What, if anything, should replace the QM GSE patch?

Brief

What, if anything, should replace the QM GSE patch?

The patch is set to expire on January 10, 2021
August 30, 2018

Abstract

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 in 28 months, on January 10, 2021, or when the GSEs 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.

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