In a statement issued on February 23, 2021, the Consumer Financial Protection Bureau (“CFPB”) indicated that it intends to delay the General Qualified Mortgage (“QM”) rule’s mandatory July 1 2021 compliance date, and may amend or revoke the “Seasoned QM Rule” that was supposed to become effective on March 1, 2021.
As we previously reported in this blog, on December 10, 2020, the CFPB issued two significant rulemakings. In the first rulemaking, known as the General QM Rule, CFPB terminated the “QM Patch” and significantly revised the criteria for what constitutes a qualified mortgage (“QM”) loan. Notably, in this rule, the CFPB replaced the dreaded Appendix Q and strict 43% debt-to-income underwriting threshold with a priced-based QM loan definition. The rule was to take effect on March 1, 2021, with compliance not mandatory until July 1, 2021. The QM Patch will expire on the earlier of (i) July 1, 2021 or (ii) the date that the GSEs exit conservatorship.
In the second rulemaking, known as the “Seasoned QM Rule”, the CFPB issued an innovative final rulemaking that creates a pathway to “safe harbor” Qualified Mortgage (QM) status for performing non-QM and “rebuttable presumption” QM loans that meet certain performance criteria portfolio requirements over a seasoning period of at least 36 months and that satisfy certain product restrictions, points and fees limits, and underwriting requirements prior to consummation. The “Seasoned QM” rule was to become effective with respect to applications received on or after March 1, 2021.
The CFPB’s Intension to Delay Compliance Date of the “QM” Final Rule
In its statement, the CFPB expects to issue a proposed rulemaking that would delay the July 1, 2021 mandatory compliance date of the General QM Rule ostensibly to “ensure consumers have the options they need during the pandemic … as well as to provide maximum flexibility to the market”. The impact of this rulemaking is significant because, if implemented, lenders will have the option of originating QM loans under the new General QM Rule standards or alternatively, adhering to the preexisting QM rules, that require, among other things, that the loans be underwritten to Appendix Q with a hard 43% debt-to-income ratio or be eligible for sale to Fannie Mae or Freddie Mac.
Notably, the CFPB anticipates that the “QM Patch” will remain in effect until the new mandatory compliance date—unless the GSEs exist conservatorship prior to that date.
Further, the CFPB indicated that at a later date, it may initiate another rulemaking to “reconsider other aspects of the General QM Final Rule”.
The CFPB Will Amend or Reject the “Seasoned QM” Rule
In its statement, the CFPB ominously noted that it may initiate a new rulemaking to “revisit” the Seasoned QM Rule. The CFPB indicated that if promulgated, this rulemaking would consider whether “any potential final rule revoking or amending the Seasoned QM Final Rule should affect covered transactions for which an application was received during the period from March 1, 2021, until the effective date of such a final rule”.
The CFPB issued the General QM Rule and the Seasoned QM Rule in the waning days of the Trump Administration, and the Biden CFPB clearly wants to reexamine these rulemakings. While it is likely that in the short-term, the General QM Rule will be implemented as enacted, albeit with a delayed mandatory compliance date, it is possible that the CFPB could ultimately amend the rule at a later date. It is also noteworthy that the impact of this delay will be an extension of the controversial “QM Patch”.
By contrast, the CFPB is likely to substantively amend the Seasoned QM Rule or jettison the rulemaking altogether. In the comments to the final Seasoned QM Rule, consumer groups opposed not only significant aspects of the rule but also the concept of a “Seasoned QM”. These groups will likely have a sympathetic ear in the Biden CFPB, and hence the rule faces an uncertain fate at best.