The move was made possible by the decision of the U.S. Supreme Court earlier in the day holding that the FHFA structure is unconstitutional because the Director could be removed by the President only for cause. The decision resulted in the Director becoming removable at the will of the President, and President Biden acted promptly to replace the FHFA Director. The replacement of the FHFA Director raises an important question—now what happens?
As previously reported, the CFPB delayed the mandatory compliance date of the new general qualified mortgage (QM) rule under Regulation Z, which became effective on March 1, 2021, until October 1, 2022. The CFPB did so that technically, in addition to the new general QM, the original general QM based on a strict 43% debt-to-income (DTI) ratio limit, and the temporary QM based on a loan being eligible for sale to Fannie Mae or Freddie Mac (often referred to as the “GSE Patch”), would also be available for applications received on or before September 30, 2022 (although the GSE Patch would expire if Fannie Mae and Freddie Mac exit conservatorship).
However, FHFA actions called into question whether the goal of the CFPB would be fully realized. In January 2021 the Preferred Stock Purchase Agreements (PSPAs) regarding Fannie Mae and Freddie Mac were amended. Pursuant to the amendments, with regard to the original general QM, the new general QM, and the GSE Patch QM, for loans with applications received on or after July 1, 2021, Fannie Mae and Freddie Mac could only purchase new general QM loans. The delay of the mandatory compliance date for the new general QM rule to October 1, 2022, raised the issue of whether the PSPAs would be further amended to continue to provide for the purchase of original general QM loans and GSE Patch QM loans.
As previously reported, on April 8, 2021, Fannie Mae and Freddie Mac announced that for loans with applications received on or after July 1, 2021, they will purchase new general QM loans, and not original general QM loans or GSE Patch QM loans. Fannie Mae and Freddie Mac issued further guidance on May 26, 2021, advising that for loans with applications received before March 1, 2021 (the effective date of the new general QM rule), the loans would be eligible for purchase if they satisfied the requirements of the new general QM rule. This approach effectively provides a path for such loans to be GSE Patch QM loans.
The issue now is whether the FHFA under new leadership will reach a different agreement with the U.S. Treasury Department on the types of loans that Fannie Mae and Freddie Mac will purchase. The industry will be watching intently for developments in this area.