CFPB pushes for elimination of ‘GSE Patch’

Dear Valued Client,

Anyone that is a client of the firm, or potential client, knows from following me that there is a hard deadline coming down the pike that will have a tremendous affect on consumers ability to purchase or refinance their homes.

While Dodd Frank in 2010 was as we all know a “game changer” for the way mortgages are underwritten, some of the more sever regulations do not kick in until 2020 (ten years after).  Originally the legislation called for mortgages to have no more than a 43% debt to income ratio, however, with what that would have done to the recovering market at the time would have been nothing short of calamitous.  Therefore, regulators allowed for expanded debt to income ratios of up to 50%. To give you an example, more than 50% of all mortgages underwritten in the United States currently have an average debt ratio of 47%.  With the expiration of this “exemption” more than half of the current mortgage applicants would no longer be qualified.  Even if interest rates were ZERO and the price of housing fell 10%, many would still be unable to qualify.

For those that “remain on the fence”, this should be a motivating factor.  We have already begun to see a tightening in the underwriting algorithms of Fannie Mae (DU) and Freddie Mac (LP).

This is the next “game changer”.

The Consumer Financial Protection Bureau has moved to eliminate the so-called “GSE Patch”, a rule that allows Fannie Mae and Freddie Mac to avoid some of the stricter underwriting requirements of the Ability to Repay/Qualified Mortgage (ATR/QM) rule. The patch is set to expire by Jan. 10, 2021.

The CFPB has released a notice stating that it plans to allow the patch to expire in January, or at most offer “a short extension, if necessary, to facilitate a smooth and orderly transition away from the GSE Patch.”

CFPB Director Kathleen Kraninger said the elimination of the patch would result in a “level playing field” for the mortgage market.

“Loans backed by Fannie Mae and Freddie Mac make up a large portion of the US mortgage market,” Kraninger said. “The national mortgage market readjusting away from the patch can facilitate a more transparent, level playing field that ultimately benefits consumers through stronger consumer protection. We want to hear all perspectives on how to move beyond the GSE Patch, the impact on credit, the role of the private mortgage market, and possible modifications to the definition of qualified mortgages and the ruled governing the documentation of debt and income.”

Some industry groups, however, are urging the CFPB not to let the patch expire.

National Association of Realtors President John Smaby acknowledged that the patch was “intended as a temporary measure,” but advocated at least extending it to prevent disruption that “could result in higher costs and/or reduced access to mortgages for otherwise creditworthy homebuyers.”

“Going forward, NAE will continue to advocate for an extension of the patch and a permanent solution that will prevent disruption as we work with the CFPB to secure stability in the housing market,” Smaby said.

The National Association of Hispanic Real Estate Professionals (NAHREP) said that the elimination of the patch would severely limit Hispanic borrowers’ options.

“The expiration of the GSE QM Patch would mean that FHA would be the only remaining QM option for working-class Latinos, and QM is the only dependable source of lending in the market today,” NAHREP said in a statement. “This is problematic because, oftentimes, FHA loans can be more expensive for borrowers.”

When can I get started?

Are you looking for your very best fit when it comes to mortgages? Whether you’re getting a new mortgage, looking for pre approval, refinancing or you’re starting from scratch, our team at Ace Mortgage Loan Corp. can help. For the very best assistance regarding your home mortgage in Pompano Beach, please call our team at Ace Mortgage Loan Corp. Call (954) 777-4774 today.

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