Morning Report: The CFPB extends the QM patch

Vital Statistics:

 

  Last Change
S&P futures 3434 6.6
Oil (WTI) 40.95 -0.79
10 year government bond yield   0.82%
30 year fixed rate mortgage   2.89%

Stocks are higher this morning on hopes for a pre-election stimulus package. Bonds and MBS are down.

 

With the 10 year bond breaching the 80 basis point level, we are finally starting to see mortgage rates tick upwards. The inflation data seems tame, but maybe the street is starting to wonder whether the demand will be there for the huge issuance coming down the pike.

 

Mortgage applications fell 0.6% last week as purchases fell 2% and refis rose 0.2%.

 

The GSE patch has been extended “indefinitely” according to the CFPB. The final rule is here. Under the QM rules (Reg Z), loans with debt-to-income ratios (DTI) over 43% are not considered qualified mortgages (QM loans). The QM patch allows Fan and Fred loans with DTI ratios up to 50% to be considered QM loans. The CFPB has been wrestling with the issue, hoping to come up with a more flexible standard than DTI, however it isn’t ready to finalize anything yet.

 

The FHA is extending forbearance requests through year-end. “Homeownership is the largest wealth-builder for the majority of our nation’s families, which is why one of our top priorities is providing relief from foreclosure and eviction due to circumstances beyond [homeowners’] control,” Carson said at the Mortgage Bankers Association’s virtual Annual Convention & Expo. “This will ensure that homeowners have the resources and support they need to get back on their feet as our country continues its economic recovery.”

 

Fannie and Fred defended the 50 basis point adverse market fee at the MBA conference. “As you know, safety and soundness is one, two and three,” Frater said. “For us to play our role in all markets, both good and bad and large and small, we have to do it safely and soundly with long-term risk management in mind. That’s the rationale for this change. The GSEs are shouldering significant risks associated with the pandemic. As the principal risk-taker, we have to price that risk appropriately.”

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