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The QM Patch’s Impact on Affordable Housing

The Consumer Financial Protection Bureau (CFPB) recently announced that it would be focusing its attention on the Qualified Mortgage (QM) “Patch” on loans that are eligible to be purchased or guaranteed by either Fannie Mae or Freddie Mac.

While proponents of the QM Patch say that its expiry in 2021 would make homes less affordable, especially in the lower-tier housing market, an article in Forbes points out that if the Trump administration wants to improve housing affordability, "it needs to expand the role of private markets through increased competition."

Writing for Forbes, Norbert Michael, Director of the Center for Data Analysis at The Heritage Foundation, said in the report that the CFPB should announce that the patch will expire at its scheduled time in 2021. "Then, the Bureau can start working on improving the QM and Appendix Q, rules that are likely holding back private lenders," Michael wrote.

Additionally, he said that the Federal Housing Finance Agency (FHFA) should announce three key areas of change in the way Fannie Mae and Freddie Mac will acquire loans including not acquiring loans related to cash-out refinance, non-cash-out refinance, and loans made to nonowner-occupied homes. On the other hand, FHA can work with other agencies to ensure that it doesn't land up taking those high debt-to-income ratio loans that Fannie and Freddie would be giving up.

"Americans would be best served by a vibrant, competitive housing finance market, and they’re simply not going to get one unless these agencies move down this path," Michael said.

The report comes close on the heels of the recent announcement by the Trump administration that it is putting the final touches on a plan to return Fannie Mae and Freddie Mac into private hands. As reported by the Wall Street Journal (WSJ), the plan is being developed by the Treasury in consultation with the FHFA. The WSJ report stated that “people familiar with the Treasury document cautioned it would likely include substantial changes to the business models of the companies, including steps to reduce over time their footprints in housing finance.”

The QM Patch has also been one of the key concerns highlighted by current FHFA Director Mark Calabria. DS News recently reported that among Calabria’s concerns is the “qualified mortgage patch,” which allows more highly leveraged homebuyers to obtain Fannie and Freddie-eligible mortgages. Patch usage has grown in the last few years, and according to Calabria, changing the patch would be a key tool to shrink Fannie and Freddie without a full overhaul, though he states that he does not intend to do away with it entirely.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and copy-editor, and a reporter for DS News. She is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her masters degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha, also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
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