GSE guidance for revised General QM definition
Fannie Mae and Freddie Mac (FNMA or FHLMC, respectively, or the “GSEs” collectively) recently provided additional guidance on their changes in response to the revised General QM definition, as well as their Preferred Stock Purchase Agreement (“PSPA”) with the Federal Housing Finance Agency (“FHFA”).
As we discussed in our prior article last month, “GSEs announce plans to limit purchases to loans meeting revised General QM rule,” the GSEs have entered into a Preferred Stock Purchase Agreement with the FHFA which requires the GSEs to only accept for purchase those loans meeting the new, revised General QM definition as of its original mandatory compliance date on July 1, 2021. The CFPB has since officially postponed the mandatory compliance date of the new rule to October 1, 2022, as discussed here.
The new guidance released by the GSEs last week reiterates their previously announced position, that due to the terms of the PSPA with the FHFA, only loans meeting the new definition of General QM will be accepted for purchase, as of loans with an application date of July 1, 2021 or after, or with a settlement date after Aug. 31, 2021, no matter the loan’s application date. Effectively, this means there will be no “GSE Patch” or Temporary Agency carve out to the General QM rule as of these dates, and all loans with an application date of July 1 or later will be expected to comply with the new General QM definition.
Note, the GSE Patch to the prior General QM definition allowed loans eligible for sale to the GSEs to meet the General QM definition up until the sunset date (prior date was Jan. 10, 2021, then modified to match the new mandatory compliance date of the new General QM rule), or when the GSEs left conservatorship, whichever was later. However, since as of applications dated July 1, the GSEs will only purchase loans meeting the new General QM definition, then effectively, those loans are the only ones eligible for sale to the GSEs thus the only loans meeting the GSE patch rules as well. As a result, effectively, because of the GSEs' actions, there will no longer be any GSE patch as of July 1 (or Sept. 1 for loans with application dated before July 1 but not yet sold to the GSEs).
One exception to the new GSE requirements is for construction-to-permanent loans which may be delivered under the prior QM definition until Feb. 28, 2022 (for loans with an application date prior to July 1, 2021).
As a result, DocMagic is proceeding with our original plans for phasing out the QM rules that allow for the GSE Patch/Temporary Agency QM. Thus, for loans with an application date of July 1 or later, DocMagic audits will run only the revised General QM definition, without a DTI component. As of Sept. 1, DocMagic Online will no longer allow selection of Temporary Agency rules for loans with an application date of July 1, and any transaction submitting a QM Type: TemporaryAgency, will automatically have the new General QM rules applied instead. Users will still be able to run the Temporary Agency rules on loans with an application date prior to July 1.
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