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KBRA Releases Research – Potential Effects of the GSE Patch Expiration

Business Wire



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NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases its Potential Effects of the GSE Patch Expiration report, which discusses the view that the Consumer Financial Protection Bureau’s (CFPB) plan to allow the expiration of the temporary qualified mortgage (QM) provision should present meaningful effects to the residential mortgage industry.

The provision, known as the “GSE Patch,” is scheduled to expire on January 10, 2021 (subject to a possible short-term working extension), following an Advance Notice of Proposed Rulemaking (ANPR) issued by the regulator last July. The GSE Patch provision generally provides for QM protections from consumer mortgage law liability to lenders on loans which would not otherwise pass underwriting requirements of the rule but are still eligible for purchase or guarantee by government-sponsored enterprises (GSEs). The same loans would be considered non-QM if they were not GSE-eligible.

In KBRA’s view, some of the more significant impacts of the expiration are as follows:

  • With GSEs purchasing more than $150 billion in annual originations that comprise loans with debt-to-income (DTI) ratios greater than 43%, a potentially swift reduction in overall lending volumes will likely persist for the short term following the expiration of the GSE Patch.
  • A commensurate tailwind to origination in the non-QM lending sector, already rising at a CAGR of 200%, with established originators and issuers of non-QM loans being best positioned for growth.
  • Increased price discrimination among formerly GSE Patch-eligible loans, whereby such loans have higher rates that will disproportionately impact lower-income borrowers.

The impacts detailed above are expected in cases where the GSE Patch is removed with no changes to the QM definitions. However, the ANPR signals the CFPB’s willingness to consider changes to the QM definition, and KBRA believes some of the early proposals for such changes would modulate the effects of the GSE Patch expiration.

To access the report, click here.

Related Publications: (available at

About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.


Analytical Contacts:

Armine Karajyan, Associate Director

(646) 731-2415

Ed DeVito, Managing Director

(646) 731-2319

Sharif Mahdavian, Senior Director

(646) 731-2301

Jack Kahan, Senior Managing Director

(646) 731-2486

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