Redwood Trust: QM Patch Expiration Could Return $185 Billion-Plus to the Private Sector

Redwood Trust: QM Patch Expiration Could Return $185 Billion-Plus to the Private Sector

August 30, 2019
Home Diversification Corp., a startup fintech based in Manchester, N.H., has launched a consumer division called “Diversify My Home,”
Redwood Trust has published its perspective for potential changes related to the expiration of the Qualified Mortgage Patch (QM Patch). Redwood Trust, an established thought leader in Washington, D.C., with respect to private capital's role in the mortgage market, prepared an extensive presentation focused on potential changes in four areas to prepare the market for the expiration of the so-called "QM Patch."
Redwood Trust noted that the expiration of the QM Patch could result in more than $185 billion per annum in mortgage loans returning to the private sector.
"Because housing finance involves many participants and impacts every American who owns or wants to own a home, there are numerous regulators and thousands of regulations that must work in harmony to best serve both consumers and taxpayers," said Christopher J. Abate, Redwood's chief executive officer. "The QM Patch expiration presents an opportunity for regulators to streamline certain rules to put the housing finance sector on the best possible footing going forward."
The Center for Responsible Lending (CRL) recently conducted a study to determine what would happen after the QM Patch expired in January 2021. The CRL noted that 3.3 million loans guaranteed by the GSEs over the last five years—roughly 19 percent of the total approved volume—would not have been considered as Qualified Mortgages (QM) because they failed to meet the 43 percent debt-to-income (DTI) limit.
Even David H. Stevens, former head of the Mortgage Bankers Association (MBA), recently weighed in on the topic in his contribution to National Mortgage Professional Magazine in his piece, "Replacing the QM Patch: Time to Get It Right." Stevens noted that the absence of the patch leaves a large gap, with some estimating that it could impact mid-20 percent range of current GSE volume.