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What Does the QM Patch (and Ending It) Mean for You?

Tom Hutchens
Feb 24, 2020
Photo credit: Getty Images/AndreyPopov

On Jan. 10, 2021, the Consumer Financial Protection Bureau’s (CFPB) “QM Patch” will expire, meaning that Fannie Mae and Freddie Mac will no longer be allowed to back loans for consumers with DTI greater than 43 percent. The impact on loan officers will be dramatic.
Tom Hutchens is Senior Vice President of Sales and Marketing at Angel Oak Mortgage SolutionsAccording to CoreLogic, the patch—a seven-year exception granted by CFPB in 2014 to the Dodd-Frank Law—has allowed Fannie Mae and Freddie Mac (only those two GSEs) to take on loans featuring DTIs as high as 50 percent. CoreLogic reports that in 2018, almost 16 percent of all loans, worth $260 billion, would not have been allowed QM status as proscribed by Dodd-Frank.
When the QM Patch expires, many more potential borrowers will need to obtain non-QM loans to purchase their homes. For loan officers who offer and focus on non-QM loans, the marketplace will expand dramatically. Those brokers and originators who have found it unnecessary to serve non-QM borrowers may find their pool of prospects significantly reduced.
According to CoreLogic, the patch was intended by CFPB to preserve “access for consumers during a period when mortgage markets were still in transition.” However, the Patch’s effect may have given the mortgage industry a faulty understanding of the long-term scopes of both QM and non-QM markets. Based on 2018 percentages, when the patch expires, Fannie and Freddie may be facilitating 30 percent fewer loans.
Yet, even with the QM Patch in place the non-QM marketplace has grown tremendously during the last five years. Non-QM lenders and investors have proven that they are capable of determining good credit. For example, at Angel Oak Mortgage Solutions, our delinquency rate is under two percent, which is lower than agency delinquency rates. When the QM Patch expires, the non-QM market will certainly spike as far fewer loans will be eligible for Fannie Mae and Freddie Mac participation.
If you are among the many mortgage professionals who have thought that your pipeline did not need to include non-QM borrowers, I hope you see how the reality of the marketplace will change in 2021. A wise course would be to start learning about the differences and nuances of non-QM lending. There is still plenty of time, but the day of reckoning is not too far off.
As the pioneer of non-QM loans and the market leader, Angel Oak Mortgage Solutions offers both technical support and personal service to enable loan officers thrive in the non-QM marketplace. To learn how, contact your Angel Oak account executive at (866) 837-6312 or visit

Tom Hutchens is executive vice president, production at Angel Oak Mortgage Solutions, an Atlanta-based wholesale and correspondent lender licensed in more than 40 states and operating in the non-QM space for over five years. Tom has been in the real estate lending business for nearly 20 years. He may be reached by phone at (855) 539-4910 or e-mail [email protected].

This article originally appeared in the January 2020 print edition of National Mortgage Professional Magazine.

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