Last year, approximately 400,000 high-debt-to-income (DTI) mortgages were deemed to meet the definition of the Consumer Finance Protection Bureau’s qualified mortgage (QM) rule thanks to an exemption that grants QM status to lenders making high-DTI loans if those loans are guaranteed by Fannie Mae or Freddie Mac. This exemption, referred to as the “GSE patch,” is set to expire on January 10, 2021, or when the GSEs (government-sponsored enterprises) are released from conservatorship, whichever comes first. This paper offers three options for addressing the expiring GSE patch and assesses the pros and cons of each. The authors recommend option 2: the QM determination should be made for all loans on the basis of overall riskiness. Both the DTI requirement and the GSE patch should be eliminated.

This brief was updated in October 2018. The updated version includes more data and evidence to support the authors' recommendations.