The House Financial Services Committee postponed a vote on H.R. 2445 on Wednesday, a bill that would fix the so-called QM Patch that’s set to expire in early 2021.
“We see postponement as disappointing as ensuring lenders can rely on GSE underwriting systems is key to keeping credit box from shrinking,” Cowen Washington Research Group said in a note to clients on Friday.
The bill, which may be considered at a future date, gives originators the option of either relying on Appendix Q in the Qualified Mortgage rule to determine a borrower’s debt-to-income ratio or on standards set by the Federal Housing Finance Agency.
“This did not get a vote though we believe it is still likely to come up for consideration later this year or early next year,” Cowen said in the note. “There is simply no reason why this bill should run into partisan opposition and every reason why consumer groups and business groups should support it.”
The Qualified Mortgage rule issued in the wake of the financial crisis has pages of limits, known as Appendix Q, on when income can count and when it must be excluded, Cowen said. It also details which debts count and which are excluded.
“Our view has long been that if forced to rely solely on Appendix Q that lenders would shrink the credit box for fear that small errors could result in mortgages losing QM status,” Cowen said. “This is why we described the bill as a de facto extension of the QM Patch.”The QM Patch, which expires in January 2021, permits loans with debt-to-income ratios above 43% to get QM protections such as the “safe harbor” provision that makes it harder for lenders to be sued.
“We continue to believe that giving originators the ability to rely on the automated underwriting systems rather than having to interpret Appendix Q is critical for credit availability,” Cowen said. “Appendix Q is complex with many pages on when income counts and when it does not count.
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