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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules
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plans creates the potential for heightened delinquencies and foreclosures for consumers who continue to suffer disruptions in their income due to the COVID19 pandemic.
While many consumers currently in forbearance plans can be assisted through payment deferrals and loan modifications, there will be some consumers who will be unable to sustain a modified loan payment and will be forced to sell their homes to avoid foreclosure. While rising house prices have increased overall home equity, which will assist consumers who need to sell their homes upon the expiration of their forbearance plan, more vulnerable consumers are likely to have less equity in their homes than the general population. One analysis indicated that 10.4 percent of mortgage consumers in forbearance have less than 10 percent equity in their homes to pay for closing costs, and this share increases to 15.3 percent after taking into account 12 months of deferred interest during the forbearance period.76
If consumers have deferred payments of taxes and insurance, their equity position will have eroded even further.
Government loans, which tend to have higher loan-to-value ratios LTVs and serve a higher-risk population, have a median LTV at origination of 96.5
percent as compared to 75 percent LTV
for mortgage borrowers overall.77
Accordingly, nearly 20 percent of FHA
and VA mortgages have less than 10
percent equity, and the share increases to 26 percent when taking into account deferred interest.78 While some research suggests borrowers with government loans have an average 22 percent equity buffer given recent home price appreciation, certain borrower segments and States and localities may remain at risk of heightened foreclosure activity.79
While the foreclosures and distressed sales are expected to remain far below the levels experienced during the 2008
financial crisis,80 the Bureau preliminarily concludes that extending the mandatory compliance date until 76 Black Knight, Inc., Deferred Payments During Forbearance Beginning To Erode Equity Positions Feb. 3, 2021 https www.blackknightinc.com/
blog-posts/deferred-payments-during-forbearancebeginning-to-erode-equity-positions/ Deferred Payments.
77 Ginnie Mae, Global Markets Analysis Report Jan. 2021, https www.ginniemae.gov/data_and_
reports/reporting/Documents/global_market_
analysis_jan21.pdf.
78 Deferred Payments, supra note 76.
79 Urban Inst., The Predicted Foreclosure Surge Likely Wont Happen, Even among Financially Vulnerable Borrowers Feb. 11, 2021, https
www.urban.org/urban-wire/predicted-foreclosuresurge-likely-wont-happen-even-among-financiallyvulnerable-borrowers.
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October 1, 2022, may assist some consumers who need to sell their homes by providing creditors additional flexibility to continue originating new QM loans under the Temporary GSE
QM loan definition and under the DTIbased General QM loan definition, as well as under the price-based approach in the revised General QM loan definition. Consumers who need to sell their homes may benefit from a broader QM definition that encourages more potential purchasers to enter the market and buy properties that might otherwise go into foreclosure. Extending the Temporary GSE QM loan definition may also provide additional flexibility for the GSEs to develop and modify potential pre-foreclosure sale productssuch as short sale and deedin-lieu of foreclosure programsto respond to a potential increase in distressed sales as necessary.
Under the revised timelines, most COVID19 forbearance plans will expire no later than June 30, 2022, at which point the availability of the Temporary GSE QM loan definition and the General QM loan definition that was in effect prior to March 1, 2021 could help alleviate adverse impacts on consumers struggling to keep their homes upon exiting their forbearance plan.
Extending the mandatory compliance date to October 1, 2022, as the Bureau proposes, would make these additional QM definitions available for three months after the latest date on which most COVID19 forbearance plans are set to expire. The Bureau preliminarily concludes that three months is a sufficient period of time for creditors to use the additional QM flexibility to assist consumers whose COVID19
forbearance plans expire on June 30, 2022 and whose incomes may not have recovered enough to sustain their prepandemic mortgage payment or a modified mortgage payment.
The Bureau is also concerned that allowing the Temporary GSE QM loan definition to expire on July 1, 2021
would limit the ability of the GSEs to originate new loans and could restrict their flexibility to develop new refinance programs to address emerging consumer needs during a period of heightened market uncertainty. In the General QM Final Rule, the Bureau estimated that the price-based approach in the revised General QM loan definition would preserve access to credit relative to the status quo with the DTI-based General QM loan definition and the Temporary GSE QM loan definition. Nevertheless, some loans that would be QMs under the Temporary GSE QM loan definition or the DTI-based General QM loan
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definition would not be eligible under the revised, price-based General QM
loan definition. Maintaining the availability of all three QM definitions until October 1, 2022 would maximize refinance options for consumers who have been struggling to make their mortgage payments or who under more ordinary circumstances likely have the ability to repay their loans but who may be underwater on their mortgage as a result of the unique circumstances of the pandemic.
As discussed earlier and illustrated in Figure 1, the GSEs tend to play a dominant role during economic downturns and recoveries, and additional origination flexibilities may prove helpful in the current market recovery by allowing consumers additional opportunities to refinance into historically low interest rates. For example, during the 2008 financial crisis, FHFA established the Home Affordable Refinance Program HARP
to help homeowners who were unable to refinance their loans due to a decline in their home value. Approximately 3.5
million consumers benefited from HARP, and FHFA found that consumers who refinanced through HARP have had lower delinquency rates compared with consumers who were eligible for HARP
but did not refinance through the program.81 When HARP expired in 2018, FHFA replaced it with the HighLTV Refinance Programs. These programs allow performing high-LTV
97 percent borrowers to access rateand-term refinances without providing full income documentation. These refinances may currently obtain QM
status through the Temporary GSE QM
loan definition. As discussed earlier, while the Bureau does not expect widespread home price declines akin to the 2008 financial crisis, some segments of consumers and localities could benefit from the existing high-LTV
refinance programs. More generally, extending the Temporary GSE QM loan definition would also help ensure that the ATR/QM Rule does not impair FHFA and the GSEs from exercising the flexibility to tailor existing programs to meet future market changes specific to the COVID19 pandemic and the regulatory interventions discussed earlier. The Bureau preliminarily concludes that it would be appropriate to provide such loans with the QM
presumption of compliance with the ATR requirements under the Temporary GSE QM loan definition, given that such 81 Fed. Hous. Fin. Agency, Home Affordable Refinance Program HARP, https www.fhfa.gov/
PolicyProgramsReearch/Programs/Pages/
HARP.aspx last visited Feb. 23, 2021.

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