Who’s in Charge in D.C.?

Effective with loan applications on July 1st Fannie and Freddie will no longer buy conventional loans under the 8 year long GSE Patch which allowed lenders and Fannie and Freddie to close loans with debt to income ratios above 43%. Instead, the CFPB’s new definition of Qualified Mortgage Rule will apply even though the CFPB is delaying the implementation of this rule until October 2022.

In essence the Treasury Department is saying one thing and the CFPB is saying something different. David Stevens who served under President Obama with FHA and then later became President of the Mortgage Bankers Association said in response, “This will only thrust uncertainty and disruption into housing finance, completely unnecessarily.”

The new definition of a Qualified Mortgage effective with loan applications on July 1st will be the loan’s APR must be within 1.50% of the Prime Rate or 4.75% currently. But, what happens if long-term rates rise above 4% and the Prime Rate stays at 3.25%? Loans with mortgage insurance for borrowers with Ficos less than 680 may become impossible to close. Whoops! This will force the Fed to either raise short-term interest rates or increase their buying of long-term Treasuries and mortgage bonds.

So, do debt-to-income ratios matter anymore beginning July 1st? The CFPB says “YES” and the Treasury Department says “NO”. Who is in charge in D.C.?