CFPB officially proposes delay of QM changes

The Consumer Financial Protection Bureau made official the agency's plans to delay the compliance deadline for changes to its main mortgage underwriting rule.

Acting CFPB Director Dave Uejio on Wednesday issued a notice of proposed rulemaking extending the compliance date from July to October 2022 for changes to the Qualified Mortgage rule. The CFPB said the delay, which the agency first announced last week, was needed “to ensure homeowners struggling with the financial impacts of the COVID-19 pandemic have the options they need.”

The original QM rule requires loans to maintain a debt-to-income ratio of no more than 43%, though mortgages backed by Fannie Mae and Freddie Mac are exempt under a temporary 2014 provision.

That exemption is slated to go away whenever the CFPB implements the overhaul that was finalized by then-Director Kathy Kraninger in December. The changes, which were set to take effect in July, include replacing the DTI limit with a standard based on the loan's price, and subjecting Fannie and Freddie to the same framework as other companies.

The QM rule was created after the 2008 financial crisis to define certain loans as ultrasafe and therefore protected from legal liability.

Uejio's proposal means the status quo in the mortgage market, with Fannie and Freddie authorized to back loans with higher DTIs, would be extended. He suggested the delay is meant to better enable the government-sponsored enterprises to help borrowers keep their homes. Yet some observers expect the delay is just a precursor to the Democratic-led CFPB's unwinding of Kraninger's changes.

“At a time when so many consumers are struggling and at risk of losing ground, particularly Black and Hispanic consumers, we need to do all we can to help people stay in their homes and to ensure the availability of responsible, affordable mortgages,” Uejio said in a press release. “In proposing to extend the date by which lenders must comply with the CFPB’s new General QM definition, we are working to provide needed options for both homeowners and lenders during a time of uncertainty and hardship.”

Kraninger's revamp replaced the 43% DTI ratio with a price-based threshold that would have been measured by comparing a loan’s annual percentage rate against the average prime offer rate for a comparable transaction.

A loan would meet the QM definition only if the APR is no more than 2 percentage points higher than the average prime offer rate.