United States: CFPB ANPR On Qualified Mortgage Rule

On July 25, 2019, the CFPB issued an Advance Notice of Proposed Rulemaking (“ANPR”) on the definition of a “qualified mortgage” under its ability-to-repay/qualified mortgage rule (“ATR/QM rule”).1 The ATR/QM rule requires a creditor to make a reasonable and good faith assessment of a borrower’s reasonable ability to repay most residential mortgage loans before the loan is made.2 A creditor that makes a QM is either conclusively determined (for non-higher priced loans) or rebuttably presumed (for higher-priced loans) to have complied with the ATR/QM/QM rule.3 

The ATR/QM rule delineates several types of QMs, most significantly including a class consisting of loans eligible for sale to or guarantee by Fannie Mae or Freddie Mac (the temporary GSE QM classification). The majority of home purchase loans made today fall into the temporary GSE QM classification.4 The ANPR announces that the Bureau will let this classification sunset on January 10, 2021 (or earlier, in the unlikely event that the GSEs exit the conservatorship of the Federal Housing Finance Agency), and seeks comment on possible changes to the ATR/QM rule to facilitate a smooth transition. Comments are due 45 days from publication of the ANPR in the Federal Register.

Origin of the Temporary GSE QM Classification

The current ATR/QM rule includes a “general QM” classification, which caps a borrower’s debt to income (“DTI”) ratio at 43% and requires the creditor to verify and calculate income, assets, and debts according to the FHA’s 2013 underwriting guidelines (found in the CFPB’s Appendix Q).5 The temporary QM classification covers loans eligible for purchase or guarantee by the GSEs. While there are various differences between the GSEs’ underwriting standards  and the CFPB’s general QM classification, the most significant difference is that the GSEs allow the borrower’s DTI ratio to exceed 43%. The ANPR suggests that the GSEs have used a DTI ratio cap of 45%.6 However, the ANPR acknowledges elsewhere that, of the GSE loans made in 2018 with DTI ratios over 43%, 69%  had DTI ratios over 45%.7 At the time of its promulgation, the temporary GSE QM classification was designed to sunset no later than January 10, 2021, to allow time for the market to transition to the general QM definition.8 

However, the Bureau has found that the temporary GSE QM classification continues to dominate the conventional home purchase market, comprising 71% of that market in 2017.9 The ANPR states that while the Bureau may provide a short extension, it does not intend to  make the temporary GSE QM classification permanent.10 The Bureau explains that a permanent GSE QM classification was not intended when it issued the ATR/QM rule in 2013, and it is concerned about permanent reliance on the GSEs’ underwriting standards, noting that “one GSE loosened its underwriting standards in ways that proved unsustainable” in the lead up to the mortgage crisis.11 The Bureau also explained that retaining the temporary GSE QM could stifle innovation and the reappearance of a private mortgage market.12 

What Happens if the Temporary GSE QM Classification Expires?

The Bureau expects the expiration of the temporary GSE classification to impact borrowers who are ineligible for general QM loans because their DTI ratios exceed 43% (“high DTI borrowers”).13 In 2018, high DTI borrowers comprised 16% of all closed-end first lien residential mortgage originations -- about 957,000 loans.14 Although some high DTI borrowers could qualify for FHA loans, since FHA insures loans to borrowers with DTI ratios up to 57%, there are various potential limitations on the number of these borrowers who actually could obtain FHA loans. For example, the Bureau notes that 11% of high DTI borrowers likely will not qualify for FHA insurance because their requested loan amounts exceed the FHA’s loan limits.15 

The ANPR suggests that some high DTI borrowers might be able to get loans originated by small creditors whose loans are deemed to be QMs if held in portfolio, or by other creditors willing to make non-QM loans.16 According to the ANPR, this would depend on whether “actors in the private market are willing to assume the credit risk associated with funding High-DTI GSE loans.”17 In this regard, the Bureau notes that competition could spring up, because 55% of high DTI borrowers in 2018 had credit scores of at least 680 and loan to value ratios of 80% or less.18 That said, the ANPR implicitly recognizes that the willingness of the private market to step up and make loans to high DTI borrowers is entirely speculative.

The ANPR further states that while some high DTI borrowers will not be able to get loans, others may “make different choices,” including adjusting “their borrowing to result in a lower DTI ratio.”19 In particular, the ANPR seeks comment on how the CFPB could ensure a smooth transition from the temporary GSE QM classification to the general QM classification, including how much time the industry will need to make that transition.20

Should the Bureau Revise the General QM Classification’s Reliance on DTI Ratios?

The ANPR states that the Bureau is considering whether the general QM definition should continue to include “a direct measure of a consumer’s personal finances, such as a DTI ratio or residual income, and how that measure should be structured,” and whether there is “an alternative method for assessing financial capacity.”21 To that end, the Bureau asks for comments in response to several questions about various measures of a consumer’s personal finances, including:

  • Should the general QM classification include only a DTI ratio limit, or replace, or supplement, that limit with residual income or some other measure?
  • If the general QM classification continues to include a DTI ratio, should the 43% limit be modified? 
  • Should the rule include compensating factors for a higher DTI ratio?

In addition, the ANPR, acknowledges some of the problems associated with Appendix Q, such as its rigidity in documenting debt and income and the difficulty in applying its rules for making DTI calculations. The ANPR notes that stakeholders report that these problems are particularly acute for self-employed consumers, consumers with part-time employment, and consumers with irregular or unusual income streams.  We would note that these issues are likely to become even more problematic over time as more potential borrowers derive income from the gig economy and other non-traditional sources.  Thus the ANPR poses the following questions:

  • What standards should be used to calculate and verify debt and income? 
  • Should the Bureau retain Appendix Q, modify it, or require, or allow, creditors to use another standard?  

Because the Bureau is considering using alternatives (e.g., credit scores or loan-to-value ratios) to DTI ratios and other direct measures of a consumer’s personal finances, the Bureau asks several questions, including:

  • Are alternative measures consistent with the purposes of the ATR rule?  What are the advantages and disadvantages of using alternatives to DTI ratios?
  • If the Bureau adopts an alternative measure, should the rule:
    • Continue to grant a safe harbor to loans with APRs that exceed the Average Prime Offer Rate by less than 150 basis points, and only a rebuttable presumption of compliance for loans with higher rate spreads?
    • Continue to permit consumers to rebut a presumption of compliance for higher-priced transactions by showing they lacked sufficient residual income to pay basic living expenses of which the creditor was aware? 

Policy Issues Stemming from Expiration of the Temporary GSE QM

The potential impact of eliminating the temporary GSE QM classification cannot be overstated. The ANPR acknowledges that nearly one million mortgage loans made in 2018 would not have met the general QM test. It appears likely that the vast majority of those loans simply would not have been made. The ANPR states that the FHA and the private mortgage market may fill the void once the temporary GSE QM classification expires, but it is not at all clear that the private mortgage market will step up in this way.   

The ANPR discusses the possible market impact of an expired temporary GSE QM classification, but it will be necessary to dig far deeper to fully appreciate the consequences. If hundreds of thousands of potential borrowers can no longer qualify for a residential mortgage loan, what impact will this have on the U.S. economy? Who are the groups that will be most affected – residents of low- and moderate-income communities, minority groups that historically had more difficulty accessing good mortgage financing, and young adults with student debt? What are the social consequences if mortgage loans are no longer readily available to so many people? How will a significant reduction in mortgage originations affect banks and savings associations that are required by the Community Reinvestment Act to meet the credit needs of their local communities? It remains to be seen how the Bureau will tackle these important issues.

*  *  *

We will continue to monitor developments relating to the ANPR and address significant issues as they arise.


1 https://www.consumerfinance.gov/about-us/newsroom/bureau-releases-qualified-mortgage-anpr/.

2 12 CFR § 1026.43(c).

3 12 CFR § 1026.43(e).

4 ANPR at 14.

5 12 CFR § 1026.43(e).

6 ANPR at 10, ftnt. 35.

7 ANPR at 16, ftnt. 57.

8 ANPR at 8.

9 ANPR at 14, citations omitted.

10 ANPR at 19.

11 ANPR at 19.

12 The ANPR states that the Bureau may provide a short extension of the temporary QM classification to facilitate a smooth transition. 

13 ANPR at 16.

14 ANPR at 16.

15 ANPR at 17.

16 ANPR at 18.

17 ANPR at 18.

18 ANPR at 18.

19 ANPR at 18.

20 ANPR at 28-29.

21 ANPR at 20.

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.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions