Alston & Bird Consumer Finance Blog

QM Patch

CFPB Issues Its Fall 2019 Rulemaking Agenda

A&B Abstract:

On November 20, 2019, the Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) published its Fall 2019 Rulemaking Agenda (the “Rulemaking Agenda”) as part of the Fall 2019 Unified Agenda of Federal Regulatory and Deregulatory Actions. The Rulemaking Agenda sets forth the matters that the Bureau reasonably anticipates having under consideration during the period from October 1, 2019 to September 30, 2020.  The Rulemaking Agenda is the first Unified Agenda prepared by the CFPB since Director Kraninger embarked on her “listening tour” shortly after taking office in December 2018. Below we highlight some of the key agenda items discussed in the Rulemaking Agenda.

Implementing Statutory Directives

In the Rulemaking Agenda, the Bureau indicates that it is engaged in a number of rulemakings to implement directives mandated in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), the Dodd-Frank Act and other statutes.  For example:

Truth in Lending Act

In March 2019, the Bureau published an Advanced Notice of Proposed Rulemaking (“ANPR”) seeking public comment relating to the implementation of section 307 of the EGRRCPA, which amends the Truth in Lending Act (“TILA”) to mandate that the Bureau prescribe certain regulations relating to “Property Assessed Clean Energy” (“PACE”) financing.  The Bureau indicated that it is reviewing the comments it has received in response to the ANPR as it considers next steps to facilitate the development of a Notice of Proposed Rulemaking (“NPRM”).

TRID Rule Guidance

The Bureau has also been engaged in several other activities to support its rulemaking to implement the EGRRCPA.  For example, the Bureau noted that it has (i) updated its small entity compliance guides and other compliance aids to reflect the EGRRCPA’s statutory changes; and (ii) issued written guidance as encouraged by section 109 of the EGRRCPA, which provides that the Bureau “should endeavor to provide clearer, authoritative guidance” on the CFPB’s TILA/RESPA Integrated Disclosure rule.

Implementation of Section 1071 of Dodd-Frank

Additionally, the Bureau is undertaking certain activities to facilitate its mandate to prescribe rules implementing Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses.  For example, on November 6, 2019, the Bureau hosted a symposium on small business data collection in order to facilitate a discussion with outside experts on the issues implicated by creating such a data collection and reporting regime.

We have previously issued an advisory in which we discuss the key mortgage servicing takeaways from the EGRRCPA.

Continuation of the CFPB’s Spring 2019 Rulemaking Agenda

The Rulemaking Agenda notes that the Bureau will continue with certain other rulemakings that were described in its Spring 2019 Agenda that are intended to “articulate clear rules of the road for regulated entities that promote competition, increase transparency, and preserve fair markets for financial products and services.”  Such rulemakings include:

HMDA and Regulation C

In May 2019, the Bureau issued a NPRM to (i) reconsider the thresholds for reporting data about closed-end mortgage loans and open-end lines of credit under the Bureau’s 2015 Home Mortgage Disclosure Act (“HMDA”) Rule and to incorporate into Regulation C an interpretive and procedural rule that the Bureau issued in August 2018 in order to implement certain partial HMDA exemptions created by the EGRRCPA.  In summer 2020, the Bureau is expecting to issue an NPRM to follow-up on an ANPR issued in May 2019 related to data points and coverage of certain business- or commercial-purpose loans.  The Bureau also anticipates issuing a NPRM addressing the public disclosure of HMDA data in light of consumer privacy interests to allow the Bureau to concurrently consider the collection and reporting of data points and the public disclosure of those data points.

Proposed Regulation F

In May 2019, the Bureau issued a NPRM which would, for the first time, prescribe substantive rules under Regulation F, which implements the Fair Debt Collection Practices Act, to govern the activities of debt collectors (the “Proposed Rule”). The Proposed Rule would address several issues related to debt collection, such as (i) addressing communications in connection with debt collection; (ii) interpreting and applying prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection; and (iii) clarifying requirements for certain consumer-facing debt collection disclosures.  The Bureau noted that it is also engaged in testing of consumer disclosures relating to time time-barred debt disclosure issues that were not part of the Proposed Rule.  The results of the CFPB’s testing will inform the Bureau’s assessment of whether to issue a supplemental NPRM seeking comments on any disclosure proposals related to the collection of time-barred debt.

We previously published a five-part blog series in which we discussed the provisions of the Proposed Rule that are under consideration. We will continue to monitor and report on any developments related to the Proposed Rule.

Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Rule”)

The Bureau is expecting to take final action in April 2020 on the NPRM issued in February 2019 related to the reconsideration of the mandatory underwriting requirements of the 2017 Payday Rule.  That said, we note that the U.S. District Court for the Western District of Texas has stayed the Payday Rule’s August 19, 2019 compliance date. The parties before the court have a status hearing on December 6, 2019 which could affect the stay and the effective date of the Payday Rule.

Remittance Rule

In addition, the Rulemaking Agenda notes that the Bureau is planning to issue a proposal this year to amend the CFPB’s Remittance Rule to address the effects of the expiration in July 2020 of the Rule’s temporary exception allowing institutions to estimate fees and exchange rates in certain circumstances.

New Rulemakings and Review of Existing Regulations

Expiration of the “GSE Patch”

In January 2019, the Bureau completed an assessment of certain rules that require mortgage lenders to make a reasonable and good faith determination that consumers have a reasonable ability to repay certain mortgage loans and that define certain “qualified mortgages” that a lender may presume comply with the statutory ability-to-repay requirement. The “GSE Patch” is set to expire in January 2021, meaning that loans eligible to be purchased or guaranteed by GSEs that are originated after that date would not be eligible for qualified mortgage status under its criteria. In July 2019, the Bureau issued an ANPR to amend Regulation Z, regarding the scheduled expiration of the GSE Patch, and is currently reviewing the comments it received since the comment period closed on September 2019.

As noted in a previous blog post, the CFPB announced in its ANPR, that the Bureau does not intend to extend the GSE patch permanently. It will be interesting to see whether the Bureau will allow the patch to expire in January 2021 as planned of if the Bureau will use this as an opportunity to possibly extend the expiration date.

Addition of New Regulatory Agenda Items

In response to feedback received in response to the Bureau’s 2018 Call for Evidence and other outreach efforts, the Bureau is adding two new items to its long-term regulatory agenda to address concerns related to (i) loan originator compensation; and (ii) the use of electronic channels of communication in the origination and servicing of credit card accounts.

Review of Existing Regulations

The Rulemaking Agenda also highlights the Bureau’s active review of existing regulations.  For example, the CFPB will be assessing its so-called TRID Rule pursuant to Section 1022(d) of the Dodd-Frank Act, which requires the CFPB to publish a report assessing the effectiveness of each “significant rule or order” within five years of it taking effect.  The Bureau must issue a report with the results of its assessment by October 2020.

The Rulemaking Agenda further notes that, in 2020, the Bureau expects to conduct a 610 RFA review of the Regulation Z rules that implemented the Credit Card Accountability Responsibility and Disclosure Act of 2009.  Section 610 of the RFA requires federal agencies to review each rule that has or will have a significant economic impact on a substantial number of small entities within 10 years of publication of the final rule.


The Bureau’s Rulemaking Agenda gives industry an advanced look at what to expect from the CFPB in the coming months. We expect the Bureau to be active in working through their agenda and will provide further updates as they become available.

* We would like to thank Associate, David McGee, for his contributions to this blog post.

QM Patch Update: CFPB Proposes to Let Patch Expire

A&B Abstract

The CFPB has issued an Advance Notice of Proposed Rulemaking regarding the fate of the “QM Patch,” indicating that it will not extend the “QM Patch” permanently.

Advanced Notice of Proposed Rulemaking

In a surprise development, on July 25, 2019, the Consumer Financial Protection Bureau (“CFPB”) issued an advance notice of proposed rulemaking (“ANPR”) seeking public comment regarding the fate of the “QM Patch,” which is scheduled to expire no later than January 10, 2021.   The comment period is short, reflecting the urgency of promulgating a final rulemaking before the impeding “QM Patch” termination.  Comments must be received by the CFPB within 45 days after publication of the ANPR in the Federal Register.


The CFPB created the “QM Patch” as a temporary provision of the qualified mortgage (“QM”)/ability-to-repay (“ATR”) regulations adopted pursuant to the Dodd-Frank Act.  It exempts lenders from having to underwrite loans with debt-to-income (“DTI”) ratios not exceeding 43% in accordance with the exacting standards of Appendix Q to Regulation Z if the loans otherwise meet the definition of a QM and are eligible for purchase by, among others, Fannie Mae and Freddie Mac.

The CFPB’s Proposal

In seeking public comment in the ANPR, however, the CFPB announced that it does not intend to extend the “QM Patch” permanently.  This shocking pronouncement has potentially profound ramifications for the residential mortgage lending markets.  A substantial proportion of the markets have relied extensively on the “QM Patch” in underwriting qualified mortgages, not to mention significantly reducing the role of the GSEs in these markets.  For years, GSE critics have complained about Fannie Mae’s and Freddie Mac’s dominance of the residential lending markets.  Yet the January 2021 “QM Patch” expiration would raise critical questions:  Will the private markets be able to absorb the GSE’s large share of qualified mortgage lending?  If not, what are the possible detrimental impacts on consumers, especially those in distressed communities?

Other QM Changes?

In the ANPR, the CFPB indicates that it may make other significant changes to the qualified mortgage regulations, based in part on the public comments it receives.  For example, the CFPB is considering whether the general QM definition should retain a direct measure of a consumer’s personal finances, such as DTI or residual income and how that measure should be structured. The CFPB is also seeking comment on whether the definition should: (1) include an alternative method for assessing financial capacity, or (2) be limited to the express statutory criteria.  Under one approach that seems to be attracting the CFPB’s interest, bright-line pricing delineation would replace the DTI criteria altogether.   Under such an approach, loans with APRs exceeding the average prime offer rate by certain thresholds would be deemed rebuttable presumption QM loans or non-QM loans, as the case may be.  Loans not exceeding certain thresholds would receive safe harbor QM status.   Under such a bright line pricing delineation method, the loans would have to comply with other statutory criteria in order to retain QM status.


The 45-day deadline for comments seems rushed, especially considering the dramatic effect that changes to the qualified mortgage rules could have on the residential mortgage finance and housing markets.  Further, in an ideal world, the CFPB should be considering amendments of the qualified mortgage/ability-to-repay rules in tandem with the federal high cost mortgage, the residential mortgage risk retention, and the loan originator compensation rules as a holistic approach rather than in isolation.

The Fate of the QM Patch

A&B Abstract:

With the January 2021 expiration of the so-called “QM Patch” looming, what courses of action are available to the CFPB?


One of the most vexing issues currently facing the Consumer Financial Protection Bureau (“CFPB”) is the fate of the so-called “QM Patch”.  The CFPB’s ability-to-repay/qualified mortgage regulations promulgated pursuant to the Dodd-Frank Act require creditors to make a reasonable, good-faith determination at or before consummation that a consumer will have a reasonable ability to repay the loan according to its terms.  (The obligation applies to a consumer credit transaction secured by a dwelling.)

The regulations provide:

  • a “safe harbor” for compliance with the ability-to-repay rules to creditors or assignees of loans that satisfy the definition of a qualified mortgage and are not higher-priced mortgage loans; and
  • a “rebuttable presumption” of compliance with the ability-to-repay rules to creditors or assignees for higher-priced mortgage loans.

A “higher-priced mortgage loan” has an APR exceeding the average prime offer rate by 1.5 or more percentage points for first-lien loans, or by 3.5 or more percentage points for subordinate-lien loans.

What is the QM Patch?

In many instances, in order for a loan to achieve QM status, it must be underwritten in accordance with exacting standards of Appendix Q.  However, the CFPB regulations eliminate this particular requirement if the loan is eligible for purchase by, among others, Fannie Mae and Freddie Mac.  Consequently, a loan satisfies the QM Patch if it can be sold to one of the GSEs, and meets certain other QM criteria.  (Such criteria include that the points do not exceed the three percent threshold, and the loan is fully amortizing and doesn’t have a term exceeding 30 years.)

The QM Patch has significantly enhanced the presence of the GSEs in the QM market, as the GSEs are in effect backstopping the underwriting of these loans.   The regulations scheduled this exemption to expire upon the earlier of the termination of the conservatorship of the particular GSEs or January 10, 2021.  What the rule did not anticipate is that the conservatorship of the GSEs would continue years after the effective date of the CFPB regulations.  With no conservatorship termination in sight, the January 2021 QM Patch expiration looms large.  Indeed, the CFPB must act soon to enable the market to adjust to any significant departures from the current arrangement.

How Might the CFPB Address the QM Patch’s Pending Expiration?

The CFPB has a number of options at its disposal.  First, it could opt to extend the current QM Patch.  Logistically, this may be the path of least resistance.  However, to GSE critics who want to shrink the government mortgage footprint, this option is unpalatable. These critics believe that the QM Patch impact is too substantial and that the GSE backstop crowds out the private sector.  The open question is whether the private sector could realistically absorb the market share currently held by the GSEs through the current QM Patch.

Second, the CFPB could eliminate both the QM Patch and Appendix Q and create a level playing field for the QM market.  This approach would retain most of the ATR/QM product eligibility features and a bright line delineation between Safe Harbor and Rebuttable Presumption QM loans based upon the APR.  This option would eliminate the current debt-to-income ratio requirements, but ensure that only the most low risk loans be accorded the Safe Harbor QM designation.

Third, the CFPB could eliminate the QM Patch and Appendix Q and permit lenders to underwrite loans to an established underwriting guide such as the FHA.  The challenge for this approach is identifying a benchmark that is acceptable to a wide range of the market.

Other options at the CFPB’s disposal include: (1) allowing the lender to underwrite using its own approved and validated underwriting model (while retaining the other components of the ATR/QM criteria, including the Safe Harbor/Rebuttable Presumption bright line tests; and (2)  appointing industry stakeholders to create a de novo AUS that everyone would ultimately use.


With the January 2021 deadline looming, the CFPB needs to act soon to enable markets to adjust to the QM Patch replacement.