Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): General QM Loan Definition; Delay of Mandatory Compliance Date, 12839-12857 [2021-04698]
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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules
estimated production (585,000,000
kernelweight pounds), which equals the
assessment revenue of $14,625,000. The
grower revenue is calculated by
multiplying the grower price of $1,970
per ton ($0.99 per kernelweight pound)
times the estimated production
(585,000,000 kernelweight pounds),
which equals the grower revenue of
$579,150,000. In the final step, dividing
the assessment revenue by the grower
revenue, indicates that, for the 2020–21
marketing year, the estimated
assessment revenue as a percentage of
total grower revenue would be about 2.5
percent.
This proposed rule would decrease
the assessment obligation imposed on
handlers. Assessments are applied
uniformly on all handlers, and some of
the costs may be passed on to growers.
However, decreasing the assessment rate
reduces the burden on handlers and
may also reduce the burden on growers.
The Board’s meeting was widely
publicized throughout the California
walnut industry. All interested persons
were invited to attend the meeting and
participate in Board deliberations on all
issues. Like all Board meetings, the
September 11, 2020, meeting was a
public meeting and all entities, both
large and small, were able to express
views on this issue. Interested persons
are invited to submit comments on this
proposed rule, including the regulatory
and information collection impacts of
this action on small businesses.
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
Chapter 35), the Order’s information
collection requirements have been
previously approved by the OMB and
assigned OMB No. 0581–0178 Vegetable
and Specialty Crops. No changes in
those requirements would be necessary
as a result of this proposed rule. Should
any changes become necessary, they
would be submitted to OMB for
approval.
This proposed rule would not impose
any additional reporting or
recordkeeping requirements on either
small or large California walnut
handlers. As with all Federal marketing
order programs, reports and forms are
periodically reviewed to reduce
information requirements and
duplication by industry and public
sector agencies.
AMS is committed to complying with
the E-Government Act, to promote the
use of the internet and other
information technologies to provide
increased opportunities for citizen
access to Government information and
services, and for other purposes.
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19:49 Mar 04, 2021
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USDA has not identified any relevant
Federal rules that duplicate, overlap, or
conflict with this proposed rule.
A small business guide on complying
with fruit, vegetable, and specialty crop
marketing agreements and orders may
be viewed at: https://
www.ams.usda.gov/rules-regulations/
moa/small-businesses. Any questions
about the compliance guide should be
sent to Richard Lower at the previously
mentioned address in the FOR FURTHER
INFORMATION CONTACT section.
A 30-day comment period is provided
to allow interested persons to respond
to this proposed rule.
List of Subjects in 7 CFR Part 984
Marketing agreements, Reporting and
recordkeeping requirements, and
Walnuts.
For the reasons set forth in the
preamble, 7 CFR part 984 is proposed to
be amended as follows:
PART 984—WALNUTS GROWN IN
CALIFORNIA
1. The authority citation for 7 CFR
part 984 continues to read as follows:
■
Authority: 7 U.S.C. 601–674.
2. Section 984.347 is revised to read
as follows:
■
§ 984.347
Assessment rate.
On and after September 1, 2020, an
assessment rate of $0.0250 per
kernelweight pound is established for
California merchantable walnuts.
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2021–04569 Filed 3–4–21; 8:45 am]
BILLING CODE P
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
Bureau of Consumer Financial
Protection.
ACTION: Proposed rule; request for
comment.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is
proposing to delay the mandatory
compliance date of the final rule titled
SUMMARY:
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Qualified Mortgage Definition under the
Truth in Lending Act (Regulation Z):
General QM Loan Definition (General
QM Final Rule) until October 1, 2022.
Comments must be received on
or before April 5, 2021.
DATES:
You may submit comments,
identified by Docket No. CFPB–2021–
0003 or RIN 3170–AA98, by any of the
following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2021-NPRMQMComplianceDateDelay@cfpb.gov.
Include Docket No. CFPB–2021–0003 or
RIN 3170–AA98 in the subject line of
the message.
• Mail/Hand Delivery/Courier:
Comment Intake—QM Compliance Date
Delay, Bureau of Consumer Financial
Protection, 1700 G Street NW,
Washington, DC 20552.
Instructions: The Bureau encourages
the early submission of comments. All
submissions should include the agency
name and docket number or Regulatory
Information Number (RIN) for this
rulemaking. Because paper mail in the
Washington, DC, area and at the Bureau
is subject to delay, and in light of
difficulties associated with mail and
hand deliveries during the COVID–19
pandemic, commenters are encouraged
to submit comments electronically. In
general, all comments received will be
posted without change to https://
www.regulations.gov. In addition, once
the Bureau’s headquarters reopens,
comments will be available for public
inspection and copying at 1700 G Street
NW, Washington, DC 20552, on official
business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can
make an appointment to inspect the
documents by telephoning 202–435–
7275.
All comments, including attachments
and other supporting materials, will
become part of the public record and
subject to public disclosure. Proprietary
information or sensitive personal
information, such as account numbers
or Social Security numbers, or names of
other individuals, should not be
included. Comments will not be edited
to remove any identifying or contact
information.
ADDRESSES:
Ben
Cady, Mark Morelli, Amanda Quester,
or Priscilla Walton-Fein, Senior
Counsels, Office of Regulations, at 202–
435–7700. If you require this document
in an alternative electronic format,
please contact CFPB_Accessibility@
cfpb.gov.
FOR FURTHER INFORMATION CONTACT:
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SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed 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, its points-and-fees limits,
and its 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. In December 2020, the
Bureau issued the General QM Final
Rule, which amended Regulation Z by
replacing the General QM loan
definition’s DTI limit with a limit based
on loan pricing and making other
changes to the General QM loan
definition.1 The General QM Final Rule
took effect on March 1, 2021, and it
provides a mandatory compliance date
of July 1, 2021. For covered transactions
for which creditors receive an
application on or after the March 1,
2021 effective date and before the July
1, 2021 mandatory compliance date,
creditors have the option of complying
with either the revised General QM loan
definition or the General QM loan
definition in effect prior to March 1,
2021. Only the revised General QM loan
definition is available for applications
received on or after July 1, 2021.
The Bureau is proposing to delay the
mandatory compliance date of the
General QM Final Rule until October 1,
2022. Specifically, the proposal would
amend comments 43–2 and 43(e)(4)–2
and –3 to reflect an extension of the
mandatory compliance date of the
General QM Final Rule by changing the
date ‘‘July 1, 2021’’ where it appears in
those comments to ‘‘October 1, 2022.’’
The proposal would also add 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.
If this proposal is finalized, for
covered transactions for which creditors
receive an application on or after March
1, 2021 and before October 1, 2022,
1 85
FR 86308 (Dec. 29, 2020).
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creditors would have the option of
complying with either the revised
General QM loan definition or the
General QM loan definition in effect
prior to March 1, 2021. Under the
proposal, the revised regulations would
apply to covered transactions for which
creditors receive an application on or
after October 1, 2022.
The ATR/QM Rule also defines a
second, temporary category of QMs for
mortgages that (1) comply with the same
loan-feature prohibitions and pointsand-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 proposed
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.2 Therefore, under the
proposal, the Temporary GSE QM loan
definition would expire upon the earlier
of October 1, 2022 or the date the
applicable GSE exits Federal
conservatorship (rather than on the
current mandatory compliance date of
July 1, 2021 or the date the applicable
GSE exits Federal conservatorship).
As discussed below, the Bureau is
proposing to delay 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, particularly those affected
by the COVID–19 pandemic. This
proposal would not make 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 Final Rule.
The Bureau proposes that a final rule
based on this proposal be effective 60
days after publication in the Federal
Register. The Bureau anticipates that
this would make the final rule effective
2 85
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before the current July 1, 2021
mandatory compliance date.
II. Background
A. Dodd-Frank Act Amendments to the
Truth in Lending Act and the January
2013 Final Rule
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act) 3 amended the Truth in
Lending Act (TILA) 4 to establish,
among other things, ability-to-repay
(ATR) requirements in connection with
the origination of most residential
mortgage loans.5 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.6 TILA identifies the
factors a creditor must consider in
making a reasonable and good faith
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 nonmortgage 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.7
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.8
The statute generally defines a QM to
mean any residential mortgage loan for
which:
• The loan does not have negative
amortization, interest-only payments, or
balloon payments;
• The loan term does not exceed 30
years;
3 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 124 Stat. 1376
(2010).
4 15 U.S.C. 1601 et seq.
5 Dodd-Frank Act sections 1411–12, 1414, 124
Stat. 1376, 2142–49; 15 U.S.C. 1639c.
6 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).
7 15 U.S.C. 1639c(a)(3).
8 15 U.S.C. 1639c(b)(1).
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• 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.9
In January 2013, the Bureau issued a
final rule amending Regulation Z to
implement TILA’s ATR requirements
(January 2013 Final Rule).10 The
January 2013 Final Rule became
effective on January 10, 2014. This
proposal refers to the January 2013 Final
Rule and later amendments 11 to it
collectively as the ATR/QM Rule or the
Rule. The ATR/QM Rule implements
the statutory ATR provisions discussed
above and defines several categories of
QMs, two of which are discussed
below.12
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:
• The loan does not have negativeamortization, interest-only, or balloonpayment features, a term that exceeds 30
years, or points and fees that exceed
specified limits; 13
• The creditor underwrites the loan
based on a fully amortizing schedule
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9 15
U.S.C. 1639c(b)(2)(A).
10 78 FR 6408 (Jan. 30, 2013).
11 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).
12 12 CFR 1026.43(c), (e). The ATR/QM Rule
created several additional categories of QMs. The
first additional category consisted of mortgages
eligible to be insured or guaranteed (as applicable)
by HUD (FHA loans), the U.S. Department of
Veterans Affairs (VA loans), the U.S. Department of
Agriculture (USDA loans), and the Rural Housing
Service (RHS loans). 12 CFR 1026.43(e)(4)(ii)(B)
through (E), as was in effect on February 26, 2021.
This temporary category of QMs no longer exists
because the relevant Federal agencies have since
issued their own QM rules. See, e.g., 24 CFR 203.19
(HUD rule). Other categories of QMs provide more
flexible standards for certain loans originated by
certain small creditors. 12 CFR 1026.43(e)(5), (f); cf.
12 CFR 1026.43(e)(6) (applicable only to covered
transactions for which the application was received
before Apr. 1, 2016).
13 12 CFR 1026.43(e)(2)(i) through (iii).
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using the maximum rate permitted
during the first five years; 14
• The creditor considers and verifies
the consumer’s income and debt
obligations in accordance with
appendix Q; 15 and
• The consumer’s DTI ratio is no
more than 43 percent, determined in
accordance with appendix Q.16
Appendix Q contained standards for
calculating and verifying debt and
income for purposes of determining
whether a mortgage satisfies the 43
percent DTI limit for General QMs. The
standards in appendix Q were adapted
from guidelines maintained by Federal
Housing Administration (FHA) when
the January 2013 Final Rule was
issued.17
A second category of QMs defined by
the January 2013 Final Rule, Temporary
GSE QMs, consisted 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 the 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 As discussed further
below in part II.C.1, the Bureau issued
a final rule in October 2020 extending
the expiration of the Temporary GSE
QM loan definition.21
B. The Bureau’s Assessment of the ATR/
QM Rule, Requests for Information, and
the ANPR
Section 1022(d) of the Dodd-Frank
Act requires the Bureau to assess each
of its significant rules and orders and to
publish a report of each assessment
within five years of the effective date of
14 12
CFR 1026.43(e)(2)(iv).
CFR 1026.43(e)(2)(v), as was in effect on
February 26, 2021.
16 12 CFR 1026.43(e)(2)(vi), as was in effect on
February 26, 2021.
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).
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.
21 85 FR 67938 (Oct. 26, 2020).
15 12
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12841
the rule or order.22 In January 2019, the
Bureau published its ATR/QM Rule
Assessment Report.23 During the period
leading up to and following the issuance
of the Assessment Report, the Bureau
solicited and received substantial public
and stakeholder input on issues related
to the ATR/QM Rule.24
On July 25, 2019, the Bureau issued
an advance notice of proposed
rulemaking regarding the ATR/QM Rule
(ANPR). The ANPR stated the Bureau’s
tentative plans to allow the Temporary
GSE QM loan definition to expire in
January 2021 or after a short extension.
The Bureau also stated that it was
considering whether to propose
revisions to the General QM loan
definition in light of the potential
expiration of the Temporary GSE QM
loan definition and requested comments
on several topics related to the General
QM loan definition.25
C. The Bureau’s 2020 QM Final Rules
In 2020, the Bureau issued three final
rules related to the ATR/QM Rule: The
Patch Extension Final Rule, the General
QM Final Rule, and the Seasoned QM
Final Rule. These final rules are
discussed below.
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, 2020.26 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
22 12
U.S.C. 5512(d).
generally 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_assessmentreport.pdf (Assessment Report).
24 See, e.g., 82 FR 25246 (June 1, 2017) (request
for information in connection with the Bureau’s
assessment of the ATR/QM Rule); 83 FR 10437
(Mar. 9, 2018) (request for information on the
Bureau’s rulemaking process); 83 FR 12286 (Mar.
21, 2018) (request for information on the Bureau’s
adopted regulations and new rulemaking
authorities); 83 FR 10437 (Mar. 9, 2018) (request for
information on the Bureau’s inherited regulations
and inherited rulemaking authorities). In response
to these requests for information, the Bureau
received comments on the ATR/QM Rule from a
wide variety of stakeholders.
25 84 FR 37155, 37160–62 (July 31, 2019).
26 85 FR 67938 (Oct. 26, 2020).
23 See
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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 upon the earlier of the mandatory
compliance date of the final
amendments to the General QM loan
definition or the date the applicable
GSE exits Federal conservatorship.
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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, 2020.27 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 a limit based on the
loan’s pricing. Under the General QM
Final 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 final rule
provided higher thresholds for loans
with smaller loan amounts, for certain
manufactured housing loans, and for
subordinate-lien transactions. The final
rule also requires that the creditor
consider the consumer’s DTI ratio or
residual income, income or assets other
than the value of the dwelling
(including any real property attached to
the dwelling) securing the loan, and
debts and verify the consumer’s income
or assets other than the value of the
property securing the transaction and
debts. The final rule also provides a safe
harbor for compliance with the
verification requirement if a creditor
complies with verification standards in
certain manuals listed in the rule.28
The General QM Final Rule had an
effective date of March 1, 2021 but
provided a mandatory compliance date
of July 1, 2021. Therefore, for covered
transactions for which creditors receive
an application on or after March 1, 2021
and before July 1, 2021, creditors have
the option of complying with either the
revised General QM loan definition or
the General QM loan definition in effect
prior to March 1, 2021. Under the Patch
Extension Final Rule, described above,
the Temporary GSE QM loan definition
will expire on the mandatory
compliance date of the General QM
amendments. Therefore, for covered
transactions for which creditors receive
an application before July 1, 2021,
27 85
FR 86308 (Dec. 29, 2020).
comment 43(e)(2)(v)(B)–3.i.
28 See
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creditors may also originate Temporary
GSE QM loans.
reconsider other aspects of the General
QM Final Rule.
3. The Seasoned QM Final Rule
The Bureau issued the Seasoned QM
Final Rule on December 10, 2020. It was
published in the Federal Register on
December 29, 2020.29 The Seasoned QM
Final Rule created a new category of
QMs for first-lien, fixed-rate covered
transactions that have met certain
performance requirements over a
seasoning period of at least 36 months,
are held in portfolio by the originating
creditor or first purchaser until the end
of the seasoning period, comply with
general restrictions on product features
and points and fees, and meet certain
underwriting requirements.30 The
Seasoned QM Final Rule took effect on
March 1, 2021. Under the Seasoned QM
Final Rule, the revised regulations apply
to covered transactions for which
creditors receive an application on or
after this effective date. Thus, due to the
seasoning period, no loan will be
eligible to become a Seasoned QM until
at least 36 months after March 1, 2021.
D. The Effects of the COVID–19
Pandemic on the Mortgage Markets
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 6.3
percent in January 2021,33
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 61.4 percent in
January 2021 versus 63.3 percent in
February 2020. The housing market has
seen a significant rebound in mortgageorigination activity, buoyed by
historically low interest rates and by an
increasingly large share of government
and GSE-backed loans. However, the
share of origination activity outside the
government and GSE-backed origination
channels has declined from prepandemic levels, and mortgage-credit
availability for many consumers—
including those who would be
dependent on the non-QM market for
financing—remains tight. The
pandemic’s impact on both the
secondary market for new originations
and on the servicing of existing
mortgages is described below.
4. February 2021 Statement Regarding
General QM and Seasoned QM Final
Rules
On February 23, 2021, the Bureau
issued a Statement on Mandatory
Compliance Date of General QM Final
Rule and Possible Reconsideration of
General QM Final Rule and Seasoned
QM Final Rule (Statement).31 The
Statement was published in the Federal
Register on February 26, 2021.32 The
Statement indicated that the Bureau is
considering whether to initiate a
rulemaking to revisit the Seasoned QM
Final Rule. It also noted that if the
Bureau decides to do so, it expects that
it will consider in that rulemaking
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 Statement also
indicated that the Bureau expected to
issue shortly a proposed rule that would
delay the July 1, 2021 mandatory
compliance date of the General QM
Final Rule and that the Bureau will
consider at a later date whether to
initiate another rulemaking to
29 85
FR 86402 (Dec. 29, 2020).
30 Id.
31 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.
32 86 FR 11623 (Feb. 26, 2021).
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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.34 The
lack of investor demand to purchase
mortgages, combined with a large
supply of agency mortgage-backed
33 News Release, Bureau of Labor Statistics, U.S.
Dep’t of Labor, USDL–21–0158, The Employment
Situation (Feb. 5, 2021), https://www.bls.gov/charts/
employment-situation/civilian-unemploymentrate.htm, and https://www.bls.gov/charts/
employment-situation/civilian-labor-forceparticipation-rate.htm (charts related to the Feb. 5,
2021 The Employment Situation news release).
34 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).
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securities (MBS) entering the market,35
resulted in widening spreads between
the rates on a 10-year Treasury note and
mortgage interest rates.36 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,’’ 37 market
conditions improved substantially.38
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.
MBS are backed by loans guaranteed by
Fannie Mae, Freddie Mac, and the Government
National Mortgage Association (Ginnie Mae).
36 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-amonthly-chartbook-march-2020.pdf (Housing
Finance at a Glance) (on file).
37 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.
38 CARES Act Hearing, supra note 34, at 3.
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Because non-agency MBS 39 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.40 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-thanexpected performance during the
pandemic.41 Many non-QM creditors—
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.42 Other creditors that have
39 Non-agency MBS are not backed by loans
guaranteed by Fannie Mae, Freddie Mac, or Ginnie
Mae. This includes securities collateralized by nonQM loans.
40 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-slowedin-first-quarter (on file).
41 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-mbsready-to-rebound-after-the-refi-boom (on file).
42 Brandon Ivey, Expanded-Credit Lending Inches
Up in Third Quarter, Inside Mortg. Fin. (Nov. 25,
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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 nonQM market 43 to continue to strengthen
in 2021 and recover to its pre-pandemic
levels of production.44
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 61.9
percent in the third quarter of 2020, up
from 45.3 percent in the third quarter of
2019. One analysis found that the FHA
and U.S. Department of Veterans Affairs
(VA) share declined slightly to 17.4
percent from 19.5 percent a year prior.45
2020), https://www.insidemortgagefinance.com/
articles/219861-expanded-credit-lending-ticks-upin-3q-amid-slow-recovery (on file).
43 Refers to the non-QM market as defined by the
January 2013 Final Rule. With the effective date of
the price-based approach in the revised General QM
loan definition, many of these loans historically
considered non-QM may qualify for QM status after
March 1, 2021.
44 Brandon Ivey, Outlook on Non-Agency MBS
Issuance: Bright and Gloomy, Inside Mortg. Fin.
(Jan. 15, 2021), https://
www.insidemortgagefinance.com/articles/220261mixed-views-on-the-outlook-for-non-agency-mbsissuance-in-2021 (on file).
45 Laurie Goodman et al., Urban Inst., Housing
Finance at a Glance, Monthly Chartbook (Jan,
2021), https://www.urban.org/sites/default/files/
publication/103539/housing-finance-at-a-glance-amonthly-chartbook-january-2021_1.pdf (Housing
Finance at a Glance) (on file).
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Portfolio lending declined to 19.6
percent in the third quarter of 2020,
down from 33.3 percent in the third
quarter of 2019, and private label
securitizations declined to 1 percent
from 1.8 percent a year prior.
2. Servicing Market Impacts and
Implications for Origination Markets
option to extend the forbearance period
for an additional 180 days.
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, 2021.47 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.
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.48
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) 46
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–19related financial hardship, with an
46 Public
Law 116–136, 134 Stat. 281 (2020).
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47 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/statementsreleases/2021/02/16/fact-sheet-bidenadministration-announces-extension-of-covid-19forbearance-and-foreclosure-protections-forhomeowners/. See also Press Release, Fed. Hous.
Fin. Agency, FHFA Extends COVID–19 Forbearance
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Period and Foreclosure and REO Eviction
Moratoriums (Feb. 25, 2021), https://www.fhfa.gov/
Media/PublicAffairs/Pages/FHFA-Extends-COVID19-Forbearance-Period-and-Foreclosure-and-REOEviction-Moratoriums.aspx.
48 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, the 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-AddressesServicer-Liquidity-Concerns-Announces-Four-
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12845
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 5.22 percent for
the week ending February 14, 2021, they
have decreased since reaching their high
of 8.55 percent on June 7, 2020.49
However, the rate of decline has begun
to slow, as illustrated in Figure 2 below.
Because many mortgage servicers also
originate the loans they service, many
creditors, as well as several warehouse
providers,50 initially responded to the
risk of elevated forbearances and higherthan-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.51 An
‘‘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 moratoriums, and other
default servicing expenses.52 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,53 concerns over non-bank
liquidity, and related credit overlays
have eased, although Federal regulators
continue to monitor the situation.54
Nonetheless, access to credit for higherrisk but creditworthy consumers
remains an ongoing concern given
continued uncertainty over the impact
of the expiration of foreclosure
moratoriums and COVID–19 forbearance
plans on the mortgage market as well as
lender capacity constraints due to strong
refinance demand.
III. Legal Authority
Month-Advance-Obligation-Limit-for-Loans-inForbearance.aspx.
49 Press Release, Mortg. Bankers Ass’n, Share of
Mortgage Loans in Forbearance Declines to 5.22%
(Feb. 22, 2021), https://www.mba.org/2021-pressreleases/february/share-of-mortgage-loans-inforbearance-declines-to-522-percent.
50 Warehouse providers are creditors that provide
financing to mortgage originators and servicers to
fund and service loans.
51 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-creditscore-requirements (on file).
52 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-MarketRefinance-Fee-Implementation-Now-December1.aspx.
53 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 SingleFamily 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 servicerliquidity facility (Apr. 7,
2020), https://www.ginniemae.gov/newsroom/
Pages/PressReleaseDispPage.aspx?ParamID=194.
54 Fin. Stability Oversight Council, U.S. Dep’t of
the Treasury, 2020 Annual Report, at 169, https://
home.treasury.gov/system/files/261/FSOC2020
AnnualReport.pdf.
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The Bureau is proposing 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,
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orders, and guidelines.’’ 55 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.56
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.57 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.’’ 58
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.59
The Bureau is proposing to issue this
proposed rule pursuant to its
rulemaking, adjustment, and exception
authority under TILA section 105(a).
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).60 The
Bureau is proposing to issue this
proposed rule pursuant to its authority
under TILA section 129C(b)(2)(A)(vi).
TILA section 129C(b)(3)(A), (B)(i).
TILA section 129C(b)(3)(B)(i) authorizes
the Bureau to prescribe regulations that
55 12
U.S.C. 5581(a)(1)(A).
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).
57 15 U.S.C. 1604(a).
58 15 U.S.C. 1601(a).
59 15 U.S.C. 1639b(a)(2).
60 15 U.S.C. 1639c(b)(2)(A).
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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.61 In addition, TILA
section 129C(b)(3)(A) directs the Bureau
to prescribe regulations to carry out the
purposes of section 129C.62 The Bureau
is proposing to issue this proposed rule
pursuant to its authority under TILA
section 129C(b)(3)(B)(i).
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.63 TILA and title X of the DoddFrank Act are Federal consumer
financial laws. Accordingly, the Bureau
is proposing to exercise 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.
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,
and prior to July 1, 2021, creditors
seeking to originate General QMs have
the option of complying with either the
revised General QM loan definition or
the version of the General QM loan
definition that was in effect prior to
March 1, 2021. This comment also
explains that, for 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 General QM
loan definition.
Additionally, under the Patch
Extension Final Rule, the Temporary
GSE QM loan definition expires on the
mandatory compliance date of the
61 15
U.S.C. 1639c(b)(3)(B)(i).
U.S.C. 1639c(b)(3)(A).
63 12 U.S.C. 5512(b)(1).
62 15
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General QM Final Rule or the date the
applicable GSE ceases to operate under
conservatorship, whichever comes first.
Therefore, creditors seeking to originate
QMs have the additional option of
complying with the Temporary GSE QM
loan definition, if the application for the
covered transaction was received before
either July 1, 2021 or the date the
applicable GSE ceases to operate under
conservatorship, whichever comes first.
The Bureau is proposing to delay the
mandatory compliance date of the
General QM Final Rule until October 1,
2022. Specifically, the proposal would
amend comment 43–2 to extend the
mandatory compliance date of the
General QM Final Rule by changing July
1, 2021, where it appears in that
comment, to October 1, 2022. As
discussed below in the section-bysection analysis of § 1026.43(e)(2), the
Bureau is also proposing to add
comment 43(e)(2)-1 to clarify that both
the General QM loan definition that was
in effect prior to the effective date of the
General QM Final Rule and the General
QM loan definition as amended by the
General QM Final Rule 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. Finally, as discussed below in
the section-by-section analysis of
§ 1026.43(e)(4), the Bureau is proposing
to change July 1, 2021, where it appears
in the commentary to § 1026.43(e)(4), to
October 1, 2022.
This proposal would extend by 15
months—from July 1, 2021 to October 1,
2022—the period during which the
revised General QM loan definition, the
General QM loan definition that was in
effect prior to March 1, 2021, and the
Temporary GSE QM loan definition all
would be available to creditors.
Specifically, for transactions for which
a creditor received the consumer’s
application on or after March 1, 2021
and prior to October 1, 2022, creditors
seeking to originate General QMs would
have the option of complying with
either the revised General QM loan
definition or the version of the General
QM loan definition that was in effect
prior to March 1, 2021. For transactions
for which a creditor received the
consumer’s application on or after
October 1, 2022, creditors seeking to
originate General QMs would have to
use the revised 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—
creditors seeking to originate QMs
would have the additional option of
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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.
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Reasons the General QM Final Rule
Adopted the July 1, 2021 Mandatory
Compliance Date
The General QM Final Rule adopted
a mandatory compliance date of July 1,
2021 because the Bureau concluded that
this date would give creditors and the
secondary market sufficient time—
approximately six months from the date
the Bureau expected that final rule to be
published in the Federal Register—to
prepare to comply with the General QM
Final Rule’s amendments to the ATR/
QM Rule.64 The General QM Final Rule
noted that the COVID–19 pandemic had
significantly disrupted the mortgage
market.65 Nevertheless, the Bureau
finalized a July 1, 2021 mandatory
compliance date, taking into
consideration market conditions at the
time and concerns about the perceived
negative effects of the Temporary GSE
QM loan definition on the market.
Some commenters on the Patch
Extension Proposal 66 and the General
QM Proposal 67 cited the pandemic in
requesting that the Bureau take different
approaches to extending the Temporary
GSE QM loan definition and revising
the General QM loan definition than the
Bureau had proposed. Several
commenters on the Patch Extension
Proposal asked the Bureau to extend the
Temporary GSE QM loan definition to
expire several months after the date
creditors would be required to transition
from the old General QM loan definition
to the new definition. Among the
reasons cited for the request was that
the pandemic was straining creditors’
resources and personnel, making it more
64 The Bureau stated that, with respect to the
price-based thresholds in revised
§ 1026.43(e)(2)(vi), the Bureau understood that
creditors currently calculate the APR and APOR for
mortgage loans. The Bureau also stated that the
revised consider requirements generally reflected
existing market practices and that creditors
currently used and were familiar with the
verification standards that the General QM Final
Rule adopted. The Bureau also concluded that the
General QM Final Rule would be less complex to
implement relative to other rules the Bureau has
issued, such as the January 2013 Final Rule or
TILA–RESPA Integrated Disclosure Rule. 85 FR
86308, 86385–86 (Dec. 29, 2020).
65 Id. at 86313–15.
66 85 FR 41448 (July 10, 2020). The Patch
Extension Proposal was the proposed rule that the
Bureau issued in connection with the Patch
Extension Final Rule.
67 85 FR 41716 (July 10, 2020). The General QM
Proposal was the proposed rule that the Bureau
issued in connection with the General QM Final
Rule.
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difficult for creditors to adapt to the
new definition. A few of these
commenters stated that an overlap
period, during which creditors could
continue to make QMs under the
Temporary GSE QM loan definition
after the date creditors would be
required to transition to the revised
General QM loan definition, would
reduce the potential that a revised
General QM loan definition could
disrupt the mortgage market and affect
credit access due to unforeseen changes
in the economy or the mortgage market
due to the pandemic.68
The Bureau declined to adopt an
overlap period in the Patch Extension
Final Rule. The Bureau concluded that
establishing an overlap period that
extends past the date creditors are
required to transition from the thencurrent General QM loan definition to
the revised General QM loan definition
would keep the Temporary GSE QM
loan definition in place longer than
necessary to facilitate a smooth and
orderly transition to a revised General
QM loan definition. The Bureau stated
that it sought to maintain the Temporary
GSE QM loan definition only as long as
necessary to facilitate a smooth and
orderly transition to a revised General
QM loan definition, and no longer,
because the Bureau concluded that the
Temporary GSE QM loan definition has
certain negative effects on the mortgage
market, including stifling innovation
and the development of competitive
private-sector approaches to
underwriting. The Bureau further
concluded that, as long as the
Temporary GSE QM loan definition
continued to be in effect, the non-GSE
private market was less likely to
rebound and that the existence of the
Temporary GSE QM loan definition may
have been limiting the development of
the non-GSE private market. For these
reasons, the Bureau concluded that it
was appropriate for the Temporary GSE
QM loan definition to remain in place
no longer than the date creditors are
required to transition from the thencurrent General QM loan definition to
the revised General QM loan
definition.69 (The Bureau also cited
these negative effects in declining to
make the Temporary GSE QM loan
definition permanent.) 70 With respect
to commenters’ concerns related to the
68 85
FR 67938, 67949 (Oct. 26, 2020).
at 67951. Several commenters on the
General QM Proposal also requested that the Bureau
adopt an overlap period. The Bureau declined to
adopt an overlap period in the General QM Final
Rule for the same reasons it declined to adopt an
overlap period in the Patch Extension Final Rule.
85 FR 86308, 86385 (Dec. 29, 2020).
70 85 FR 67938, 67953 n.141 (Oct. 26, 2020).
69 Id.
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pandemic, the Bureau stated that
conditions in the mortgage market did
not justify extending the Temporary
GSE QM loan definition past the date
creditors would be required to transition
from the then-current General QM loan
definition to the revised definition,
particularly in light of the
aforementioned concerns the Bureau
stated about the negative effects of the
Temporary GSE QM loan definition on
the mortgage market.71
In the General QM Final Rule, several
industry commenters requested a longer
implementation period than the sixmonth period the Bureau proposed.
Some of these commenters stated that
the implementation period should
account for other simultaneous
challenges for creditors, including
responding to the COVID–19 pandemic
and its economic effects. The Bureau
concluded that a six-month
implementation period would give
creditors and secondary market
participants enough time to prepare to
comply with the final rule, even in light
of these challenges. The Bureau stated
that current market conditions did not
require a longer implementation
period.72
In addition, two commenters that
submitted a joint comment letter on the
Patch Extension Proposal stated that the
Temporary GSE QM loan definition
should remain in place until the Bureau
assesses the impacts of the pandemic on
mortgage markets, including the decline
of the non-QM market and creditors’
increasing reliance on GSE and FHA
loans.73 In their comments on the
General QM Proposal, some consumer
advocate commenters and an individual
commenter requested that the Bureau
pause the General QM rulemaking in
light of the pandemic. The consumer
advocate commenters cited the turmoil
and economic fallout from the
pandemic as a reason to pause the
rulemaking.74
The Bureau declined to extend the
Temporary GSE QM loan definition
indefinitely while the Bureau further
assessed the impact of the pandemic or
to pause the General QM rulemaking in
light of the pandemic. However, in the
Patch Extension Final Rule, the Bureau
noted that, if market conditions were to
change or other circumstances were to
arise before the Bureau issued the
General QM Final Rule, the Bureau
could extend the Temporary GSE QM
71 Id.
at 67953.
FR 86308, 86385 (Dec. 29, 2020).
73 85 FR 67938, 67950 (Oct. 26, 2020).
74 85 FR 86308, 86333 (Dec. 29, 2020).
72 85
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loan definition for a longer period of
time.75
Reasons for the Proposed Extension of
the Mandatory Compliance Date
The Bureau is issuing this proposal
because it has preliminarily 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 delaying the
requirement to comply with the revised
General QM loan definition on July 1,
2021. Upon further evaluation, the
Bureau is concerned 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 preliminarily concludes that
maximizing flexibility to respond to the
effects of the pandemic, by delaying the
mandatory compliance date until
October 1, 2022, outweighs concerns
that an extension 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 believes 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 moratoriums, the Bureau
believes 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 merits of the
price-based approach adopted in the
General QM Final Rule. The revised
General QM loan definition went into
effect on March 1, 2021, and creditors
have the option of using that definition
to originate QMs. Rather, this proposal
addresses the narrower question of
whether 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
75 85
FR 67938, 67953 (Oct. 26, 2020).
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consumers by allowing creditors to
continue making QMs under the DTIbased General QM loan definition and
under the Temporary GSE QM loan
definition until October 1, 2022.
The Bureau is concerned that
requiring creditors seeking to make QM
loans to shift to the price-based General
QM loan definition and limiting their
ability to rely on the Temporary GSE
QM loan definition and on the DTIbased General QM loan definition on
July 1, 2021 could reduce access to
credit, particularly for certain consumer
segments. The Bureau has two separate
concerns related to access to
responsible, affordable mortgage credit,
as detailed further below. First, 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 moratoriums—and potential
disruptions in the market when those
interventions expire may warrant an
extension of the mandatory compliance
date. Second, 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 such concerns may
warrant an extension of the mandatory
compliance date.
Impact of foreclosure moratoriums
and the expiration of COVID–19
forbearance plans. The Bureau is
issuing this proposal because it is
concerned that the impact of the
eventual expiration of foreclosure
moratoriums and COVID–19 forbearance
plans described in part II.D above has
the potential to lead to additional
disruptions in the mortgage markets. In
particular, the Bureau is concerned that
such expirations may create the
potential for heightened delinquencies
and foreclosures for consumers who
continue to suffer disruptions in their
income due to the COVID–19 pandemic.
The Bureau is concerned that, while
many consumers currently in
forbearance plans can be assisted
through payment deferrals and loan
modifications, there will be some
consumers who will be unable to either
resume their mortgage payment or
sustain a modified loan payment and
will be forced to either sell their homes
or be placed into foreclosure after the
expiration of the foreclosure
moratoriums. The Bureau is concerned
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 believes that the extension of
certain forbearance programs and
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foreclosure moratoriums may result in
these effects continuing longer than the
Bureau anticipated at the time of the
General QM Final Rule.
The Bureau preliminarily concludes
that extending the mandatory
compliance date of the General QM
Final Rule to October 1, 2022 will
provide additional flexibility to
creditors originating QM loans.
Specifically, creditors would be
permitted to originate General QM loans
under the price-based General QM loan
definition that took effect on March 1,
2021, and would also be allowed to
originate General QM loans in
accordance with the DTI-based General
QM loan definition that was in effect
prior to March 1, 2021, as well as
Temporary GSE QM loans, for an
additional 15 months. As discussed in
further detail in this section, the Bureau
is issuing this proposal because
providing such flexibility may benefit
struggling consumers who are forced to
sell their property to avoid foreclosure
by helping to ensure that potential
purchasers continue to have access to
mortgage credit. The following section
(entitled Concerns regarding access to
mortgage credit for consumers)
describes the Bureau’s concerns that
despite record origination volume,
access to credit has remained relatively
tight for consumers with weaker credit.
Moreover, this proposal may also
provide some consumers with
additional opportunities to refinance
into historically low interest rates.
The Bureau is concerned that the
potential impact of the COVID–19
pandemic on the mortgage market may
continue for longer than anticipated at
the time the Bureau issued the General
QM Final Rule, and so could warrant
additional flexibility in the QM market
to ensure creditors are able to
accommodate struggling consumers.
Specifically, as discussed in part II.D,
the expiration dates for the foreclosure
moratoriums and enrollment dates for
the COVID–19 forbearance plans have
been extended for loans guaranteed or
insured by the GSEs, FHA, VA, and
USDA since the publication of the Patch
Extension Final Rule and the General
QM Final Rule. Both the GSEs and the
government agencies have also
lengthened the permissible forbearance
period from the 12 months mandated in
the CARES Act to up to 18 months for
certain loans. Under these revised
timelines, most COVID–19 forbearance
plans will expire no later than June 30,
2022.
The Bureau is concerned that the
combined impact of the expiration of
the foreclosure moratoriums and the
expiration of the COVID–19 forbearance
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plans creates the potential for
heightened delinquencies and
foreclosures for consumers who
continue to suffer disruptions in their
income due to the COVID–19 pandemic.
While many consumers currently in
forbearance plans can be assisted
through payment deferrals and loan
modifications, there will be some
consumers who will be unable to
sustain a modified loan payment and
will be forced to sell their homes to
avoid foreclosure. While rising house
prices have increased overall home
equity, which will assist consumers
who need to sell their homes upon the
expiration of their forbearance plan,
more vulnerable consumers are likely to
have less equity in their homes than the
general population. One analysis
indicated that 10.4 percent of mortgage
consumers in forbearance have less than
10 percent equity in their homes to pay
for closing costs, and this share
increases to 15.3 percent after taking
into account 12 months of deferred
interest during the forbearance period.76
If consumers have deferred payments of
taxes and insurance, their equity
position will have eroded even further.
Government loans, which tend to have
higher loan-to-value ratios (LTVs) and
serve a higher-risk population, have a
median LTV at origination of 96.5
percent as compared to 75 percent LTV
for mortgage borrowers overall.77
Accordingly, nearly 20 percent of FHA
and VA mortgages have less than 10
percent equity, and the share increases
to 26 percent when taking into account
deferred interest.78 While some research
suggests borrowers with government
loans have an average 22 percent equity
buffer given recent home price
appreciation, certain borrower segments
and States and localities may remain at
risk of heightened foreclosure activity.79
While the foreclosures and distressed
sales are expected to remain far below
the levels experienced during the 2008
financial crisis,80 the Bureau
preliminarily concludes that extending
the mandatory compliance date until
76 Black Knight, Inc., Deferred Payments During
Forbearance Beginning To Erode Equity Positions
(Feb. 3, 2021) https://www.blackknightinc.com/
blog-posts/deferred-payments-during-forbearancebeginning-to-erode-equity-positions/ (Deferred
Payments).
77 Ginnie Mae, Global Markets Analysis Report
(Jan. 2021), https://www.ginniemae.gov/data_and_
reports/reporting/Documents/global_market_
analysis_jan21.pdf.
78 Deferred Payments, supra note 76.
79 Urban Inst., The Predicted Foreclosure Surge
Likely Won’t Happen, Even among Financially
Vulnerable Borrowers (Feb. 11, 2021), https://
www.urban.org/urban-wire/predicted-foreclosuresurge-likely-wont-happen-even-among-financiallyvulnerable-borrowers.
80 Id.
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October 1, 2022, may assist some
consumers who need to sell their homes
by providing creditors additional
flexibility to continue originating new
QM loans under the Temporary GSE
QM loan definition and under the DTIbased General QM loan definition, as
well as under the price-based approach
in the revised General QM loan
definition. Consumers who need to sell
their homes may benefit from a broader
QM definition that encourages more
potential purchasers to enter the market
and buy properties that might otherwise
go into foreclosure. Extending the
Temporary GSE QM loan definition may
also provide additional flexibility for
the GSEs to develop and modify
potential pre-foreclosure sale
products—such as short sale and deedin-lieu of foreclosure programs—to
respond to a potential increase in
distressed sales as necessary.
Under the revised timelines, most
COVID–19 forbearance plans will expire
no later than June 30, 2022, at which
point the availability of the Temporary
GSE QM loan definition and the General
QM loan definition that was in effect
prior to March 1, 2021 could help
alleviate adverse impacts on consumers
struggling to keep their homes upon
exiting their forbearance plan.
Extending the mandatory compliance
date to October 1, 2022, as the Bureau
proposes, would make these additional
QM definitions available for three
months after the latest date on which
most COVID–19 forbearance plans are
set to expire. The Bureau preliminarily
concludes that three months is a
sufficient period of time for creditors to
use the additional QM flexibility to
assist consumers whose COVID–19
forbearance plans expire on June 30,
2022 and whose incomes may not have
recovered enough to sustain their prepandemic mortgage payment or a
modified mortgage payment.
The Bureau is also concerned that
allowing the Temporary GSE QM loan
definition to expire on July 1, 2021
would limit the ability of the GSEs to
originate new loans and could restrict
their flexibility to develop new
refinance programs to address emerging
consumer needs during a period of
heightened market uncertainty. In the
General QM Final Rule, the Bureau
estimated that the price-based approach
in the revised General QM loan
definition would preserve access to
credit relative to the status quo with the
DTI-based General QM loan definition
and the Temporary GSE QM loan
definition. Nevertheless, some loans
that would be QMs under the
Temporary GSE QM loan definition or
the DTI-based General QM loan
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definition would not be eligible under
the revised, price-based General QM
loan definition. Maintaining the
availability of all three QM definitions
until October 1, 2022 would maximize
refinance options for consumers who
have been struggling to make their
mortgage payments or who under more
ordinary circumstances likely have the
ability to repay their loans but who may
be underwater on their mortgage as a
result of the unique circumstances of
the pandemic.
As discussed earlier and illustrated in
Figure 1, the GSEs tend to play a
dominant role during economic
downturns and recoveries, and
additional origination flexibilities may
prove helpful in the current market
recovery by allowing consumers
additional opportunities to refinance
into historically low interest rates. For
example, during the 2008 financial
crisis, FHFA established the Home
Affordable Refinance Program (HARP)
to help homeowners who were unable
to refinance their loans due to a decline
in their home value. Approximately 3.5
million consumers benefited from
HARP, and FHFA found that consumers
who refinanced through HARP have had
lower delinquency rates compared with
consumers who were eligible for HARP
but did not refinance through the
program.81 When HARP expired in
2018, FHFA replaced it with the HighLTV Refinance Programs. These
programs allow performing high-LTV
(≤97 percent) borrowers to access rateand-term refinances without providing
full income documentation. These
refinances may currently obtain QM
status through the Temporary GSE QM
loan definition. As discussed earlier,
while the Bureau does not expect
widespread home price declines akin to
the 2008 financial crisis, some segments
of consumers and localities could
benefit from the existing high-LTV
refinance programs. More generally,
extending the Temporary GSE QM loan
definition would also help ensure that
the ATR/QM Rule does not impair
FHFA and the GSEs from exercising the
flexibility to tailor existing programs to
meet future market changes specific to
the COVID–19 pandemic and the
regulatory interventions discussed
earlier. The Bureau preliminarily
concludes that it would be appropriate
to provide such loans with the QM
presumption of compliance with the
ATR requirements under the Temporary
GSE QM loan definition, given that such
81 Fed. Hous. Fin. Agency, Home Affordable
Refinance Program (HARP), https://www.fhfa.gov/
PolicyProgramsReearch/Programs/Pages/
HARP.aspx (last visited Feb. 23, 2021).
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programs would be implemented while
the GSEs are under the conservatorship
of FHFA.
The Bureau preliminarily concludes
that extending the mandatory
compliance date of the General QM
Final Rule to October 1, 2022 will
benefit consumers by providing
additional access to responsible,
affordable mortgage credit and
flexibility for the GSEs to create and
modify programs to address emerging
consumer needs. However, the Bureau
also recognizes that the anticipated
effects of this proposal may be affected
by policies, agreements, or legislation
created by parties other than the Bureau.
For example, the Preferred Stock
Purchase Agreements (PSPAs) for
Fannie Mae and Freddie Mac or
restrictions of FHFA, as regulator and
conservator of the GSEs, may restrict the
GSEs from purchasing loans with
certain attributes or characteristics.82 To
the extent that other factors prevent the
GSEs from using the additional
flexibilities provided by the extension of
the mandatory compliance date and the
Temporary GSE QM loan definition, the
impacts of this proposed rule may be
smaller than they otherwise would be.
Nonetheless, the Bureau is issuing this
proposal because it is concerned that
mandating that creditors comply with
the revised General QM loan definition
on July 1, 2021 could limit options for
consumers struggling due to the
disruptive effects of the pandemic, and
because the Bureau is unable to predict
how such agreements or restrictions
might change in the future. Accordingly,
the Bureau has preliminarily concluded
that the benefits of continued access to
credit for consumers during the
pandemic warrant the additional
flexibility provided to creditors through
this proposed rule.
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82 On January 14, 2021, the U.S. Department of
the Treasury and the 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.
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As noted above, in the Patch
Extension Final Rule and the General
QM Final Rule, the Bureau declined to
extend the Temporary GSE QM loan
definition beyond the July 1, 2021
mandatory compliance date of the
amendments to the General QM loan
definition. The Bureau raised concerns
about potential harms from leaving the
Temporary GSE QM loan definition in
place longer than necessary, including
stifling innovation and the development
of competitive private-sector approaches
to underwriting. The Bureau also stated
that, as long as the Temporary GSE QM
loan definition continued to be in effect,
the non-GSE private market was less
likely to rebound and that the existence
of the Temporary GSE QM loan
definition may have been limiting the
development of the non-GSE private
market. For these reasons, the Bureau
concluded that it was appropriate for
the Temporary GSE QM loan definition
to remain in place no longer than the
date creditors are required to transition
from the then-current General QM loan
definition to the revised General QM
loan definition.83 The Bureau
concluded that the mandatory
compliance date, and the expiration of
Temporary GSE QM loan definition
should occur on July 1, 2021. However,
the Bureau now preliminarily concludes
that the need to provide maximum
flexibility to address the effects of the
pandemic outweighs any, likely minor,
inhibiting effect that extension of the
Temporary GSE QM loan definition
could have on new access to credit
resulting from new private sector
underwriting approaches or a rebound
of the non-GSE private market during
the same period. Moreover, market
participants looking to adopt innovative
underwriting approaches or expand the
non-GSE market would have the option
to use the price-based General QM loan
83 85 FR 67938, 67951 (Oct. 26, 2020). Several
commenters on the General QM Proposal also
requested that the Bureau adopt an overlap period.
The Bureau declined to adopt an overlap period in
the General QM Final Rule for the same reasons it
declined to adopt an overlap period in the Patch
Extension Final Rule. 85 FR 86308, 86385 (Dec. 29,
2020).
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definition even if the mandatory
compliance period were delayed until
October 1, 2022. Accordingly, the
Bureau preliminarily concludes that
leaving the Temporary GSE QM loan
definition in place until October 1, 2022
may be appropriate.
Concerns regarding access to
mortgage credit for consumers. The
Bureau is also proposing to extend the
mandatory compliance date of the
General QM Final Rule 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 further below, 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. The Bureau is concerned
that requiring creditors to transition to
the price-based General QM loan
definition on July 1, 2021 and
eliminating the Temporary GSE QM
loan definition and the DTI-based
General QM loan definition at that time
could exacerbate these credit access
concerns.
As illustrated in Figure 3, first-lien
mortgage originations exceeded $4
trillion in 2020, surpassing the prior
record of $3.725 trillion set in 2003,84
and originators have faced significant
capacity and resource constraints given
strong refinance demand. In addition,
the Board has undertaken extraordinary
interventions to purchase agency MBS
in large quantities since March of 2020,
which has exerted downward pressure
on MBS yields and thus increased
liquidity for creditors who rely on the
ability to sell GSE and government loans
in the secondary markets.85
84 Inside Mortg. Fin., One for the Ages: Home
Lenders Set New Production Record of $4T-Plus
(Jan. 27, 2021) https://
www.insidemortgagefinance.com/articles/220379one-for-the-ages-home-lenders-set-new-productionrecord-of-4t-plus (on file).
85 Housing Finance at a Glance, supra note 36.
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The combination of mortgage
origination capacity constraints and
increased liquidity in the agency MBS
market has led creditors to focus on GSE
originations, which are quicker to close
and are generally considered less risky
than FHA-insured mortgages and loans
originated in the private markets. In the
short-run, these pandemic-related
capacity constraints could cause the
supply of mortgage credit to fall short of
demand from otherwise creditworthy
consumers who likely have the ability to
repay. In response, creditors may
impose credit overlays or, more
commonly, increase pricing margins 86
for certain products that are timeconsuming to underwrite or for higherrisk consumers, including margin
increases beyond the risk-based pricing
adjustments typically charged in a
market without creditor capacity
constraints. Creditors may raise prices
disproportionately for loans that either
take longer to close or have a lower
probability of closing to compensate for
the fact that such loans reduce a
creditor’s total expected origination
volume within a given time period.
Overall, these short-run responses to the
pandemic-related capacity constraints
could have the effect of temporarily
pricing some creditworthy consumers
out of the market or delaying their
ability to obtain a mortgage they
otherwise could repay.
Figure 2 illustrates the strong growth
of GSE lending in recent months,
showing GSE volume in the third
quarter of 2020 was at 61.9 percent, up
from 45.3 percent a year prior. By
contrast, portfolio lending declined
significantly to 19.6 percent in the third
quarter of 2020, compared to 33.3
percent in the third quarter of 2019.
Private label securitizations declined to
1 percent from 1.8 percent a year prior,
and even the FHA and VA share (whose
MBS are beneficiaries of the Board’s
agency MBS purchases) are down
slightly to 17.4 percent from 19.5
percent a year prior.87
Even within the GSE and government
markets, some consumers may face
reduced access to credit, as capacity
constraints cause mortgage originators
to focus on consumers with the
strongest credit.88 Figure 4 illustrates
potential differences in new credit
originated for consumers with credit
scores above and below a 700 credit
score in 2020.89 Year-over-year,
mortgage balances for consumers with a
credit score of at least 700 have
increased by 10 percent by the end of
2020, while mortgage balances for
consumers with a credit score below
700 have decreased by nearly 2 percent.
In contrast, the auto financing sector has
a far smaller disparity that also
remained more consistent throughout
the year.
86 Pricing margins refer to the difference between
the rate a creditor charges and the price at which
a creditor can sell the loan in the secondary market.
In addition to risk-based pricing adjustments that
are independent of any adjustments charged in the
secondary market, a creditor may charge additional
margin to compensate for the time and expense of
underwriting.
87 Id.
88 Nat’l Mortg. News, Opinion: The originations
feast and credit famine (Oct. 4, 2020), https://
www.nationalmortgagenews.com/opinion/theoriginations-feast-and-credit-availability-famine (on
file).
89 Moody’s Analytics Credit Forecast.
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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules
As noted, the Bureau is concerned
about the July 1, 2020 mandatory
compliance date of the General QM
Final Rule because requiring creditors to
transition to the price-based General
QM loan definition on July 1, 2021, and
eliminating the Temporary GSE QM
loan definition and the DTI-based
General QM loan definition, could
exacerbate these pandemic-related
concerns about access to credit for some
consumers. In the General QM Final
Rule, the Bureau stated that maintaining
access to responsible, affordable
mortgage credit after the expiration of
the Temporary GSE QM loan definition
was a critical policy goal, and the
Bureau found that the price-based
approach would further this goal.90 The
Bureau concluded that the General QM
Final Rule’s pricing thresholds best
balanced consumers’ ability to repay
with ensuring access to responsible,
affordable mortgage credit, including for
minority consumers.91 However,
compared to a market in which creditors
could originate QM loans under the
price-based approach in the revised
General QM loan definition, the DTIbased General QM loan definition, or
under the Temporary GSE QM loan
definition, there would be a slightly
90 85
91 Id.
FR 86308, 86335 (Dec. 29, 2020).
at 86337.
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smaller QM market and potentially
reduced access to credit in a market in
which creditors were limited to making
General QM loans under the revised,
price-based General QM loan definition.
Extending the mandatory compliance
date would retain flexibility for
creditors to originate loans as QMs
under the Temporary GSE QM loan
definition and revised General QM loan
definition for a longer period of time.
Given the mortgage origination capacity
concerns and the concentration of loans
in the GSE channel described above, the
Bureau preliminarily concludes it is
appropriate to extend the mandatory
compliance date of the General QM
Final Rule to October 1, 2022 to ensure
broad credit access under the particular
circumstances arising from the COVID–
19 pandemic, including for loans in the
GSE channel.
In addition, the Bureau preliminarily
concludes that retaining a broad QM
market until October 1, 2022, in which
creditors could make QMs under the
price-based approach in the revised
General QM loan definition, the DTIbased General QM loan definition, or
the Temporary GSE QM loan definition,
would not significantly increase the
likelihood that risky loans would
inappropriately receive a rebuttable
presumption of compliance with ability
to repay requirements. In general, the
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Bureau expects that creditors will use
comparable underwriting for loans
within the DTI-based General QM loan
definition and the Temporary GSE QM
loan definition between July 1, 2021 and
October 1, 2022 as they did for loans
originated using those same definitions
prior to March 1, 2021. As a result, the
Bureau expects QM loans originated
between July 1, 2021 and October 1,
2022, using the General QM loan
definition that was in effect prior to
March 1, 2021 and the Temporary GSE
QM loan definition, will have
comparable risk levels to QM loans
originated under those same definitions
prior to March 1, 2021.
Moreover, given the above-noted
concerns about access to credit for
certain consumers in the existing
market, the Bureau has concerns about
requiring creditors to transition to the
price-based approach in the General QM
loan definition on July 1, 2021. In part
V.B.5 of the General QM Final Rule,92
the Bureau acknowledged that overall
market spreads may expand and tighten
over time. The Bureau noted that it
monitors changing market and
economic conditions, and it could
consider changes to the pricing
thresholds if circumstances warrant.
The Bureau is concerned that, in the
92 Id.
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unique circumstances arising from the
COVID–19 pandemic, the combined
effects of strong refinance demand,
capacity constraints, and the volume of
consumers with COVID–19 forbearance
plans could incentivize creditors to
increase mortgage interest rate spreads
for some higher-risk consumers relative
to consumers with cleaner credit. The
Bureau is concerned that this unique
situation may result in temporarily
reduced credit access for some higherrisk yet creditworthy consumers than
otherwise would be the case.
Specifically, loans that exceed the
pricing thresholds in the General QM
Final Rule—including loans with DTI
ratios below 43 percent and GSE loans—
will generally not be eligible for QM
status if the application is received on
or after the mandatory compliance date
of the General QM Final Rule. This
includes some manufactured housing
loans with loan amounts in excess of
$110,260. While some of these
consumers may be able to obtain QM
loans due to creditor pricing responses
or through other available QM loan
categories, and other consumers may
obtain non-QM loans at potentially
higher prices, the Bureau is concerned
that a portion of these consumers may
not be able to obtain a mortgage at all.
The Bureau anticipates that as mortgage
rates increase, capacity constraints will
be lifted, originator profitability will
decline, and these access to credit
concerns will eventually ease.
Accordingly, given that the timing of
these events is uncertain, the Bureau
has preliminarily concluded that
extending the mandatory compliance
date to October 1, 2022 will assist
consumers by avoiding unnecessarily
constraining the mortgage market during
a period of heightened volatility and
stress due to the COVID–19 pandemic.
The Bureau requests comment on all
aspects of its proposal to delay the
mandatory compliance date of the
General QM Final Rule until October 1,
2022. The Bureau requests comment on
whether the market is likely to
experience disruptions after the
expiration of forbearance programs and
foreclosure moratoriums and whether
delaying the mandatory compliance
date could provide additional flexibility
in responding to those disruptions. The
Bureau also requests comment on the
extent to which some consumer
segments are experiencing impaired
access to credit and on whether
delaying the mandatory compliance
date could help address such access-tocredit concerns. The Bureau requests
comment on whether the mandatory
compliance date should be extended
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and, if so, whether the extension should
be longer or shorter than the proposed
delay to October 1, 2022.
The Bureau also proposes that a final
rule based on this proposal be effective
60 days after publication in the Federal
Register. The Bureau anticipates that
this would make the final rule effective
before the current July 1, 2021
mandatory compliance date.
Proposed Revisions to Commentary
For the reasons described above, the
Bureau is proposing to amend comment
43–2 to reflect an extension of the
mandatory compliance date of the pricebased General QM loan definition to
October 1, 2022.
Currently, comment 43–2 states that
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). Comment 43–2 states further that
compliance with the 2021 General QM
Amendments is mandatory with respect
to transactions for which a creditor
received an application on or after July
1, 2021 (mandatory compliance date).
Comment 43–2 states further that, for a
given transaction for which a creditor
received an application on or after
March 1, 2021 but prior to July 1, 2021,
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 the reasons described above, the
Bureau proposes to change the
references to July 1, 2021 in this
comment to October 1, 2022. The
proposal would not amend the portion
of comment 43–2 that describes how to
determine the application date. The
explanations in part VII.C of the
Supplementary Information to the
General QM Final Rule regarding how
the effective date, optional early
compliance period, and mandatory
compliance date apply to transactions
would remain accurate, except that
references to July 1, 2021 would apply
to October 1, 2022 instead.93
93 85
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43(e) Qualified Mortgages
43(e)(2) Qualified Mortgages Defined—
General
The Bureau is proposing to add
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. Specifically, proposed
comment 43(e)(2)–1 references comment
43–2 and explains that, prior to the
effective date of the 2021 General QM
Amendments, § 1026.43(e)(2) provided a
QM 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
may not exceed 43 percent. Proposed
comment 43(e)(2)–1 further explains
that the 2021 General QM Amendments
removed that requirement and replaced
it with the APR thresholds in
§ 1026.43(e)(2)(vi), among other
revisions. Proposed comment 43(e)(2)–1
explains that both the QM definition in
§ 1026.43(e)(2) that was in effect prior to
the 2021 General QM Amendments and
the General QM loan definition in
§ 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. Proposed comment 43(e)(2)–1
cross-references 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
Comment 43(e)(4)–2 currently
provides that covered transactions that
met the requirements of
§ 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 July 1, 2021,
continue to be QMs, including those
covered transactions that were
consummated on or after July 1, 2021.
The headers for comments 43(e)(4)–2
and –3 refer to July 1, 2021 as the
General QM Final Rule’s mandatory
compliance date.
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For the reasons described above, the
Bureau proposes to change the
references to July 1, 2021 in comment
43(e)(4)–2 and in the headers for
comments 43(e)(4)–2 and –3 to October
1, 2022.
V. Dodd-Frank Act Section 1022(b)
Analysis
A. Overview
As discussed above, this proposal
would delay the mandatory compliance
date of the General QM loan definition
from July 1, 2021 to October 1, 2022. In
developing this proposal, 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
proposed rule with prudential, market,
or systemic objectives administered by
such agencies as required by section
1022(b)(2)(B) of the Dodd-Frank Act.
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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 94 data, as well as other publicly
available sources. In particular, the data
and evidence published in the Bureau’s
General QM Final Rule inform this
analysis. The Bureau also conducted the
Assessment and issued the Assessment
Report as required under section
1022(d) of the Dodd-Frank Act. The
Assessment Report provides
quantitative and qualitative information
on questions relevant to the proposed
rule, including the effect of QM status
relative to non-QM status on access to
credit. Consultations with other
94 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/.
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regulatory agencies, industry, and
research organizations inform the
Bureau’s impact analyses.
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 proposal, 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
seeks additional information or data
which could inform quantitative
estimates of such consumer or creditor
responses. The Bureau seeks comment
on its analysis and additional
information or data which could inform
quantitative estimates of the number of
consumers obtaining GSE-eligible loans
which do not satisfy the consider and
verify requirements in the revised
General QM loan definition.
C. Description of the Baseline
The Bureau considers the benefits,
costs, and impacts of the proposal
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,
after which the Temporary GSE QM
loan definition and the General QM loan
definition that was in effect prior to
March 1, 2021 expire and can no longer
be used by creditors to obtain QM status
on new mortgage loans. Under the
proposal, the Temporary GSE QM loan
definition and the General QM loan
definition that was in effect prior to
March 1, 2021 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 proposal’s direct market
impacts would 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, thus allowing creditors to use
the Temporary GSE QM loan definition.
Under the baseline, when the
Temporary GSE QM loan definition and
the General QM loan definition that was
in effect prior to March 1, 2021 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
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requirements, the expanded portfolio
QM amendments created by the 2018
Economic Growth, Regulatory Relief,
and Consumer Protection Act,95 or the
Seasoned QM definition. The revised
General QM loan definition, which
would be the only type of QM available
to larger creditors following the
mandatory compliance date, generally
requires loans to be priced less than
2.25 percentage points above APOR.96
The Bureau anticipates that when the
mandatory compliance date is reached,
the main loans affected would 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
affect these loans because they are
currently originated as QM loans due to
either the General QM loan definition
that was in effect prior to March 1, 2021
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 Under-43Percent-DTI conventional loans and
GSE-eligible loans priced 2.25
percentage points or higher above APOR
because the Bureau estimates most loans
newly obtaining QM status due to the
proposal fall within those categories. A
smaller number of GSE-eligible loans
would 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
also 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.97 However,
95 Public
Law 115–174, 132 Stat. 1296 (2018).
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).
97 As of Q3 2020, only 105 loans had been
originated through the GSEs’ High-LTV Refinance
96 The
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demand for such loans could increase if
housing market conditions deteriorate.
D. Potential Benefits and Costs to
Covered Persons and Consumers
1. Benefits to Consumers
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The primary benefit to consumers of
the proposal is the availability of
conventional QM loans priced 2.25
percentage points or higher above
APOR—including both Under-43Percent-DTI conventional loans and
GSE-eligible loans—during the period
from July 1, 2021 to October 1, 2022.
Relative to the baseline, the Bureau
estimates 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 proposal due to the
availability of the General QM loan
definition that was in effect prior to
March 1, 2021 and the Temporary GSE
QM loan definition.98 While many of
these consumers may obtain mortgages
of some kind under the baseline, the
largest benefits to consumers accrue to
the consumers who would obtain a
conventional QM loan under the
proposal but would not obtain a
mortgage under the baseline.
Under the baseline, some of these
33,000 consumers may be able to obtain
General QM loans priced below 2.25
percentage points over APOR due to
creditor responses to the General QM
Final Rule or obtain QM loans under the
Small Creditor QM definition. Others
may instead obtain FHA loans, likely
paying higher total loan costs as
discussed in the General QM Final Rule.
Finally, a portion of these consumers
may obtain non-QM loans under the
baseline, but the Bureau expects some
consumers may not be able to obtain a
mortgage at all.
The proposal would also benefit those
consumers seeking GSE-eligible loans
that do not satisfy the consider and
verify requirements in the revised
General QM loan definition. Such loans,
including GSE streamlined refinance
loans, may not be available to
consumers under the baseline.
Option since the inception of the program. See
FHFA Foreclosure Prevention and Refinance Report
(Q3 2020), https://www.fhfa.gov/AboutUs/Reports/
ReportDocuments/3Q2020FPR.pdf.
98 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.
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2. Benefits to Covered Persons
The proposal’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-PercentDTI 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 proposal, 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 be unable
to originate such loans under the
General QM loan definition that was in
effect prior to March 1, 2021 or the
Temporary GSE QM loan definition and
would instead have 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
proposal 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 proposal may
allow lenders to avoid price reductions
on some loans that would be necessary
to satisfy the revised General QM loan
definition under the baseline. This
would 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 who
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
proposal. This is likely to occur for
some uncertain fraction of the estimated
33,000 additional conventional loans
within the General QM loan definition
that was in effect prior to March 1, 2021
and the Temporary GSE QM loan
definition. Consumers obtaining such
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loans would 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 proposal forgo the benefit of
retaining the ATR causes of action and
defenses against foreclosure.
4. Costs to Covered Persons
The proposal would 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 who
primarily originate FHA or Under-43Percent-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
General QM loan definition that was in
effect prior to March 1, 2021, and the
Temporary GSE QM loan definition, the
proposal would 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 proposal would 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
would effectively be a transfer from
these private secondary market
participants to participants in the
agency secondary market.
E. Potential Specific Impacts of the
Proposed Rule
1. Potential Impact on Depository
Institutions and Credit Unions With $10
Billion or Less in Total Assets, as
Described in Section 1026
The proposal’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
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percentage points or higher above
APOR, and thus may rely less on the
General QM loan definition that was in
effect prior to March 1, 2021 and the
Temporary GSE QM loan definition for
originating such loans. If the General
QM mandatory compliance date would
confer a competitive advantage to these
small creditors in their origination of
loans priced 2.25 percentage points or
higher above APOR, the proposal would
delay this outcome.
2. Potential Impact of the Proposed
Provisions on Consumers in Rural Areas
The proposal’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).99
VI. Regulatory Flexibility Act Analysis
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The Regulatory Flexibility Act
(RFA),100 as amended by the Small
Business Regulatory Enforcement
Fairness Act of 1996,101 requires each
agency to consider the potential impact
of its regulations on small entities,
including small businesses, small
governmental units, and small not-forprofit 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.102
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.103 The Bureau also is subject to
certain additional procedures under the
RFA involving the convening of a panel
to consult with small business
99 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.
100 5 U.S.C. 601 et seq.
101 Public Law 104–121, tit. II, 110 Stat. 857
(1996).
102 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).
103 5 U.S.C. 603 through 605.
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representatives prior to proposing a rule
for which an IRFA is required.104
An IRFA is not required for this
proposal because the proposal, if
adopted, would not have a significant
economic impact on a substantial
number of 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 General QM loan
definition that was in effect prior to
March 1, 2021 expire, and therefore no
creditor—including small entities—
would be able to originate QM loans
under either definition after that date.
Under the proposal, small entities that
would otherwise not be able to originate
QM loans under these definitions would
be able to originate such loans with QM
status until October 1, 2022. Thus, the
Bureau anticipates that the proposal
would only reduce burden on small
entities relative to the baseline.
Accordingly, the Acting Director
certifies that this proposal, if adopted,
would not have a significant economic
impact on a substantial number of small
entities. The Bureau requests comment
on its analysis of the impact of the
proposal on small entities and requests
any relevant data.
VII. Paperwork Reduction Act
Under the Paperwork Reduction Act
of 1995 (PRA),105 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.
The proposal would 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 proposal 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.
The Bureau welcomes comments on
these determinations or any other aspect
of the proposal for purposes of the PRA.
104 5
U.S.C. 609.
U.S.C. 3501 et seq.
105 44
PO 00000
Frm 00020
Fmt 4702
Sfmt 4702
List of Subjects
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 proposes to
amend Regulation Z, 12 CFR part 1026,
as set forth below:
PART 1026—TRUTH IN LENDING
(REGULATION Z)
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.
2. In supplement I to part 1026:
a. Under Section 1026.43—Minimum
Standards for Transactions Secured by
a Dwelling, revise introductory
paragraph 2;
■ b. Under section 43(e)(2) Qualified
mortgage defined—general, add
paragraph 1; and
■ 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
E:\FR\FM\05MRP1.SGM
05MRP1
Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules
than the 2021 General QM
Amendments. For transactions subject
to § 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 § 1026.2(a)(3)(ii). For
transactions that are not subject to
§ 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 § 1026.2(a)(3)(i)
or (ii).
*
*
*
*
*
jbell on DSKJLSW7X2PROD with PROPOSALS
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,
§ 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 § 1026.43(e)(2)(vi), among
other revisions. Both the qualified
mortgage definition in § 1026.43(e)(2)
that was in effect prior to the 2021
General QM Amendments and the
qualified mortgage definition in
§ 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.
*
*
*
*
*
VerDate Sep<11>2014
19:49 Mar 04, 2021
Jkt 253001
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 § 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 § 1026.43(e)(2)(i) thorough (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 and 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: March 2, 2021.
David Uejio,
Acting Director, Bureau of Consumer
Financial Protection.
[FR Doc. 2021–04698 Filed 3–3–21; 4:15 pm]
BILLING CODE 4810–AM–P
PO 00000
12857
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2020–1182; Product
Identifier 2018–SW–036–AD]
RIN 2120–AA64
Airworthiness Directives; Airbus
Helicopters
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
The FAA proposes to
supersede Airworthiness Directive (AD)
2016–08–20 for certain Airbus
Helicopters (previously Eurocopter
France) EC130B4 and EC130T2
helicopters. AD 2016–08–20 requires
repetitively inspecting the tail boom to
Fenestron junction frame (junction
frame) for a crack. Since the FAA issued
AD 2016–08–20, additional cracks have
been reported and a design change that
modifies the junction frame has become
available. This proposed AD would
continue to require inspecting the
junction frame with the horizontal
stabilizer removed, and would propose
to expand the applicability, revise the
compliance time and the inspection
procedures for inspecting the junction
frame, add inspection procedures for
certain helicopters, allow repair of the
junction frame, and would require
modifying and then repetitively
inspecting the junction frame and
reporting certain information. The
actions of this proposed AD are
intended to address an unsafe condition
on these products.
DATES: The FAA must receive comments
on this proposed AD by April 5, 2021.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Docket: Go to
https://www.regulations.gov. Follow the
online instructions for sending your
comments electronically.
• Fax: 202–493–2251.
• Mail: Send comments to the U.S.
Department of Transportation, Docket
Operations, M–30, West Building
Ground Floor, Room W12–140, 1200
New Jersey Avenue SE, Washington, DC
20590–0001.
• Hand Delivery: Deliver to the
‘‘Mail’’ address between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
SUMMARY:
Examining the AD Docket
You may examine the AD docket on
the internet at https://
Frm 00021
Fmt 4702
Sfmt 4702
E:\FR\FM\05MRP1.SGM
05MRP1
]]>Agencies
[Federal Register Volume 86, Number 42 (Friday, March 5, 2021)]
[Proposed Rules]
[Pages 12839-12857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04698]
=======================================================================
-----------------------------------------------------------------------
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: Proposed rule; request for comment.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
proposing to delay the mandatory compliance date of the final rule
titled Qualified Mortgage Definition under the Truth in Lending Act
(Regulation Z): General QM Loan Definition (General QM Final Rule)
until October 1, 2022.
DATES: Comments must be received on or before April 5, 2021.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2021-
0003 or RIN 3170-AA98, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include
Docket No. CFPB-2021-0003 or RIN 3170-AA98 in the subject line of the
message.
Mail/Hand Delivery/Courier: Comment Intake--QM Compliance
Date Delay, Bureau of Consumer Financial Protection, 1700 G Street NW,
Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include the agency name and docket
number or Regulatory Information Number (RIN) for this rulemaking.
Because paper mail in the Washington, DC, area and at the Bureau is
subject to delay, and in light of difficulties associated with mail and
hand deliveries during the COVID-19 pandemic, commenters are encouraged
to submit comments electronically. In general, all comments received
will be posted without change to https://www.regulations.gov. In
addition, once the Bureau's headquarters reopens, comments will be
available for public inspection and copying at 1700 G Street NW,
Washington, DC 20552, on official business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect
the documents by telephoning 202-435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary information or sensitive personal information, such as
account numbers or Social Security numbers, or names of other
individuals, should not be included. Comments will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Ben Cady, Mark Morelli, Amanda
Quester, or Priscilla Walton-Fein, Senior Counsels, Office of
Regulations, at 202-435-7700. If you require this document in an
alternative electronic format, please contact
[email protected].
[[Page 12840]]
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed 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, its points-and-fees limits, and its
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. In December 2020, the Bureau issued the General QM
Final Rule, which amended Regulation Z by replacing the General QM loan
definition's DTI limit with a limit based on loan pricing and making
other changes to the General QM loan definition.\1\ The General QM
Final Rule took effect on March 1, 2021, and it provides a mandatory
compliance date of July 1, 2021. For covered transactions for which
creditors receive an application on or after the March 1, 2021
effective date and before the July 1, 2021 mandatory compliance date,
creditors have the option of complying with either the revised General
QM loan definition or the General QM loan definition in effect prior to
March 1, 2021. Only the revised General QM loan definition is available
for applications received on or after July 1, 2021.
---------------------------------------------------------------------------
\1\ 85 FR 86308 (Dec. 29, 2020).
---------------------------------------------------------------------------
The Bureau is proposing to delay the mandatory compliance date of
the General QM Final Rule until October 1, 2022. Specifically, the
proposal would amend comments 43-2 and 43(e)(4)-2 and -3 to reflect an
extension of the mandatory compliance date of the General QM Final Rule
by changing the date ``July 1, 2021'' where it appears in those
comments to ``October 1, 2022.'' The proposal would also add 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.
If this proposal is finalized, for covered transactions for which
creditors receive an application on or after March 1, 2021 and before
October 1, 2022, creditors would have the option of complying with
either the revised General QM loan definition or the General QM loan
definition in effect prior to March 1, 2021. Under the proposal, the
revised regulations would apply to covered transactions for which
creditors receive an application on or after October 1, 2022.
The ATR/QM Rule also defines a second, temporary category of QMs
for 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 proposed 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.\2\ Therefore, under the
proposal, the Temporary GSE QM loan definition would expire upon the
earlier of October 1, 2022 or the date the applicable GSE exits Federal
conservatorship (rather than on the current mandatory compliance date
of July 1, 2021 or the date the applicable GSE exits Federal
conservatorship).
---------------------------------------------------------------------------
\2\ 85 FR 67938 (Oct. 26, 2020).
---------------------------------------------------------------------------
As discussed below, the Bureau is proposing to delay 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, particularly those affected by the COVID-19 pandemic. This
proposal would not make 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 Final Rule.
The Bureau proposes that a final rule based on this proposal be
effective 60 days after publication in the Federal Register. The Bureau
anticipates that this would make the final rule effective before the
current July 1, 2021 mandatory compliance date.
II. Background
A. Dodd-Frank Act Amendments to the Truth in Lending Act and the
January 2013 Final Rule
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) \3\ amended the Truth in Lending Act (TILA) \4\ to
establish, among other things, ability-to-repay (ATR) requirements in
connection with the origination of most residential mortgage loans.\5\
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.\6\ TILA
identifies the factors a creditor must consider in making a reasonable
and good faith 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.\7\
---------------------------------------------------------------------------
\3\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\4\ 15 U.S.C. 1601 et seq.
\5\ Dodd-Frank Act sections 1411-12, 1414, 124 Stat. 1376, 2142-
49; 15 U.S.C. 1639c.
\6\ 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).
\7\ 15 U.S.C. 1639c(a)(3).
---------------------------------------------------------------------------
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.\8\
The statute generally defines a QM to mean any residential mortgage
loan for which:
---------------------------------------------------------------------------
\8\ 15 U.S.C. 1639c(b)(1).
---------------------------------------------------------------------------
The loan does not have negative amortization, interest-
only payments, or balloon payments;
The loan term does not exceed 30 years;
[[Page 12841]]
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.\9\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 1639c(b)(2)(A).
---------------------------------------------------------------------------
In January 2013, the Bureau issued a final rule amending Regulation
Z to implement TILA's ATR requirements (January 2013 Final Rule).\10\
The January 2013 Final Rule became effective on January 10, 2014. This
proposal refers to the January 2013 Final Rule and later amendments
\11\ to it collectively as the ATR/QM Rule or the Rule. The ATR/QM Rule
implements the statutory ATR provisions discussed above and defines
several categories of QMs, two of which are discussed below.\12\
---------------------------------------------------------------------------
\10\ 78 FR 6408 (Jan. 30, 2013).
\11\ 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).
\12\ 12 CFR 1026.43(c), (e). The ATR/QM Rule created several
additional categories of QMs. The first additional category
consisted of mortgages eligible to be insured or guaranteed (as
applicable) by HUD (FHA loans), the U.S. Department of Veterans
Affairs (VA loans), the U.S. Department of Agriculture (USDA loans),
and the Rural Housing Service (RHS loans). 12 CFR
1026.43(e)(4)(ii)(B) through (E), as was in effect on February 26,
2021. This temporary category of QMs no longer exists because the
relevant Federal agencies have since issued their own QM rules. See,
e.g., 24 CFR 203.19 (HUD rule). Other categories of QMs provide more
flexible standards for certain loans originated by certain small
creditors. 12 CFR 1026.43(e)(5), (f); cf. 12 CFR 1026.43(e)(6)
(applicable only to covered transactions for which the application
was received before Apr. 1, 2016).
---------------------------------------------------------------------------
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:
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\
---------------------------------------------------------------------------
\13\ 12 CFR 1026.43(e)(2)(i) through (iii).
---------------------------------------------------------------------------
The creditor underwrites the loan based on a fully
amortizing schedule using the maximum rate permitted during the first
five years; \14\
---------------------------------------------------------------------------
\14\ 12 CFR 1026.43(e)(2)(iv).
---------------------------------------------------------------------------
The creditor considers and verifies the consumer's income
and debt obligations in accordance with appendix Q; \15\ and
---------------------------------------------------------------------------
\15\ 12 CFR 1026.43(e)(2)(v), as was in effect on February 26,
2021.
---------------------------------------------------------------------------
The consumer's DTI ratio is no more than 43 percent,
determined in accordance with appendix Q.\16\
---------------------------------------------------------------------------
\16\ 12 CFR 1026.43(e)(2)(vi), as was in effect on February 26,
2021.
---------------------------------------------------------------------------
Appendix Q contained standards for calculating and verifying debt
and income for purposes of determining whether a mortgage satisfies the
43 percent DTI limit for General QMs. The standards in appendix Q were
adapted from guidelines maintained by Federal Housing Administration
(FHA) when the January 2013 Final Rule was issued.\17\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
A second category of QMs defined by the January 2013 Final Rule,
Temporary GSE QMs, consisted 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 the 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\
As discussed further below in part II.C.1, the Bureau issued a final
rule in October 2020 extending the expiration of the Temporary GSE QM
loan definition.\21\
---------------------------------------------------------------------------
\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.
\21\ 85 FR 67938 (Oct. 26, 2020).
---------------------------------------------------------------------------
B. The Bureau's Assessment of the ATR/QM Rule, Requests for
Information, and the ANPR
Section 1022(d) of the Dodd-Frank Act requires the Bureau to assess
each of its significant rules and orders and to publish a report of
each assessment within five years of the effective date of the rule or
order.\22\ In January 2019, the Bureau published its ATR/QM Rule
Assessment Report.\23\ During the period leading up to and following
the issuance of the Assessment Report, the Bureau solicited and
received substantial public and stakeholder input on issues related to
the ATR/QM Rule.\24\
---------------------------------------------------------------------------
\22\ 12 U.S.C. 5512(d).
\23\ See generally 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 (Assessment Report).
\24\ See, e.g., 82 FR 25246 (June 1, 2017) (request for
information in connection with the Bureau's assessment of the ATR/QM
Rule); 83 FR 10437 (Mar. 9, 2018) (request for information on the
Bureau's rulemaking process); 83 FR 12286 (Mar. 21, 2018) (request
for information on the Bureau's adopted regulations and new
rulemaking authorities); 83 FR 10437 (Mar. 9, 2018) (request for
information on the Bureau's inherited regulations and inherited
rulemaking authorities). In response to these requests for
information, the Bureau received comments on the ATR/QM Rule from a
wide variety of stakeholders.
---------------------------------------------------------------------------
On July 25, 2019, the Bureau issued an advance notice of proposed
rulemaking regarding the ATR/QM Rule (ANPR). The ANPR stated the
Bureau's tentative plans to allow the Temporary GSE QM loan definition
to expire in January 2021 or after a short extension. The Bureau also
stated that it was considering whether to propose revisions to the
General QM loan definition in light of the potential expiration of the
Temporary GSE QM loan definition and requested comments on several
topics related to the General QM loan definition.\25\
---------------------------------------------------------------------------
\25\ 84 FR 37155, 37160-62 (July 31, 2019).
---------------------------------------------------------------------------
C. The Bureau's 2020 QM Final Rules
In 2020, the Bureau issued three final rules related to the ATR/QM
Rule: The Patch Extension Final Rule, the General QM Final Rule, and
the Seasoned QM Final Rule. These final rules are discussed below.
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.\26\
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
[[Page 12842]]
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 upon the earlier of the mandatory compliance date of the final
amendments to the General QM loan definition or the date the applicable
GSE exits Federal conservatorship.
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\26\ 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.\27\ 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 a
limit based on the loan's pricing. Under the General QM Final 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 final rule provided higher thresholds for
loans with smaller loan amounts, for certain manufactured housing
loans, and for subordinate-lien transactions. The final rule also
requires that the creditor consider the consumer's DTI ratio or
residual income, income or assets other than the value of the dwelling
(including any real property attached to the dwelling) securing the
loan, and debts and verify the consumer's income or assets other than
the value of the property securing the transaction and debts. The final
rule also provides a safe harbor for compliance with the verification
requirement if a creditor complies with verification standards in
certain manuals listed in the rule.\28\
---------------------------------------------------------------------------
\27\ 85 FR 86308 (Dec. 29, 2020).
\28\ See comment 43(e)(2)(v)(B)-3.i.
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The General QM Final Rule had an effective date of March 1, 2021
but provided a mandatory compliance date of July 1, 2021. Therefore,
for covered transactions for which creditors receive an application on
or after March 1, 2021 and before July 1, 2021, creditors have the
option of complying with either the revised General QM loan definition
or the General QM loan definition in effect prior to March 1, 2021.
Under the Patch Extension Final Rule, described above, the Temporary
GSE QM loan definition will expire on the mandatory compliance date of
the General QM amendments. Therefore, for covered transactions for
which creditors receive an application before July 1, 2021, creditors
may also originate Temporary GSE QM loans.
3. The Seasoned QM Final Rule
The Bureau issued the Seasoned QM Final Rule on December 10, 2020.
It was published in the Federal Register on December 29, 2020.\29\ The
Seasoned QM Final Rule created a new category of QMs for first-lien,
fixed-rate covered transactions that have met certain performance
requirements over a seasoning period of at least 36 months, are held in
portfolio by the originating creditor or first purchaser until the end
of the seasoning period, comply with general restrictions on product
features and points and fees, and meet certain underwriting
requirements.\30\ The Seasoned QM Final Rule took effect on March 1,
2021. Under the Seasoned QM Final Rule, the revised regulations apply
to covered transactions for which creditors receive an application on
or after this effective date. Thus, due to the seasoning period, no
loan will be eligible to become a Seasoned QM until at least 36 months
after March 1, 2021.
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\29\ 85 FR 86402 (Dec. 29, 2020).
\30\ Id.
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4. February 2021 Statement Regarding General QM and Seasoned QM Final
Rules
On February 23, 2021, the Bureau issued a Statement on Mandatory
Compliance Date of General QM Final Rule and Possible Reconsideration
of General QM Final Rule and Seasoned QM Final Rule (Statement).\31\
The Statement was published in the Federal Register on February 26,
2021.\32\ The Statement indicated that the Bureau is considering
whether to initiate a rulemaking to revisit the Seasoned QM Final Rule.
It also noted that if the Bureau decides to do so, it expects that it
will consider in that rulemaking 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
Statement also indicated that the Bureau expected to issue shortly a
proposed rule that would delay the July 1, 2021 mandatory compliance
date of the General QM Final Rule and that the Bureau will consider at
a later date whether to initiate another rulemaking to reconsider other
aspects of the General QM Final Rule.
---------------------------------------------------------------------------
\31\ 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.
\32\ 86 FR 11623 (Feb. 26, 2021).
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D. The Effects of the COVID-19 Pandemic on the Mortgage Markets
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 6.3 percent in January 2021,\33\ 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 61.4 percent in January 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 government and GSE-backed loans.
However, the share of origination activity outside the government and
GSE-backed origination channels 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
tight. The pandemic's impact on both the secondary market for new
originations and on the servicing of existing mortgages is described
below.
---------------------------------------------------------------------------
\33\ News Release, Bureau of Labor Statistics, U.S. Dep't of
Labor, USDL-21-0158, The Employment Situation (Feb. 5, 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 Feb. 5, 2021 The Employment Situation news release).
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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.\34\ The lack of
investor demand to purchase mortgages, combined with a large supply of
agency mortgage-backed
[[Page 12843]]
securities (MBS) entering the market,\35\ resulted in widening spreads
between the rates on a 10-year Treasury note and mortgage interest
rates.\36\ 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,'' \37\ market
conditions improved substantially.\38\ 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.
---------------------------------------------------------------------------
\34\ 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).
\35\ Agency MBS are backed by loans guaranteed by Fannie Mae,
Freddie Mac, and the Government National Mortgage Association
(Ginnie Mae).
\36\ 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).
\37\ 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.
\38\ CARES Act Hearing, supra note 34, at 3.
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Because non-agency MBS \39\ 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.\40\ 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.\41\ Many non-QM
creditors--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.\42\ 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-QM
market \43\ to continue to strengthen in 2021 and recover to its pre-
pandemic levels of production.\44\
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\39\ 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.
\40\ 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).
\41\ 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).
\42\ 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).
\43\ Refers to the non-QM market as defined by the January 2013
Final Rule. With the effective date of the price-based approach in
the revised General QM loan definition, many of these loans
historically considered non-QM may qualify for QM status after March
1, 2021.
\44\ 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).
---------------------------------------------------------------------------
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 61.9 percent in the third quarter of 2020, up from 45.3
percent in the third quarter of 2019. One analysis found that the FHA
and U.S. Department of Veterans Affairs (VA) share declined slightly to
17.4 percent from 19.5 percent a year prior.\45\
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\45\ Laurie Goodman et al., Urban Inst., Housing Finance at a
Glance, Monthly Chartbook (Jan, 2021), https://www.urban.org/sites/default/files/publication/103539/housing-finance-at-a-glance-a-monthly-chartbook-january-2021_1.pdf (Housing Finance at a Glance)
(on file).
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[[Page 12844]]
Portfolio lending declined to 19.6 percent in the third quarter of
2020, down from 33.3 percent in the third quarter of 2019, and private
label securitizations declined to 1 percent from 1.8 percent a year
prior.
[GRAPHIC] [TIFF OMITTED] TP05MR21.010
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) \46\ 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.
---------------------------------------------------------------------------
\46\ Public Law 116-136, 134 Stat. 281 (2020).
---------------------------------------------------------------------------
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.\47\ 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.
---------------------------------------------------------------------------
\47\ 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.\48\
[[Page 12845]]
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
5.22 percent for the week ending February 14, 2021, they have decreased
since reaching their high of 8.55 percent on June 7, 2020.\49\ However,
the rate of decline has begun to slow, as illustrated in Figure 2
below.
---------------------------------------------------------------------------
\48\ 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, the 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.
\49\ Press Release, Mortg. Bankers Ass'n, Share of Mortgage
Loans in Forbearance Declines to 5.22% (Feb. 22, 2021), https://www.mba.org/2021-press-releases/february/share-of-mortgage-loans-in-forbearance-declines-to-522-percent.
[GRAPHIC] [TIFF OMITTED] TP05MR21.011
Because many mortgage servicers also originate the loans they
service, many creditors, as well as several warehouse providers,\50\
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.\51\ An ``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 moratoriums, and other
default servicing expenses.\52\ 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,\53\ concerns over non-bank
liquidity, and related credit overlays have eased, although Federal
regulators continue to monitor the situation.\54\ 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 moratoriums and COVID-19 forbearance plans on the
mortgage market as well as lender capacity constraints due to strong
refinance demand.
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\50\ Warehouse providers are creditors that provide financing to
mortgage originators and servicers to fund and service loans.
\51\ 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).
\52\ 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.
\53\ 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 servicerliquidity facility
(Apr. 7, 2020), https://www.ginniemae.gov/newsroom/Pages/PressReleaseDispPage.aspx?ParamID=194.
\54\ Fin. Stability Oversight Council, U.S. Dep't of the
Treasury, 2020 Annual Report, at 169, https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf.
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III. Legal Authority
The Bureau is proposing 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,
[[Page 12846]]
orders, and guidelines.'' \55\ 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.\56\
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\55\ 12 U.S.C. 5581(a)(1)(A).
\56\ 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.\57\ 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.'' \58\
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.\59\ The
Bureau is proposing to issue this proposed rule pursuant to its
rulemaking, adjustment, and exception authority under TILA section
105(a).
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\57\ 15 U.S.C. 1604(a).
\58\ 15 U.S.C. 1601(a).
\59\ 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).\60\ The Bureau is proposing to issue this proposed
rule pursuant to its authority under TILA section 129C(b)(2)(A)(vi).
---------------------------------------------------------------------------
\60\ 15 U.S.C. 1639c(b)(2)(A).
---------------------------------------------------------------------------
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.\61\ In addition, TILA section
129C(b)(3)(A) directs the Bureau to prescribe regulations to carry out
the purposes of section 129C.\62\ The Bureau is proposing to issue this
proposed rule pursuant to its authority under TILA section
129C(b)(3)(B)(i).
---------------------------------------------------------------------------
\61\ 15 U.S.C. 1639c(b)(3)(B)(i).
\62\ 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.\63\ TILA and
title X of the Dodd-Frank Act are Federal consumer financial laws.
Accordingly, the Bureau is proposing to exercise 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.
---------------------------------------------------------------------------
\63\ 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, and prior to July 1,
2021, creditors seeking to originate General QMs have the option of
complying with either the revised General QM loan definition or the
version of the General QM loan definition that was in effect prior to
March 1, 2021. This comment also explains that, for 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 General QM loan definition.
Additionally, under the Patch Extension Final Rule, 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. Therefore, creditors
seeking to originate QMs have the additional option of complying with
the Temporary GSE QM loan definition, if the application for the
covered transaction was received before either July 1, 2021 or the date
the applicable GSE ceases to operate under conservatorship, whichever
comes first.
The Bureau is proposing to delay the mandatory compliance date of
the General QM Final Rule until October 1, 2022. Specifically, the
proposal would amend comment 43-2 to extend the mandatory compliance
date of the General QM Final Rule by changing July 1, 2021, where it
appears in that comment, to October 1, 2022. As discussed below in the
section-by-section analysis of Sec. 1026.43(e)(2), the Bureau is also
proposing to add comment 43(e)(2)-1 to clarify that both the General QM
loan definition that was in effect prior to the effective date of the
General QM Final Rule and the General QM loan definition as amended by
the General QM Final Rule 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. Finally, as discussed below in the
section-by-section analysis of Sec. 1026.43(e)(4), the Bureau is
proposing to change July 1, 2021, where it appears in the commentary to
Sec. 1026.43(e)(4), to October 1, 2022.
This proposal would extend by 15 months--from July 1, 2021 to
October 1, 2022--the period during which the revised General QM loan
definition, the General QM loan definition that was in effect prior to
March 1, 2021, and the Temporary GSE QM loan definition all would be
available to creditors. Specifically, for transactions for which a
creditor received the consumer's application on or after March 1, 2021
and prior to October 1, 2022, creditors seeking to originate General
QMs would have the option of complying with either the revised General
QM loan definition or the version of the General QM loan definition
that was in effect prior to March 1, 2021. For transactions for which a
creditor received the consumer's application on or after October 1,
2022, creditors seeking to originate General QMs would have to use the
revised 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--creditors seeking to originate QMs would have
the additional option of
[[Page 12847]]
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.
Reasons the General QM Final Rule Adopted the July 1, 2021 Mandatory
Compliance Date
The General QM Final Rule adopted a mandatory compliance date of
July 1, 2021 because the Bureau concluded that this date would give
creditors and the secondary market sufficient time--approximately six
months from the date the Bureau expected that final rule to be
published in the Federal Register--to prepare to comply with the
General QM Final Rule's amendments to the ATR/QM Rule.\64\ The General
QM Final Rule noted that the COVID-19 pandemic had significantly
disrupted the mortgage market.\65\ Nevertheless, the Bureau finalized a
July 1, 2021 mandatory compliance date, taking into consideration
market conditions at the time and concerns about the perceived negative
effects of the Temporary GSE QM loan definition on the market.
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\64\ The Bureau stated that, with respect to the price-based
thresholds in revised Sec. 1026.43(e)(2)(vi), the Bureau understood
that creditors currently calculate the APR and APOR for mortgage
loans. The Bureau also stated that the revised consider requirements
generally reflected existing market practices and that creditors
currently used and were familiar with the verification standards
that the General QM Final Rule adopted. The Bureau also concluded
that the General QM Final Rule would be less complex to implement
relative to other rules the Bureau has issued, such as the January
2013 Final Rule or TILA-RESPA Integrated Disclosure Rule. 85 FR
86308, 86385-86 (Dec. 29, 2020).
\65\ Id. at 86313-15.
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Some commenters on the Patch Extension Proposal \66\ and the
General QM Proposal \67\ cited the pandemic in requesting that the
Bureau take different approaches to extending the Temporary GSE QM loan
definition and revising the General QM loan definition than the Bureau
had proposed. Several commenters on the Patch Extension Proposal asked
the Bureau to extend the Temporary GSE QM loan definition to expire
several months after the date creditors would be required to transition
from the old General QM loan definition to the new definition. Among
the reasons cited for the request was that the pandemic was straining
creditors' resources and personnel, making it more difficult for
creditors to adapt to the new definition. A few of these commenters
stated that an overlap period, during which creditors could continue to
make QMs under the Temporary GSE QM loan definition after the date
creditors would be required to transition to the revised General QM
loan definition, would reduce the potential that a revised General QM
loan definition could disrupt the mortgage market and affect credit
access due to unforeseen changes in the economy or the mortgage market
due to the pandemic.\68\
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\66\ 85 FR 41448 (July 10, 2020). The Patch Extension Proposal
was the proposed rule that the Bureau issued in connection with the
Patch Extension Final Rule.
\67\ 85 FR 41716 (July 10, 2020). The General QM Proposal was
the proposed rule that the Bureau issued in connection with the
General QM Final Rule.
\68\ 85 FR 67938, 67949 (Oct. 26, 2020).
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The Bureau declined to adopt an overlap period in the Patch
Extension Final Rule. The Bureau concluded that establishing an overlap
period that extends past the date creditors are required to transition
from the then-current General QM loan definition to the revised General
QM loan definition would keep the Temporary GSE QM loan definition in
place longer than necessary to facilitate a smooth and orderly
transition to a revised General QM loan definition. The Bureau stated
that it sought to maintain the Temporary GSE QM loan definition only as
long as necessary to facilitate a smooth and orderly transition to a
revised General QM loan definition, and no longer, because the Bureau
concluded that the Temporary GSE QM loan definition has certain
negative effects on the mortgage market, including stifling innovation
and the development of competitive private-sector approaches to
underwriting. The Bureau further concluded that, as long as the
Temporary GSE QM loan definition continued to be in effect, the non-GSE
private market was less likely to rebound and that the existence of the
Temporary GSE QM loan definition may have been limiting the development
of the non-GSE private market. For these reasons, the Bureau concluded
that it was appropriate for the Temporary GSE QM loan definition to
remain in place no longer than the date creditors are required to
transition from the then-current General QM loan definition to the
revised General QM loan definition.\69\ (The Bureau also cited these
negative effects in declining to make the Temporary GSE QM loan
definition permanent.) \70\ With respect to commenters' concerns
related to the pandemic, the Bureau stated that conditions in the
mortgage market did not justify extending the Temporary GSE QM loan
definition past the date creditors would be required to transition from
the then-current General QM loan definition to the revised definition,
particularly in light of the aforementioned concerns the Bureau stated
about the negative effects of the Temporary GSE QM loan definition on
the mortgage market.\71\
---------------------------------------------------------------------------
\69\ Id. at 67951. Several commenters on the General QM Proposal
also requested that the Bureau adopt an overlap period. The Bureau
declined to adopt an overlap period in the General QM Final Rule for
the same reasons it declined to adopt an overlap period in the Patch
Extension Final Rule. 85 FR 86308, 86385 (Dec. 29, 2020).
\70\ 85 FR 67938, 67953 n.141 (Oct. 26, 2020).
\71\ Id. at 67953.
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In the General QM Final Rule, several industry commenters requested
a longer implementation period than the six-month period the Bureau
proposed. Some of these commenters stated that the implementation
period should account for other simultaneous challenges for creditors,
including responding to the COVID-19 pandemic and its economic effects.
The Bureau concluded that a six-month implementation period would give
creditors and secondary market participants enough time to prepare to
comply with the final rule, even in light of these challenges. The
Bureau stated that current market conditions did not require a longer
implementation period.\72\
---------------------------------------------------------------------------
\72\ 85 FR 86308, 86385 (Dec. 29, 2020).
---------------------------------------------------------------------------
In addition, two commenters that submitted a joint comment letter
on the Patch Extension Proposal stated that the Temporary GSE QM loan
definition should remain in place until the Bureau assesses the impacts
of the pandemic on mortgage markets, including the decline of the non-
QM market and creditors' increasing reliance on GSE and FHA loans.\73\
In their comments on the General QM Proposal, some consumer advocate
commenters and an individual commenter requested that the Bureau pause
the General QM rulemaking in light of the pandemic. The consumer
advocate commenters cited the turmoil and economic fallout from the
pandemic as a reason to pause the rulemaking.\74\
---------------------------------------------------------------------------
\73\ 85 FR 67938, 67950 (Oct. 26, 2020).
\74\ 85 FR 86308, 86333 (Dec. 29, 2020).
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The Bureau declined to extend the Temporary GSE QM loan definition
indefinitely while the Bureau further assessed the impact of the
pandemic or to pause the General QM rulemaking in light of the
pandemic. However, in the Patch Extension Final Rule, the Bureau noted
that, if market conditions were to change or other circumstances were
to arise before the Bureau issued the General QM Final Rule, the Bureau
could extend the Temporary GSE QM
[[Page 12848]]
loan definition for a longer period of time.\75\
---------------------------------------------------------------------------
\75\ 85 FR 67938, 67953 (Oct. 26, 2020).
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Reasons for the Proposed Extension of the Mandatory Compliance Date
The Bureau is issuing this proposal because it has preliminarily
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
delaying the requirement to comply with the revised General QM loan
definition on July 1, 2021. Upon further evaluation, the Bureau is
concerned 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 preliminarily concludes that maximizing
flexibility to respond to the effects of the pandemic, by delaying the
mandatory compliance date until October 1, 2022, outweighs concerns
that an extension 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 believes 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 moratoriums, the Bureau believes 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
merits of the price-based approach adopted in the General QM Final
Rule. The revised General QM loan definition went into effect on March
1, 2021, and creditors have the option of using that definition to
originate QMs. Rather, this proposal addresses the narrower question of
whether 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 allowing creditors to continue making QMs
under the DTI-based General QM loan definition and under the Temporary
GSE QM loan definition until October 1, 2022.
The Bureau is concerned that requiring creditors seeking to make QM
loans to shift to the price-based General QM loan definition and
limiting their ability to rely on the Temporary GSE QM loan definition
and on the DTI-based General QM loan definition on July 1, 2021 could
reduce access to credit, particularly for certain consumer segments.
The Bureau has two separate concerns related to access to responsible,
affordable mortgage credit, as detailed further below. First, 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
moratoriums--and potential disruptions in the market when those
interventions expire may warrant an extension of the mandatory
compliance date. Second, 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
such concerns may warrant an extension of the mandatory compliance
date.
Impact of foreclosure moratoriums and the expiration of COVID-19
forbearance plans. The Bureau is issuing this proposal because it is
concerned that the impact of the eventual expiration of foreclosure
moratoriums and COVID-19 forbearance plans described in part II.D above
has the potential to lead to additional disruptions in the mortgage
markets. In particular, the Bureau is concerned that such expirations
may create the potential for heightened delinquencies and foreclosures
for consumers who continue to suffer disruptions in their income due to
the COVID-19 pandemic. The Bureau is concerned that, while many
consumers currently in forbearance plans can be assisted through
payment deferrals and loan modifications, there will be some consumers
who will be unable to either resume their mortgage payment or sustain a
modified loan payment and will be forced to either sell their homes or
be placed into foreclosure after the expiration of the foreclosure
moratoriums. The Bureau is concerned 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
believes that the extension of certain forbearance programs and
foreclosure moratoriums may result in these effects continuing longer
than the Bureau anticipated at the time of the General QM Final Rule.
The Bureau preliminarily concludes that extending the mandatory
compliance date of the General QM Final Rule to October 1, 2022 will
provide additional flexibility to creditors originating QM loans.
Specifically, creditors would be permitted to originate General QM
loans under the price-based General QM loan definition that took effect
on March 1, 2021, and would also be allowed to originate General QM
loans in accordance with the DTI-based General QM loan definition that
was in effect prior to March 1, 2021, as well as Temporary GSE QM
loans, for an additional 15 months. As discussed in further detail in
this section, the Bureau is issuing this proposal because providing
such flexibility may benefit struggling consumers who are forced to
sell their property to avoid foreclosure by helping to ensure that
potential purchasers continue to have access to mortgage credit. The
following section (entitled Concerns regarding access to mortgage
credit for consumers) describes the Bureau's concerns that despite
record origination volume, access to credit has remained relatively
tight for consumers with weaker credit. Moreover, this proposal may
also provide some consumers with additional opportunities to refinance
into historically low interest rates.
The Bureau is concerned that the potential impact of the COVID-19
pandemic on the mortgage market may continue for longer than
anticipated at the time the Bureau issued the General QM Final Rule,
and so could warrant additional flexibility in the QM market to ensure
creditors are able to accommodate struggling consumers. Specifically,
as discussed in part II.D, the expiration dates for the foreclosure
moratoriums and enrollment dates for the COVID-19 forbearance plans
have been extended for loans guaranteed or insured by the GSEs, FHA,
VA, and USDA since the publication of the Patch Extension Final Rule
and the General QM Final Rule. Both the GSEs and the government
agencies have also lengthened the permissible forbearance period from
the 12 months mandated in the CARES Act to up to 18 months for certain
loans. Under these revised timelines, most COVID-19 forbearance plans
will expire no later than June 30, 2022.
The Bureau is concerned that the combined impact of the expiration
of the foreclosure moratoriums and the expiration of the COVID-19
forbearance
[[Page 12849]]
plans creates the potential for heightened delinquencies and
foreclosures for consumers who continue to suffer disruptions in their
income due to the COVID-19 pandemic. While many consumers currently in
forbearance plans can be assisted through payment deferrals and loan
modifications, there will be some consumers who will be unable to
sustain a modified loan payment and will be forced to sell their homes
to avoid foreclosure. While rising house prices have increased overall
home equity, which will assist consumers who need to sell their homes
upon the expiration of their forbearance plan, more vulnerable
consumers are likely to have less equity in their homes than the
general population. One analysis indicated that 10.4 percent of
mortgage consumers in forbearance have less than 10 percent equity in
their homes to pay for closing costs, and this share increases to 15.3
percent after taking into account 12 months of deferred interest during
the forbearance period.\76\ If consumers have deferred payments of
taxes and insurance, their equity position will have eroded even
further. Government loans, which tend to have higher loan-to-value
ratios (LTVs) and serve a higher-risk population, have a median LTV at
origination of 96.5 percent as compared to 75 percent LTV for mortgage
borrowers overall.\77\ Accordingly, nearly 20 percent of FHA and VA
mortgages have less than 10 percent equity, and the share increases to
26 percent when taking into account deferred interest.\78\ While some
research suggests borrowers with government loans have an average 22
percent equity buffer given recent home price appreciation, certain
borrower segments and States and localities may remain at risk of
heightened foreclosure activity.\79\ While the foreclosures and
distressed sales are expected to remain far below the levels
experienced during the 2008 financial crisis,\80\ the Bureau
preliminarily concludes that extending the mandatory compliance date
until October 1, 2022, may assist some consumers who need to sell their
homes by providing creditors additional flexibility to continue
originating new QM loans under the Temporary GSE QM loan definition and
under the DTI-based General QM loan definition, as well as under the
price-based approach in the revised General QM loan definition.
Consumers who need to sell their homes may benefit from a broader QM
definition that encourages more potential purchasers to enter the
market and buy properties that might otherwise go into foreclosure.
Extending the Temporary GSE QM loan definition may also provide
additional flexibility for the GSEs to develop and modify potential
pre-foreclosure sale products--such as short sale and deed-in-lieu of
foreclosure programs--to respond to a potential increase in distressed
sales as necessary.
---------------------------------------------------------------------------
\76\ Black Knight, Inc., Deferred Payments During Forbearance
Beginning To Erode Equity Positions (Feb. 3, 2021) https://www.blackknightinc.com/blog-posts/deferred-payments-during-forbearance-beginning-to-erode-equity-positions/ (Deferred
Payments).
\77\ Ginnie Mae, Global Markets Analysis Report (Jan. 2021),
https://www.ginniemae.gov/data_and_reports/reporting/Documents/global_market_analysis_jan21.pdf.
\78\ Deferred Payments, supra note 76.
\79\ Urban Inst., The Predicted Foreclosure Surge Likely Won't
Happen, Even among Financially Vulnerable Borrowers (Feb. 11, 2021),
https://www.urban.org/urban-wire/predicted-foreclosure-surge-likely-wont-happen-even-among-financially-vulnerable-borrowers.
\80\ Id.
---------------------------------------------------------------------------
Under the revised timelines, most COVID-19 forbearance plans will
expire no later than June 30, 2022, at which point the availability of
the Temporary GSE QM loan definition and the General QM loan definition
that was in effect prior to March 1, 2021 could help alleviate adverse
impacts on consumers struggling to keep their homes upon exiting their
forbearance plan. Extending the mandatory compliance date to October 1,
2022, as the Bureau proposes, would make these additional QM
definitions available for three months after the latest date on which
most COVID-19 forbearance plans are set to expire. The Bureau
preliminarily concludes that three months is a sufficient period of
time for creditors to use the additional QM flexibility to assist
consumers whose COVID-19 forbearance plans expire on June 30, 2022 and
whose incomes may not have recovered enough to sustain their pre-
pandemic mortgage payment or a modified mortgage payment.
The Bureau is also concerned that allowing the Temporary GSE QM
loan definition to expire on July 1, 2021 would limit the ability of
the GSEs to originate new loans and could restrict their flexibility to
develop new refinance programs to address emerging consumer needs
during a period of heightened market uncertainty. In the General QM
Final Rule, the Bureau estimated that the price-based approach in the
revised General QM loan definition would preserve access to credit
relative to the status quo with the DTI-based General QM loan
definition and the Temporary GSE QM loan definition. Nevertheless, some
loans that would be QMs under the Temporary GSE QM loan definition or
the DTI-based General QM loan definition would not be eligible under
the revised, price-based General QM loan definition. Maintaining the
availability of all three QM definitions until October 1, 2022 would
maximize refinance options for consumers who have been struggling to
make their mortgage payments or who under more ordinary circumstances
likely have the ability to repay their loans but who may be underwater
on their mortgage as a result of the unique circumstances of the
pandemic.
As discussed earlier and illustrated in Figure 1, the GSEs tend to
play a dominant role during economic downturns and recoveries, and
additional origination flexibilities may prove helpful in the current
market recovery by allowing consumers additional opportunities to
refinance into historically low interest rates. For example, during the
2008 financial crisis, FHFA established the Home Affordable Refinance
Program (HARP) to help homeowners who were unable to refinance their
loans due to a decline in their home value. Approximately 3.5 million
consumers benefited from HARP, and FHFA found that consumers who
refinanced through HARP have had lower delinquency rates compared with
consumers who were eligible for HARP but did not refinance through the
program.\81\ When HARP expired in 2018, FHFA replaced it with the High-
LTV Refinance Programs. These programs allow performing high-LTV (>97
percent) borrowers to access rate-and-term refinances without providing
full income documentation. These refinances may currently obtain QM
status through the Temporary GSE QM loan definition. As discussed
earlier, while the Bureau does not expect widespread home price
declines akin to the 2008 financial crisis, some segments of consumers
and localities could benefit from the existing high-LTV refinance
programs. More generally, extending the Temporary GSE QM loan
definition would also help ensure that the ATR/QM Rule does not impair
FHFA and the GSEs from exercising the flexibility to tailor existing
programs to meet future market changes specific to the COVID-19
pandemic and the regulatory interventions discussed earlier. The Bureau
preliminarily concludes that it would be appropriate to provide such
loans with the QM presumption of compliance with the ATR requirements
under the Temporary GSE QM loan definition, given that such
[[Page 12850]]
programs would be implemented while the GSEs are under the
conservatorship of FHFA.
---------------------------------------------------------------------------
\81\ Fed. Hous. Fin. Agency, Home Affordable Refinance Program
(HARP), https://www.fhfa.gov/PolicyProgramsReearch/Programs/Pages/HARP.aspx (last visited Feb. 23, 2021).
---------------------------------------------------------------------------
The Bureau preliminarily concludes that extending the mandatory
compliance date of the General QM Final Rule to October 1, 2022 will
benefit consumers by providing additional access to responsible,
affordable mortgage credit and flexibility for the GSEs to create and
modify programs to address emerging consumer needs. However, the Bureau
also recognizes that the anticipated effects of this proposal may be
affected by policies, agreements, or legislation created by parties
other than the Bureau. For example, the Preferred Stock Purchase
Agreements (PSPAs) for Fannie Mae and Freddie Mac or restrictions of
FHFA, as regulator and conservator of the GSEs, may restrict the GSEs
from purchasing loans with certain attributes or characteristics.\82\
To the extent that other factors prevent the GSEs from using the
additional flexibilities provided by the extension of the mandatory
compliance date and the Temporary GSE QM loan definition, the impacts
of this proposed rule may be smaller than they otherwise would be.
Nonetheless, the Bureau is issuing this proposal because it is
concerned that mandating that creditors comply with the revised General
QM loan definition on July 1, 2021 could limit options for consumers
struggling due to the disruptive effects of the pandemic, and because
the Bureau is unable to predict how such agreements or restrictions
might change in the future. Accordingly, the Bureau has preliminarily
concluded that the benefits of continued access to credit for consumers
during the pandemic warrant the additional flexibility provided to
creditors through this proposed rule.
---------------------------------------------------------------------------
\82\ On January 14, 2021, the U.S. Department of the Treasury
and the 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.
---------------------------------------------------------------------------
As noted above, in the Patch Extension Final Rule and the General
QM Final Rule, the Bureau declined to extend the Temporary GSE QM loan
definition beyond the July 1, 2021 mandatory compliance date of the
amendments to the General QM loan definition. The Bureau raised
concerns about potential harms from leaving the Temporary GSE QM loan
definition in place longer than necessary, including stifling
innovation and the development of competitive private-sector approaches
to underwriting. The Bureau also stated that, as long as the Temporary
GSE QM loan definition continued to be in effect, the non-GSE private
market was less likely to rebound and that the existence of the
Temporary GSE QM loan definition may have been limiting the development
of the non-GSE private market. For these reasons, the Bureau concluded
that it was appropriate for the Temporary GSE QM loan definition to
remain in place no longer than the date creditors are required to
transition from the then-current General QM loan definition to the
revised General QM loan definition.\83\ The Bureau concluded that the
mandatory compliance date, and the expiration of Temporary GSE QM loan
definition should occur on July 1, 2021. However, the Bureau now
preliminarily concludes that the need to provide maximum flexibility to
address the effects of the pandemic outweighs any, likely minor,
inhibiting effect that extension of the Temporary GSE QM loan
definition could have on new access to credit resulting from new
private sector underwriting approaches or a rebound of the non-GSE
private market during the same period. Moreover, market participants
looking to adopt innovative underwriting approaches or expand the non-
GSE market would have the option to use the price-based General QM loan
definition even if the mandatory compliance period were delayed until
October 1, 2022. Accordingly, the Bureau preliminarily concludes that
leaving the Temporary GSE QM loan definition in place until October 1,
2022 may be appropriate.
---------------------------------------------------------------------------
\83\ 85 FR 67938, 67951 (Oct. 26, 2020). Several commenters on
the General QM Proposal also requested that the Bureau adopt an
overlap period. The Bureau declined to adopt an overlap period in
the General QM Final Rule for the same reasons it declined to adopt
an overlap period in the Patch Extension Final Rule. 85 FR 86308,
86385 (Dec. 29, 2020).
---------------------------------------------------------------------------
Concerns regarding access to mortgage credit for consumers. The
Bureau is also proposing to extend the mandatory compliance date of the
General QM Final Rule 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 further
below, 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. The Bureau is concerned that requiring creditors to transition
to the price-based General QM loan definition on July 1, 2021 and
eliminating the Temporary GSE QM loan definition and the DTI-based
General QM loan definition at that time could exacerbate these credit
access concerns.
As illustrated in Figure 3, first-lien mortgage originations
exceeded $4 trillion in 2020, surpassing the prior record of $3.725
trillion set in 2003,\84\ and originators have faced significant
capacity and resource constraints given strong refinance demand. In
addition, the Board has undertaken extraordinary interventions to
purchase agency MBS in large quantities since March of 2020, which has
exerted downward pressure on MBS yields and thus increased liquidity
for creditors who rely on the ability to sell GSE and government loans
in the secondary markets.\85\
---------------------------------------------------------------------------
\84\ Inside Mortg. Fin., One for the Ages: Home Lenders Set New
Production Record of $4T-Plus (Jan. 27, 2021) https://www.insidemortgagefinance.com/articles/220379-one-for-the-ages-home-lenders-set-new-production-record-of-4t-plus (on file).
\85\ Housing Finance at a Glance, supra note 36.
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[[Page 12851]]
[GRAPHIC] [TIFF OMITTED] TP05MR21.012
The combination of mortgage origination capacity constraints and
increased liquidity in the agency MBS market has led creditors to focus
on GSE originations, which are quicker to close and are generally
considered less risky than FHA-insured mortgages and loans originated
in the private markets. In the short-run, these pandemic-related
capacity constraints could cause the supply of mortgage credit to fall
short of demand from otherwise creditworthy consumers who likely have
the ability to repay. In response, creditors may impose credit overlays
or, more commonly, increase pricing margins \86\ for certain products
that are time-consuming to underwrite or for higher-risk consumers,
including margin increases beyond the risk-based pricing adjustments
typically charged in a market without creditor capacity constraints.
Creditors may raise prices disproportionately for loans that either
take longer to close or have a lower probability of closing to
compensate for the fact that such loans reduce a creditor's total
expected origination volume within a given time period. Overall, these
short-run responses to the pandemic-related capacity constraints could
have the effect of temporarily pricing some creditworthy consumers out
of the market or delaying their ability to obtain a mortgage they
otherwise could repay.
---------------------------------------------------------------------------
\86\ Pricing margins refer to the difference between the rate a
creditor charges and the price at which a creditor can sell the loan
in the secondary market. In addition to risk-based pricing
adjustments that are independent of any adjustments charged in the
secondary market, a creditor may charge additional margin to
compensate for the time and expense of underwriting.
---------------------------------------------------------------------------
Figure 2 illustrates the strong growth of GSE lending in recent
months, showing GSE volume in the third quarter of 2020 was at 61.9
percent, up from 45.3 percent a year prior. By contrast, portfolio
lending declined significantly to 19.6 percent in the third quarter of
2020, compared to 33.3 percent in the third quarter of 2019. Private
label securitizations declined to 1 percent from 1.8 percent a year
prior, and even the FHA and VA share (whose MBS are beneficiaries of
the Board's agency MBS purchases) are down slightly to 17.4 percent
from 19.5 percent a year prior.\87\
---------------------------------------------------------------------------
\87\ Id.
---------------------------------------------------------------------------
Even within the GSE and government markets, some consumers may face
reduced access to credit, as capacity constraints cause mortgage
originators to focus on consumers with the strongest credit.\88\ Figure
4 illustrates potential differences in new credit originated for
consumers with credit scores above and below a 700 credit score in
2020.\89\ Year-over-year, mortgage balances for consumers with a credit
score of at least 700 have increased by 10 percent by the end of 2020,
while mortgage balances for consumers with a credit score below 700
have decreased by nearly 2 percent. In contrast, the auto financing
sector has a far smaller disparity that also remained more consistent
throughout the year.
---------------------------------------------------------------------------
\88\ 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).
\89\ Moody's Analytics Credit Forecast.
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[[Page 12852]]
[GRAPHIC] [TIFF OMITTED] TP05MR21.013
As noted, the Bureau is concerned about the July 1, 2020 mandatory
compliance date of the General QM Final Rule because requiring
creditors to transition to the price-based General QM loan definition
on July 1, 2021, and eliminating the Temporary GSE QM loan definition
and the DTI-based General QM loan definition, could exacerbate these
pandemic-related concerns about access to credit for some consumers. In
the General QM Final Rule, the Bureau stated that maintaining access to
responsible, affordable mortgage credit after the expiration of the
Temporary GSE QM loan definition was a critical policy goal, and the
Bureau found that the price-based approach would further this goal.\90\
The Bureau concluded that the General QM Final Rule's pricing
thresholds best balanced consumers' ability to repay with ensuring
access to responsible, affordable mortgage credit, including for
minority consumers.\91\ However, compared to a market in which
creditors could originate QM loans under the price-based approach in
the revised General QM loan definition, the DTI-based General QM loan
definition, or under the Temporary GSE QM loan definition, there would
be a slightly smaller QM market and potentially reduced access to
credit in a market in which creditors were limited to making General QM
loans under the revised, price-based General QM loan definition.
Extending the mandatory compliance date would retain flexibility for
creditors to originate loans as QMs under the Temporary GSE QM loan
definition and revised General QM loan definition for a longer period
of time. Given the mortgage origination capacity concerns and the
concentration of loans in the GSE channel described above, the Bureau
preliminarily concludes it is appropriate to extend the mandatory
compliance date of the General QM Final Rule to October 1, 2022 to
ensure broad credit access under the particular circumstances arising
from the COVID-19 pandemic, including for loans in the GSE channel.
---------------------------------------------------------------------------
\90\ 85 FR 86308, 86335 (Dec. 29, 2020).
\91\ Id. at 86337.
---------------------------------------------------------------------------
In addition, the Bureau preliminarily concludes that retaining a
broad QM market until October 1, 2022, in which creditors could make
QMs under the price-based approach in the revised General QM loan
definition, the DTI-based General QM loan definition, or the Temporary
GSE QM loan definition, would not significantly increase the likelihood
that risky loans would inappropriately receive a rebuttable presumption
of compliance with ability to repay requirements. In general, the
Bureau expects that creditors will use comparable underwriting for
loans within the DTI-based General QM loan definition and the Temporary
GSE QM loan definition between July 1, 2021 and October 1, 2022 as they
did for loans originated using those same definitions prior to March 1,
2021. As a result, the Bureau expects QM loans originated between July
1, 2021 and October 1, 2022, using the General QM loan definition that
was in effect prior to March 1, 2021 and the Temporary GSE QM loan
definition, will have comparable risk levels to QM loans originated
under those same definitions prior to March 1, 2021.
Moreover, given the above-noted concerns about access to credit for
certain consumers in the existing market, the Bureau has concerns about
requiring creditors to transition to the price-based approach in the
General QM loan definition on July 1, 2021. In part V.B.5 of the
General QM Final Rule,\92\ the Bureau acknowledged that overall market
spreads may expand and tighten over time. The Bureau noted that it
monitors changing market and economic conditions, and it could consider
changes to the pricing thresholds if circumstances warrant. The Bureau
is concerned that, in the
[[Page 12853]]
unique circumstances arising from the COVID-19 pandemic, the combined
effects of strong refinance demand, capacity constraints, and the
volume of consumers with COVID-19 forbearance plans could incentivize
creditors to increase mortgage interest rate spreads for some higher-
risk consumers relative to consumers with cleaner credit. The Bureau is
concerned that this unique situation may result in temporarily reduced
credit access for some higher-risk yet creditworthy consumers than
otherwise would be the case. Specifically, loans that exceed the
pricing thresholds in the General QM Final Rule--including loans with
DTI ratios below 43 percent and GSE loans--will generally not be
eligible for QM status if the application is received on or after the
mandatory compliance date of the General QM Final Rule. This includes
some manufactured housing loans with loan amounts in excess of
$110,260. While some of these consumers may be able to obtain QM loans
due to creditor pricing responses or through other available QM loan
categories, and other consumers may obtain non-QM loans at potentially
higher prices, the Bureau is concerned that a portion of these
consumers may not be able to obtain a mortgage at all. The Bureau
anticipates that as mortgage rates increase, capacity constraints will
be lifted, originator profitability will decline, and these access to
credit concerns will eventually ease. Accordingly, given that the
timing of these events is uncertain, the Bureau has preliminarily
concluded that extending the mandatory compliance date to October 1,
2022 will assist consumers by avoiding unnecessarily constraining the
mortgage market during a period of heightened volatility and stress due
to the COVID-19 pandemic.
---------------------------------------------------------------------------
\92\ Id. at 86339.
---------------------------------------------------------------------------
The Bureau requests comment on all aspects of its proposal to delay
the mandatory compliance date of the General QM Final Rule until
October 1, 2022. The Bureau requests comment on whether the market is
likely to experience disruptions after the expiration of forbearance
programs and foreclosure moratoriums and whether delaying the mandatory
compliance date could provide additional flexibility in responding to
those disruptions. The Bureau also requests comment on the extent to
which some consumer segments are experiencing impaired access to credit
and on whether delaying the mandatory compliance date could help
address such access-to-credit concerns. The Bureau requests comment on
whether the mandatory compliance date should be extended and, if so,
whether the extension should be longer or shorter than the proposed
delay to October 1, 2022.
The Bureau also proposes that a final rule based on this proposal
be effective 60 days after publication in the Federal Register. The
Bureau anticipates that this would make the final rule effective before
the current July 1, 2021 mandatory compliance date.
Proposed Revisions to Commentary
For the reasons described above, the Bureau is proposing to amend
comment 43-2 to reflect an extension of the mandatory compliance date
of the price-based General QM loan definition to October 1, 2022.
Currently, comment 43-2 states that 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). Comment 43-2 states further that
compliance with the 2021 General QM Amendments is mandatory with
respect to transactions for which a creditor received an application on
or after July 1, 2021 (mandatory compliance date). Comment 43-2 states
further that, for a given transaction for which a creditor received an
application on or after March 1, 2021 but prior to July 1, 2021, 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 the reasons described above, the Bureau proposes to change the
references to July 1, 2021 in this comment to October 1, 2022. The
proposal would not amend the portion of comment 43-2 that describes how
to determine the application date. The explanations in part VII.C of
the Supplementary Information to the General QM Final Rule regarding
how the effective date, optional early compliance period, and mandatory
compliance date apply to transactions would remain accurate, except
that references to July 1, 2021 would apply to October 1, 2022
instead.\93\
---------------------------------------------------------------------------
\93\ 85 FR 86308, 86386-87 (Dec. 29, 2020).
---------------------------------------------------------------------------
43(e) Qualified Mortgages
43(e)(2) Qualified Mortgages Defined--General
The Bureau is proposing to add 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.
Specifically, proposed comment 43(e)(2)-1 references comment 43-2 and
explains that, prior to the effective date of the 2021 General QM
Amendments, Sec. 1026.43(e)(2) provided a QM 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 may not exceed
43 percent. Proposed comment 43(e)(2)-1 further explains that the 2021
General QM Amendments removed that requirement and replaced it with the
APR thresholds in Sec. 1026.43(e)(2)(vi), among other revisions.
Proposed comment 43(e)(2)-1 explains that both the QM definition in
Sec. 1026.43(e)(2) that was in effect prior to the 2021 General QM
Amendments and the General QM loan 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. Proposed comment
43(e)(2)-1 cross-references 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
Comment 43(e)(4)-2 currently provides that 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 July 1, 2021,
continue to be QMs, including those covered transactions that were
consummated on or after July 1, 2021. The headers for comments
43(e)(4)-2 and -3 refer to July 1, 2021 as the General QM Final Rule's
mandatory compliance date.
[[Page 12854]]
For the reasons described above, the Bureau proposes to change the
references to July 1, 2021 in comment 43(e)(4)-2 and in the headers for
comments 43(e)(4)-2 and -3 to October 1, 2022.
V. Dodd-Frank Act Section 1022(b) Analysis
A. Overview
As discussed above, this proposal would delay the mandatory
compliance date of the General QM loan definition from July 1, 2021 to
October 1, 2022. In developing this proposal, 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 proposed 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 \94\ data, as well as other publicly available sources.
In particular, the data and evidence published in the Bureau's General
QM Final Rule inform this analysis. The Bureau also conducted the
Assessment and issued the Assessment Report as required under section
1022(d) of the Dodd-Frank Act. The Assessment Report provides
quantitative and qualitative information on questions relevant to the
proposed 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.
---------------------------------------------------------------------------
\94\ 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/.
---------------------------------------------------------------------------
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 proposal, 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 seeks additional information or data
which could inform quantitative estimates of such consumer or creditor
responses. The Bureau seeks comment on its analysis and additional
information or data which could inform quantitative estimates of the
number of consumers obtaining GSE-eligible loans which do not satisfy
the consider and verify requirements in the revised General QM loan
definition.
C. Description of the Baseline
The Bureau considers the benefits, costs, and impacts of the
proposal 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, after which the Temporary GSE QM loan
definition and the General QM loan definition that was in effect prior
to March 1, 2021 expire and can no longer be used by creditors to
obtain QM status on new mortgage loans. Under the proposal, the
Temporary GSE QM loan definition and the General QM loan definition
that was in effect prior to March 1, 2021 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 proposal's direct market
impacts would 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, thus allowing
creditors to use the Temporary GSE QM loan definition.
Under the baseline, when the Temporary GSE QM loan definition and
the General QM loan definition that was in effect prior to March 1,
2021 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,\95\ or the Seasoned QM definition. The revised General
QM loan definition, which would be the only type of QM available to
larger creditors following the mandatory compliance date, generally
requires loans to be priced less than 2.25 percentage points above
APOR.\96\
---------------------------------------------------------------------------
\95\ Public Law 115-174, 132 Stat. 1296 (2018).
\96\ 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 would 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 affect these loans because they are currently originated as
QM loans due to either the General QM loan definition that was in
effect prior to March 1, 2021 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
Under-43-Percent-DTI conventional loans and GSE-eligible loans priced
2.25 percentage points or higher above APOR because the Bureau
estimates most loans newly obtaining QM status due to the proposal fall
within those categories. A smaller number of GSE-eligible loans would
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 also 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.\97\ However,
[[Page 12855]]
demand for such loans could increase if housing market conditions
deteriorate.
---------------------------------------------------------------------------
\97\ As of Q3 2020, only 105 loans had been originated through
the GSEs' High-LTV Refinance Option since the inception of the
program. See FHFA Foreclosure Prevention and Refinance Report (Q3
2020), https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/3Q2020FPR.pdf.
---------------------------------------------------------------------------
D. Potential Benefits and Costs to Covered Persons and Consumers
1. Benefits to Consumers
The primary benefit to consumers of the proposal 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. Relative to the baseline, the Bureau estimates 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 proposal due to the
availability of the General QM loan definition that was in effect prior
to March 1, 2021 and the Temporary GSE QM loan definition.\98\ While
many of these consumers may obtain mortgages of some kind under the
baseline, the largest benefits to consumers accrue to the consumers who
would obtain a conventional QM loan under the proposal but would not
obtain a mortgage under the baseline.
---------------------------------------------------------------------------
\98\ 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.
---------------------------------------------------------------------------
Under the baseline, some of these 33,000 consumers may be able to
obtain General QM loans priced below 2.25 percentage points over APOR
due to creditor responses to the General QM Final Rule or obtain QM
loans under the Small Creditor QM definition. Others may instead obtain
FHA loans, likely paying higher total loan costs as discussed in the
General QM Final Rule. Finally, a portion of these consumers may obtain
non-QM loans under the baseline, but the Bureau expects some consumers
may not be able to obtain a mortgage at all.
The proposal would also benefit those consumers seeking GSE-
eligible loans that do not satisfy the consider and verify requirements
in the revised General QM loan definition. Such loans, including GSE
streamlined refinance loans, may not be available to consumers under
the baseline.
2. Benefits to Covered Persons
The proposal'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 proposal, 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 be unable to originate such loans under the General QM loan
definition that was in effect prior to March 1, 2021 or the Temporary
GSE QM loan definition and would instead have 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 proposal 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 proposal
may allow lenders to avoid price reductions on some loans that would be
necessary to satisfy the revised General QM loan definition under the
baseline. This would 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 who 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 proposal. This is likely to occur for
some uncertain fraction of the estimated 33,000 additional conventional
loans within the General QM loan definition that was in effect prior to
March 1, 2021 and the Temporary GSE QM loan definition. Consumers
obtaining such loans would 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 proposal forgo the
benefit of retaining the ATR causes of action and defenses against
foreclosure.
4. Costs to Covered Persons
The proposal would 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 who 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 General QM loan definition that
was in effect prior to March 1, 2021, and the Temporary GSE QM loan
definition, the proposal would 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 proposal would 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 would effectively be
a transfer from these private secondary market participants to
participants in the agency secondary market.
E. Potential Specific Impacts of the Proposed Rule
1. Potential Impact on Depository Institutions and Credit Unions With
$10 Billion or Less in Total Assets, as Described in Section 1026
The proposal'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
[[Page 12856]]
percentage points or higher above APOR, and thus may rely less on the
General QM loan definition that was in effect prior to March 1, 2021
and the Temporary GSE QM loan definition for originating such loans. If
the General QM mandatory compliance date would confer a competitive
advantage to these small creditors in their origination of loans priced
2.25 percentage points or higher above APOR, the proposal would delay
this outcome.
2. Potential Impact of the Proposed Provisions on Consumers in Rural
Areas
The proposal'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).\99\
---------------------------------------------------------------------------
\99\ 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.
---------------------------------------------------------------------------
VI. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA),\100\ as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996,\101\ 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.\102\
---------------------------------------------------------------------------
\100\ 5 U.S.C. 601 et seq.
\101\ Public Law 104-121, tit. II, 110 Stat. 857 (1996).
\102\ 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).
---------------------------------------------------------------------------
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.\103\ 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.\104\
---------------------------------------------------------------------------
\103\ 5 U.S.C. 603 through 605.
\104\ 5 U.S.C. 609.
---------------------------------------------------------------------------
An IRFA is not required for this proposal because the proposal, if
adopted, would not have a significant economic impact on a substantial
number of 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
General QM loan definition that was in effect prior to March 1, 2021
expire, and therefore no creditor--including small entities--would be
able to originate QM loans under either definition after that date.
Under the proposal, small entities that would otherwise not be able to
originate QM loans under these definitions would be able to originate
such loans with QM status until October 1, 2022. Thus, the Bureau
anticipates that the proposal would only reduce burden on small
entities relative to the baseline.
Accordingly, the Acting Director certifies that this proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities. The Bureau requests comment on its analysis
of the impact of the proposal on small entities and requests any
relevant data.
VII. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\105\ 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.
---------------------------------------------------------------------------
\105\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The proposal would 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
proposal 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.
The Bureau welcomes comments on these determinations or any other
aspect of the proposal for purposes of the PRA.
List of Subjects
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 proposes to
amend 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
[[Page 12857]]
than the 2021 General QM Amendments. For transactions subject to 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) thorough (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 and 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: March 2, 2021.
David Uejio,
Acting Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-04698 Filed 3-3-21; 4:15 pm]
BILLING CODE 4810-AM-P
