Without patch, nearly one-third of loans could face new legal liability.

The White House and Senate Banking Committee is pursuing parallel tracks to end the GSEs' federal conservatorships. Any resulting plan must deal with whether GSE-backed loans are still exempt from the Consumer Financial Protection Bureau's Qualified Mortgage rule. "Not doing something to extend the patch would be highly disruptive," said Bob Broeksmit, the president and CEO of the Mortgage Bankers Association. The exemption — known as the GSE "patch" — sunsets in January 2021 or when the conservatorships end, whichever comes first. Unless the patch is extended or the CFPB eases underwriting requirements for all loans, nearly a third of loans backed by the GSEs could face new legal liability. Other government-backed loans such as those insured by the Federal Housing Administration have a similar exemption. The issue of the patch came up at a recent meeting attended by Broeksmit and other trade group leaders with CFPB Director Kathy Kraninger. Lenders — which have long fought to ease the QM rule — and others are concerned about either an administration or legislative plan to end the conservatorships that did not extend the GSE patch or take other measures. Some in the Administration want to reduce the government’s footprint in the residential origination market while encouraging the expansion of private capital. If GSE reform stalls or does not address the QM rule, the CFPB's Kraninger could face increasing pressure either to extend the patch or ease the rule by raising the DTI cap. Currently, nearly a third of GSE loans have DTIs between 43% and 50% but still meet the QM definition. Some observers believe the CFPB should revamp the QM rule to focus on factors other than DTI.

Source: The American Banker