Moving Away from Debt-to-Income

In a letter to members of Congress, the Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger said the bureau has decided to propose an amendment to the Qualified Mortgage (QM) Rule that would move away from debt-to-income ratios in mortgage underwriting. The amendment would implement other measures for underwriting like pricing threshold.

Debt-to-Income ratios are a trending topic with the QM Patch set to expire in January 2021. The QM Patch exempts GSE-backed loans from abiding by the full scope of the Qualified Mortgage rule, specifically the debt-to-income cap of 43%. Privately backed loans however are still required to abide by the 43% cap.

The National Association of REALTORS® has expressed support for a QM Patch extension and has signed onto a letter sent to CFPB Director Kraninger which makes a “recommendation that the Bureau implement a QM definition that relies on measurable underwriting thresholds and the use of compensating factors for higher risk mortgages rather than either a pricing-based QM definition that uses the spread between the annual percentage rate (APR) and the Average Prime Offer Rate (APOR) as a proxy for underwriting requirements (the “APOR approach”) or a hard cut-off at either 43% or 45% DTI.” This would mimic what Fannie Mae and Freddie Mac currently use with the QM Patch.