Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): General QM Loan Definition; Delay of Mandatory Compliance Date, 12839-12857 [2021-04698]

Download as PDF jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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: PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 12839 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: http:// 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: E:\FR\FM\05MRP1.SGM 05MRP1 12840 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules jbell on DSKJLSW7X2PROD with PROPOSALS 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). VerDate Sep<11>2014 19:49 Mar 04, 2021 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 Jkt 253001 PO 00000 FR 67938 (Oct. 26, 2020). Frm 00004 Fmt 4702 Sfmt 4702 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). E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules • 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 jbell on DSKJLSW7X2PROD with PROPOSALS 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). VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 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 E:\FR\FM\05MRP1.SGM 05MRP1 12842 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. jbell on DSKJLSW7X2PROD with PROPOSALS 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 VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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). PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 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). E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. jbell on DSKJLSW7X2PROD with PROPOSALS 35 Agency VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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, PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 12843 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). E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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). VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 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- E:\FR\FM\05MRP1.SGM 05MRP1 EP05MR21.010</GPH> jbell on DSKJLSW7X2PROD with PROPOSALS 12844 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 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, E:\FR\FM\05MRP1.SGM 05MRP1 EP05MR21.011</GPH> jbell on DSKJLSW7X2PROD with PROPOSALS Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 12846 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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). jbell on DSKJLSW7X2PROD with PROPOSALS 56 Dodd-Frank VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 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 E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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. PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 12847 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 E:\FR\FM\05MRP1.SGM 05MRP1 12848 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules jbell on DSKJLSW7X2PROD with PROPOSALS 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). VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 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 E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 12849 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). E:\FR\FM\05MRP1.SGM 05MRP1 12850 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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). PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 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. E:\FR\FM\05MRP1.SGM 05MRP1 12851 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 E:\FR\FM\05MRP1.SGM 05MRP1 EP05MR21.012</GPH> jbell on DSKJLSW7X2PROD with PROPOSALS Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 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. E:\FR\FM\05MRP1.SGM at 86339. 05MRP1 EP05MR21.013</GPH> jbell on DSKJLSW7X2PROD with PROPOSALS 12852 jbell on DSKJLSW7X2PROD with PROPOSALS Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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 VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 FR 86308, 86386–87 (Dec. 29, 2020). Frm 00017 Fmt 4702 Sfmt 4702 12853 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. E:\FR\FM\05MRP1.SGM 05MRP1 12854 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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. jbell on DSKJLSW7X2PROD with PROPOSALS 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/. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 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 E:\FR\FM\05MRP1.SGM 05MRP1 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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 jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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 PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 12855 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 E:\FR\FM\05MRP1.SGM 05MRP1 12856 Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules 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 jbell on DSKJLSW7X2PROD with PROPOSALS 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. VerDate Sep<11>2014 19:49 Mar 04, 2021 Jkt 253001 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]


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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.

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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: http://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.
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    \1\ 85 FR 86308 (Dec. 29, 2020).
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    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).
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    \2\ 85 FR 67938 (Oct. 26, 2020).
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    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\
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    \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).
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    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:
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    \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\
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    \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\
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    \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\
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    \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).
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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\
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    \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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \29\ 85 FR 86402 (Dec. 29, 2020).
    \30\ Id.
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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).
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

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\
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    \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).
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    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\
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    \103\ 5 U.S.C. 603 through 605.
    \104\ 5 U.S.C. 609.
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    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.
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    \105\ 44 U.S.C. 3501 et seq.
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    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