Eliminating QM’s DTI Requirement Would Preserve Access to Credit

The Consumer Financial Protection Bureau (CFPB) should retain its Qualified Mortgage (QM) safe harbor and product features but remove the debt-to-income (DTI) requirement for prime and near-prime loans when the government-sponsored enterprises’ (GSE) "patch" expires, CUNA and other trade organizations wrote to the CFPB Monday.

The Temporary GSE QM, a category of QM eligible for purchase by Fannie Mae or Freddie Mac, is scheduled to expire in January 2021 or after a short extension. The CFPB issued an advance notice of proposed rulemaking on whether to propose revisions to the definition of QM in light of the planned expiration.

CUNA and the trades propose the following in their joint letter, to coincide with the expiration of the Temporary GSE QM:

  • Eliminate from the general QM category the DTI ratio requirement and the associated Appendix question 1.
  • Maintain and enhance the existing ability-to-repay (ATR) regulatory language; and
  • Maintain the existing QM statutory safe product restrictions that prohibit certain risky loan features and clarify provisions related to documentation and verification of income.

“The Bureau has a unique opportunity to modify the ATR-QM rule to meet the needs of a changing housing market. Elimination of the DTI requirement for prime and near-prime loans would preserve access to sustainable credit for the new generation of first-time homebuyers in a safe and sustainable way and in accordance with the fundamental ATR requirements,” the letter reads. “This change is especially important for reaching historically underserved borrowers, including low- to moderate-income households, and communities of color. Household formation growth is being largely driven by communities of color throughout the nation.

“According to projections by the Urban Institute, in 2030 10.4 million new households will be people of color,” it adds. CUNA continues to believe that lenders should have greater flexibility in determining whether consumers can satisfy ability to repay requirements to ensure and preserve responsible access to mortgage credit for credit union members.