This brief enhances our prior research that outlined three options for replacing the exemption that grants qualified mortgage (QM) status to mortgages with high debt-to-income (DTI) ratios guaranteed by Fannie Mae or Freddie Mac. The exemption, commonly known as the government-sponsored enterprise (GSE) patch, is set to expire on January 10, 2021, or when the GSEs are released from conservatorship, whichever comes first. In the original brief, we recommended that the current DTI-heavy framework should be replaced by the mortgage rate, as it measures risk more holistically than the DTI ratio. This revised brief adds more data and evidence to support that recommendation. Specifically, it shows that for all mortgages originated since 1995, the probability of default was higher for loans with higher rates than for loans with lower rates in any given origination period.

The previous version of this brief can be found here.

This is the submitted version of the following article: Karan Kaul and Laurie S. Goodman, "What, If Anything, Should Replace the QM GSE Patch?" Journal of Structured Finance 24, no. 4 (Winter 2019): 59–67, which has been published in final form at https://jsf.iijournals.com/content/24/4/59.