GSE Patch Enters Zombie Stage
By Greggory B. Oberg, Esq.
QM Patch Sunset Pushed to…
Today, October 20, 2020, the GSE Patch got a reprieve from execution mere months before it was set to terminate. In extending the GSE Patch, the CFPB has not merely spared the Patch’s life—but has created a Zombie. The GSE Patch is widely considered to be dead or dying; yet CFPB’s announcement today functionally punted the expiration of the GSE Patch until pigs fly. But hey, it’s 2020, stranger things are happening.
Only in this case, the pigs are the regulators—and flying is agreeing on an amended Reg Z.* Specifically:
….until the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z.
Final Rule at 24 (among other places, lots of repetition in these things)
Get to the Zombies!
Whereas the original 2021 sunset date provided certainty and finality to at least some of the QM questions, now we can only guess when hundreds of thousands of previously-QM mortgages are no longer eligible . Sure, we’ll get some advanced notice in the form of the continuing ANPRs and Request for Informations issued by CFPB. As the Bureau noted in the Final Rule, this process began in June of 2017. And by no means is there a consensus approach to “fixing” the QM problem.
Thus, we arrive at the Zombie. Rumors of the Patch’s demise have been exaggerated—but it’s not quite alive either. (it’s October, cut me some slack…had to try something Halloween-ish. And sometime we just need an excuse to listen to Thriller)
How Long Will the Patch Linger?
As discussed above, the QM Patch will not be allowed to expire until conservatorship ends or the CFPB issues a Final Rule on the QM Definitions. In a footnote, the Bureau clarifies that the expiration date for the Patch is will occur:
…either would be the same as the effective date of such a final rule or would occur after the effective date of such a final rule.Final Rule at Page 24.
Others have guessed at when this might occur. For today I’m not going out on a limb—at least not too far. Realistically, a number of factors have the potential to push the Patch’s expiration well past 2021. And a 2022 (one year push) doesn’t seem likely either. One factor to keep an eye on—when the White House changes hands, traditionally the administrative state grinds to a hold with a moratorium on rulemaking. This is designed to let the new guy evaluate and modify (if she chooses) the holdover decisions from previous administrations.
In any event, it’s entirely possible we’re budgeting for 2022 without any clear certainty of the Patch’s expiration date.
*no disrespect meant to any regulators—I’ve got friends who are regulators. And I think REGULATE should be the song played continually in their offices. In all seriousness, the phrase wordplay didn’t work any other way I could think of.