give creditors enough time to bring their systems into compliance with the revised regulations.” It also said that it does not intend to issue a final rule amending the General QM definition early enough for it to take effect before April 1, 2021. The CFPB specifically seeks comment on its proposed effective date, “including whether there is a day of the week or time of month that would most facilitate implementation.”
The CFPB’s press release and the proposals are available here: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-steps-address-gse-patch/. The proposals follow up on the CFPB’s prior Advanced Notice of Proposed Rulemaking issued in July of last year, which I wrote about here.