- Consumer Financial Protection Bureau CFPB) eliminating Debt-to-Income (DTI) requirements from Qualified Mortgage (QM) in Regulation Z standards
- CFPB shifting from DTI to “alternatives” such as pricing threshold or price-based approach
- Shifts level playing fields for private investors who had to compete with GSE’s that already exempt from DTI requirement
The Consumer Financial Protection Bureau (CFPB) is following through on its proposal to amend the qualified mortgage definition in Regulation Z to replace the debt-to-income (DTI) of 36% with a price-based approach. Essentially, such a price-based approach compares a loan’s annual percentage rate to the average prime offer rate with a comparable transaction.
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Essentially, according to Investopedia, lenders prefer a DTI smaller than 36% with no more than 28% of that debt going to mortgage servicing.
According to CFPB Director Kathy Kraninger who proposed this shift in rulemaking, a price-based approach is a more flexible approach to a consumer’s ability to repay a loan. Not only will price thresholds for most loans (plus higher price thresholds for smaller loans that will definitely impact manufactured housing and minority consumers) be required, lenders must also verify a consumer’s income and debts.
Importantly, Fannie Mae and Freddie Mac are NOT required to follow this new rule change in order to grant qualified mortgages or QM Patches. QM Patch loans sold to Fannie and Freddie will still be allowed to exceed to the 43% DTI ratio. As importantly, the CFPB also proposed to extend Regulation Z’s Truth in Lending Act un until after this new proposed policy takes effect in the future to ensure that “…affordable credit remains available to consumers who may be affected…”
The National Association of REALTORS® “appreciates’ the CFPB’s decision to eliminate its former “hard and fast” DTI 36% standard on behalf of consumers and homebuyers “…at a time when market stability is so critical.”
According to the CFPB, “The Bureau is proposing to take this action to ensure that responsible, affordable credit remains available to consumers who may be affected if the GSE Patch expires before the amendments take effect as defined in the first NPRM,” or public notice of a rule change.
Thanks to investopedia and HousingWire.