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M R EP O RT | 29 FEATURE ate measure for the General QM; • QM status should be granted to loans with DTI ratios above prescribed limits if certain com- pensating factors are present; • Appendix Q and/or other standards should be used to calculate and verify debt and income; • A revised Rule should only maintain the statutory restric- tions against risky features in lieu of maintaining a DTI ratio; • A 43% DTI ratio should be required for a QM only at a particular APR level, such as 150 basis points over the APOR; • The DTI criterion should be eliminated for certain loans depending on their pricing as long as they meet the statu- tory criteria, as examples: for a loan less than 150 basis points over the APOR—it will receive a QM safe harbor regardless of DTI; between 150 and 300 basis points over APOR—it will receive a rebuttable presumption regardless of its DTI; and for a loan above 300 basis points over APOR—it will receive a rebut- table presumption only if the DTI did not exceed 43%; • The CFPB should amend the rule so that any performing loan that has been on a financial institution's books for at least two years or some longer time would automatically convert to a QM; • The Rule should require the consideration of other credit risk factors in lieu of DTI such as credit score or LTV; and • The Bureau should retain the current line separating safe harbor and rebuttable presump- tion QMs. The ANPR also asked what amount of time would be needed to change the Rules. More than 90 comments were filed by the ANPR's deadline that will likely be considered along with the hundreds submitted in response to the RFIs. A few high- lights from the ANPR comments and the comments on the RFIs as described by the Bureau follow. The comment from the Mortgage Bankers Association urged that the Patch not be al- lowed to expire, to avoid signifi- cant disruption to the mortgage market, until reforms were made to the existing General QM re- quirements. A wide coalition of lenders, consumer, civil rights, and industry associations jointly asked that the DTI requirement either be dropped from the General QM defini- tion entirely or possibly restricted to loans that were not prime or near prime. These organizations also asked that Appendix Q be dropped; that the existing ATR regulatory language be maintained and enhanced; and that the existing statutory safe product restrictions, which prohibit certain risky loan features and clarify provisions relat- ed to documentation and verifica- tion of income also be maintained. These same commenters urged that the rule's underwriting require- ments, product restrictions, and safe harbor to incent compliance were sufficient to serve credit needs and avoid additional credit risk. These commenters also indicated that the DTI ratio was not intended to be a standalone measure of credit risk and is a weak predictor of default and ability to repay. Others pointed out that a bor- rower's rate was based on several relevant factors, not just the DTI ratio. Commenters also indicated that other standalone measures of consumers' finances such as credit score were problematic for many borrowers. Next Steps? B ased on the commentary so far, it is reasonable to expect that the CFPB will soon propose changes to both the General QM and Appendix Q requirements. However, it is not yet clear what direction the proposal might take. Many representing the industry and consumer groups hope the proposal will include a more streamlined QM without the current DTI requirement for most loans that addresses the financing needs of creditworthy borrowers served today by both the General QM and the Patch, at a minimum. Nevertheless, there are numer- ous crosscurrents in the debate and here are a few to consider. As indicated, the ANPR says that the CFPB believes that the expira- tion of the Patch and its lack of a fixed DTI limit might be made up by lending from the non-QM market or the FHA, which can lend without regard to a fixed DTI limit. Borrowers' decisions to spend less for housing might also help. Many question, however, based on experience to date, whether non-QM lending will do much to pick up the slack when the Patch expires. Without legal certainty and a presumption of compliance, non-QM lending is still relatively scarce after nearly six years under the rule. Notably, most non-QM lending is still believed to be confined to meet- ing the needs of jumbo and other more affluent borrowers. Others urge that FHA should not overtax its resources, dimin- ish its focus on minority and first-time borrowers, and increase the government's footprint and risk by serving a large amount of former Patch borrowers. Finally, it is also believed to be unrealistic to assume that an appreciable number of borrowers will be able to cut their housing loan amounts, considering housing costs in many areas of the nation. All of these factors, they urge, point to the need for a broader, more expansive QM to make up for the Patch's expiration. A recent article in a major pub- lication expressed alarm that the GSEs have dramatically expanded their exposure to "risky"—essen- tially high DTI—mortgages that borrowers might not be able to repay in a downturn. Some who read the article note, however, that there is no real discussion of what the default risks might actually be considering the protec- tions under the ATR/QM Rule and other relevant underwriting factors. During the original ATR/QM rulemaking, the CFPB made DTI loan performance data publicly available for review and discus- sion. The article underlines the fact that even more data is likely to be essential for review as the current rulemaking process moves forward. Finally, respondents to the CFPB's RFI in connection with its reassessment of the Rule noted that high DTI lending can lead to a housing boom. Respondents also observed that a General QM limit of a 43% DTI ratio may help constrain such growth, but that these effects may have been diluted by the Patch's allowance of loans with DTI ratios above 43%. Others have responded that QM standards were not intended to provide a new tool to address macroeconomic concerns, and that their purpose is simply to help ensure consumers are of- ferred mortgage loans that they are able to repay. Conclusion T he CFPB has made clear through its actions and pro- nouncements that dealing with the expiration of the Patch is among its highest priorities for the next year. As the rulemaking process progresses, considering the stakes involved, this issue is also likely to be an increasingly high priority for the public, companies, and orga- nizations of all stripes. Stay tuned and stay involved as the discus- sion moves forward. The breadth of mortgage lending in the future is now at the top of the Bureau's agenda. KEN MARKISON is Of Counsel at Weiner Brodsky Kider following decades as a leader in the housing and financial services legal community with long held, distinguished positions with both industry and government.. Before coming to the firm, Markison's career in the industry and government included service as VP and Regulatory Counsel of the Mortgage Bankers Association, Assistant General Counsel for GSEs and RESPA at the U.S. Department of Housing and Urban Development, and HUD liaison to the Oversight Board for the Resolution Trust Corporation.