Qualifying for a mortgage could become more difficult in 2021

By Sabrina Karl

Between 2014 and 2018, more than 3 million homebuyers were able to secure mortgages due to a special provision called the “qualified mortgage patch”. But the Consumer Financial Protection Bureau has announced it will let the provision expire after 2020, leading to reduced access to credit for millions of potential homebuyers.


The regulatory patch enabled Fannie Mae and Freddie Mac to purchase mortgage loans where the borrower’s debt-to-income ratio (DTI) — the percentage of the borrower’s annual income required to cover their debt obligations — exceeds the industry standard of 43 percent. A resulting 19 percent of Fannie and Freddie mortgages from 2014-2018 were made possible by the loophole.


The CFPB and other proponents of ending the patch argue that it will help protect against a housing crisis by preventing homebuyers from buying more house than they can afford. They further argue that a DTI threshold of 43 percent is already high, compared to the 1990s average of 36 percent.


But opponents of the policy shift cite research showing borrowers with higher debt-to-income ratios are not less likely to repay their loans, and that sunsetting the provision will result in millions of Americans being cut out of the housing market despite having demonstrated their ability to repay.


Mike Calhoun, president of the Center for Responsible Lending, argues that credit scores, down payment size, and mortgage type are all stronger indicators of repayment behavior than DTI.


Also up for debate is the role of the patch on housing prices. Proponents of closing the loophole argue that allowing borrowers to buy more house has led to an increase in home prices, and that removing that patch will ultimately benefit homeowners by improving home affordability. Meanwhile, critics contend that house prices have more to do with housing supply than lending practices.