Potentially big changes to the mortgage market are coming in 2021. The Consumer Financial Protection Bureau (CFPB) announced that it will allow what is known as the Government Sponsored Entities (GSE) Patch to the 2010 Dodd-Frank Act to expire on January 10, 2021. Dodd-Frank was enacted to help prevent the predatory lending that led to the 2008 financial crisis by requiring all new mortgages to meet stricter underwriting standards. The GSE Patch allowed for some loans backed by Freddie Mac and Fannie Mae that didn’t quite satisfy all the underwriting guidelines, but were still considered a relatively safe risk (also known as a qualifying mortgage), to be issued.
The GSE Patch currently is the only avenue for families who don’t meet the Dodd-Frank requirements to get a mortgage, so taking this away could have a huge impact on the market. It’s unclear what will happen next and the CFPB is taking input from lenders to determine what, if anything, should replace the GSE Patch. While the CFPB might not replace it, most believe it will provide some sort of fix to ensure market stabilization. This could take a number of forms, including:
Increasing The Required Debt to Income Ratio—Currently this is set at 43%, so raising it could help capture some of those who currently have qualifying mortgages.
Examine Interest Rates—The CFPB could provide guidelines on what interest rates to set for certain types of mortgages and use that level to allow liability protection to the lenders.
Change Underwriting Standards—This could allow lenders to more easily consider a host of factors when determining a person’s ability to qualify and give them more flexibility in loan approval.
Although it is unclear at this time exactly what the CFPB will do, Riesterer Law will be closely monitoring the situation for our clients. We know that any change will affect the mortgage lending market, and we will be at the forefront of helping our clients determine the best course of action for their businesses. Contact us today if you are a mortgage lender with questions about how this change could impact your business.