Fannie Mae and Freddie Mac Announce Plans to Purchase Only New General Qualified Mortgage Loans

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As previously reported, the CFPB proposed to delay the mandatory compliance date for the new general qualified mortgage (QM) rule that amends the Regulation Z ability to repay/QM rule from July 1, 2021 to October 1, 2022. Comments on the proposal were due by April 5, 2021.

Currently, for applications received before July 1, 2021, lenders may originate loans using the original 43% debt-to-income (DTI) ratio QM loan, the new general QM loan based on an APR limit, and the temporary QM loan based on a loan being eligible for sale to Fannie Mae or Freddie Mac, which is commonly referred to as the “GSE Patch”. Of the three types of QM loans, only the new general QM loan would be available for applications received on or after that date. If the mandatory compliance date of the new general QM rule is extended to October 1, 2022, all three QMs loans could be originated for applications received before that date.

In January 2021 the Preferred Stock Purchase Agreements (PSPAs) regarding Fannie Mae and Freddie Mac were amended. Pursuant to the amendments, with regard to the original 43% DTI ratio QM loan, the new general QM loan based on an APR limit, and the GSE Patch QM loan, as of July 1, 2021 Fannie Mae and Freddie Mac could only purchase new general QM loans. In view of the CFPB proposal to extend the mandatory compliance date for the new general QM loan to October 1, 2022, there was an issue regarding whether the PSPAs would be further amended to continue to provide for the purchase of original 43% DTI ratio QM loans and GSE Patch QM loans after July 1, 2021, if the CFPB finalized the proposed extension.

On April 8, 2021, Fannie Mae issued Lender Letter 2021-09 and Freddie Mac issued Bulletin 2021-13, to provide for the purchase of new general QM loans, and not the original 43% DTI ratio QM loans or GSE Patch QM loans, for applications received on or after July 1, 2021. If this position remains in place, even if the CFPB extends the mandatory compliance date of the new general QM rule beyond July 1, 2021, as a practical matter many lenders will no longer originate 43% DTI ratio QM loans or GSE Patch QM loans for applications received on or after July 1, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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