Price-Based Approach Replaces CFPB's Debt-to-Income Limit

June 23, 2020

The National Association of REALTORS® welcomed two proposed rules by the Consumer Financial Protection Bureau on Monday in what it believes will help bring greater stability to the housing market for homebuyers. The CFPB moved to extend its Qualified Mortgage Patch and amend its QM definition by removing a previous debt-to-income limit that home buyers were required to meet, replacing it with a price-based approach that would account for the difference between the loan’s annual percentage rate and the average prime offer rate for a comparable transaction.

The agency called that approach a more flexible measure of a consumer’s ability to repay than just judging DTI alone.

Vince Malta, president of the National Association of REALTORS®, lauded the agency for “acting on behalf of our nation’s consumers and homebuyers at a time when market stability is so critical. Perhaps most importantly, we appreciate the bureau’s decision to eliminate a hard DTI standard, and we look forward to more closely examining the proposed replacements and their impact on home buyers over the coming months.”

The CFPB originally created the QM within the “ability to repay” anti-predatory provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The CFPB says it wanted to be proactive prior to its GSE patch expiration in January 2021, estimating that about 957,000 mortgage loans could have been affected by the expiration of the GSE patch, and those loans would either not be made or would be made at a higher price.

To prevent that, the agency announced the proposed changes to “facilitate a more transparent, level playing field that ultimately benefits consumers through promoting more vigorous competition in mortgage markets,” CFPB Director Kathleen L. Kraninger says. “The Bureau is proposing to replace the patch with a price-based approach to QM loans to preserve consumer access to mortgage loans while also making sure consumers have the ability to repay them.”

The QM rule created the GSE patch as a temporary definition for mortgage loan eligibility for the purchase or guarantee of loans by the government-sponsored enterprises. The CFPB released an assessment of its QM rule last year and found that its QM loans from the GSEs represent a large share of mortgage originations.

The CFPB vowed to take the needed action to ensure “responsible, affordable credit remains available to consumers.”

Read more about the proposed extension of the QM Patchor the general QM loan definition.