qualified mortgage

CFPB Issues Two Final Rules to Promote Access to Responsible, Affordable Mortgage Credit

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On December 10, the Consumer Financial Protection Bureau (CFPB) issued two final rules related to qualified mortgage (QM) loans. The first final rule, the General QM Final Rule, replaces current requirements for measuring a consumer’s ability to repay General QM loans based on the consumer’s debt-to-income ratio, and instead adopts a price-based approached. The second final rule creates a new category called “Seasoned QMs” for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. Release.

CFPB Proposes New Category of Qualified Mortgages

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On August 18, the Consumer Financial Protection Bureau (CFPB) issued a Notice of Proposed Rulemaking (NPRM) to create a new category of qualified mortgage (QM) loans exempt from Regulation Z’s ability-to-repay requirements. The new “Seasoned QM” category would include certain fixed rate, first lien loans that the creditor has held in portfolio for a seasoning period of 36 months and that meet certain performance requirements at the end of such period. The proposal would also permit loans in temporary forbearance as a result of disaster or pandemic-related emergencies to qualify for Seasoned QM status if certain conditions are met. Comments on the proposal will be due 30 days after publication in the Federal Register. Release. NPRM.

CFPB Issues Proposals to Amend Qualified Mortgage Definition and Extend GSE Patch

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On June 22, the CFPB issued two notices of proposed rulemaking (NPRMs) regarding the Qualified Mortgage (QM) exemption from the ability-to-repay requirements of Regulation Z. The first proposal would, among other changes, revise the general QM loan definition by replacing the QM borrower debt-to-income ratio limit with a price-based approach to determining loan eligibility. The second proposal would extend the current January 2021 sunset date in the provision granting QM status to mortgages eligible for purchase by Fannie Mae or Freddie Mac (the “GSE Patch”) to the date on which the amendments to the general QM loan definition become effective. Comments on the NPRM to revise the general QM loan definition are due 60 days following publication in the Federal Register. Comments on the NPRM to extend the GSE Patch are due 30 days following publication. Release. NPRM (General QM Loan Definition). NPRM (GSE Patch Extension).

Supervisory Approach for Qualified and non-Qualified Mortgage Loans

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On December 13, Fed, FDIC, NCUA and OCC issued a statement to clarify safety-and-soundness expectations in order to guide institutions engaged in residential mortgage lending as they assess the implementation of the CFPB’s Ability-to-Repay and Qualified Mortgage Standards Rule, which is effective January 10, 2014.  Joint Release.  Joint Statement.

HUD Proposal on QM Definition

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On September 30, HUD issued a proposed rule that would define a Qualified Mortgage (QM) that would be insured, guaranteed or administered by HUD, including single-family forward mortgages insured by FHA.  In order to meet HUD’s QM definition, mortgage loans must: (i) require periodic payments; (ii) have terms not to exceed 30 years; (iii) except in certain circumstances, limit upfront points and fees to no more than 3% with adjustments to facilitate smaller loans; and (iv) be insured or guaranteed by FHA or HUD.  Comments on the proposed rule must be submitted by October 30.  HUD Release.  HUD Proposed Rule.

FHFA Limit on Fannie and Freddie Loan Purchases to Qualified Mortgages

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On May 6, the FHFA announced that it is directing Fannie Mae and Freddie Mac to limit future mortgage acquisitions to loans that fall under the requirements for a qualified mortgage.  Starting on January 10, 2014, Fannie and Freddie will no longer be able to purchase a mortgage loan that is subject to the “ability to repay” requirements under the Dodd-Frank Act if the loan: (i) is not fully amortizing; (ii) has a term of longer than 30 years; or (iii) includes points and fees in excess of 3% of the total loan amount (or such other limits for low balance loans as set forth in the rule).  FHFA Release.  Fannie Mae Letter.  Freddie Mac Letter.

CFPB Small Entity QM Compliance Guide

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On April 10 , the CFPB published a small entity compliance guide for the Ability-to-Repay and Qualified Mortgage rule, as well as a comparison chart which compares the general Ability-to-Repay requirements with the requirements for originating Qualified Mortgage loans.  CFPB Compliance Guide.  CFPB Comparison Chart.

CFPB Rules on Ability-to-Repay and Qualified Mortgages

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On January 10, the CFPB issued a final rule, effective January 10, 2014, requiring mortgage lenders to consider consumers’ ability to repay mortgage loans and regarding the “qualified mortgage” (QM) definition.  The rule sets forth underwriting factors that must be considered (at a minimum) in making ability-to-repay determinations, which are:  (i) current or reasonably expected income or assets; (ii) current employment status; (iii) the monthly payment on the covered transaction; iv) the monthly payment on any simultaneous loan; (v) the monthly payment for mortgage-related obligations; (vi) current debt obligations, alimony, and child support; (vii) the monthly debt-to-income ratio or residual income; and (viii) credit history.  In addition, the rule implements product-feature prerequisites and affordability underwriting requirements for qualified mortgages, including that a consumer must have a total (back-end) DTI ratio of less than or equal to 43%.  CFPB Release.  CFPB Final Rule.  CFPB Summary of Final Rule.  CFPB Fact Sheet. 

In addition, on January 10, the CFPB issued a concurrent proposed rule amendment to the ability-to-repay rule which would, among other things, include exemptions for: (i) certain nonprofit creditors; (ii) certain homeownership stabilization programs; and (iii) certain Fannie Mae and Freddie Mac refinancing programs.  Comments on the proposed rule must be submitted by February 25.  CFPB Proposed Rule.