ABA Letter to CFPB on the Extension for Temporary 'GSE Patch'

Comment Intake
Bureau of Consumer Financial Protection
1700 G Street NW
Washington, DC 20552.

Ladies and Gentlemen,

The American Bankers Association (ABA) appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (Bureau) proposal to amend Regulation Z to replace the sunset date of the Temporary GSE QM loan definition (QM Patch). The Bureau proposes to replace it with a provision that extends the QM Patch until the effective date of the final amendments to the General QM loan definition. It is critical that responsible and affordable mortgage credit remains available to consumers who may be affected if the QM Patch expires before the amendments to the General QM loan definition have been finalized and take effect.

The ABA agrees with the Bureau on the need to extend the QM Patch until the Bureau has finalized the amendments to the General QM loan definition. However, ABA recommends that the QM Patch not expire upon the effective date of the amended General QM loan definition, but be available for an additional 6 months following the effective date of the amended rule to allow creditors adequate time for implementation and systems changes. ABA recommends that the Bureau publish a final rule amending the General QM definition, delay the QM Patch expiration for six months after the effective date of the final rule, and during that six-month period permit lenders to use either the QM Patch or the new General QM definition. Doing so will limit the risk of market disruption and ensure that consumers have access to fair and affordable mortgage
credit.

Extension of the Temporary GSE QM Loan Definition Sunset Date

ABA commends the Bureau on the efforts to reform the QM structure, and agrees that care must be exercised to avoid disruptions to mortgage access as these reforms advance. ABA agrees with the Bureau’s proposal to extend the QM Patch until the amendments to the General QM loan definition are finalized. As recognized by the Bureau’s analysis for the proposed rule, the QM Patch currently supports borrowers who may not otherwise qualify for credit, and offers valuable options for consumers whose debt-to-income ratio may exceed 43 percent. The extension of this temporary definition until the amendments to the general definition can be finalized is essential in sustaining mortgage finance, especially in light of the COVID-19 pandemic and related disruptions in the market.

Expiration of the Temporary GSE QM Loan Definition 6 Months After the Effective Date of the Finalized Rule

In addition to the extension of the sunset date, the QM Patch should remain available for use by lenders for 6 months following the effective date of the  amended General QM loan definition. During this phase-in period, mortgage creditors would be allowed to access the existing GSE Patch provisions and/or the new General QM provisions. The purpose of the 6-month window would be to allow creditors a more seamless transition to the amended QM rule.

Multiple concerns will be alleviated by this 6-month phase-in window. First, the phase-in allows for the identification and resolution of operational ambiguities. In light of the challenges industry is currently working through, lenders may not be aware of the scope of anticipated reforms and required modifications until the rule is finalized. Our members express concern that the proposed QM transition could lead to thus-far unnoticeable impediments in lending and compliance processes. A phase-in period would allow lenders to properly identify and resolve transition difficulties with no reduction in consumer protections.

Second, a phase-in period would avoid transition challenges presented by the current proposal. A sudden transition to a new QM regime would affect loan origination pipelines, as there would be questions about how to handle applications received before the effective date of the new QM definition, but that are scheduled to close after the expiration of the QM Patch. This uncertainty would be avoided with a 6-month transition period during which a lender may comply with either rule concurrently.

Third, we believe that this 6-month phase-in window will give lenders time to assure that they are able to accommodate all changes and demands that are likely to arise from secondary market changes and investor demands without affecting credit availability. In short, the QM changes proposed by the Bureau will lead to new products, re-apportionments of risk, expanded segments of lending, among other effects, and a phase-in period will help avoid interruptions in lending.

ABA is fully supportive of the Bureau’s efforts in this rulemaking, and our members appreciate the opportunity to comment on the proposal. The extensions and accommodations ABA recommends will help banks comply and will assure that consumers retain access to affordable and responsible credit.

If you have any comments or questions about the content of this letter, please contact the ABA’s Rod Alba at 202-663-5592 or Sharon Whitaker at 202-663-5321.

Sincerely.

Rod Alba
SVP & Senior Deputy Counsel
American Bankers Association

Sharon Whitaker
VP, Commercial Real Estate & Finance
American Bankers Association