Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition

Title:
Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition
Subject: Qualified mortgage
Agency: CFPB
Status: Proposed rule
Summary:
Newly proposed: The Bureau of Consumer Financial Protection (Bureau) is proposing to delay the mandatory compliance date of the final rule titled Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition (General QM Final Rule) until October 1, 2022.

Specifically, the proposal would amend comments 43-2 and 43(e)(4)-2 and -3 to reflect an extension of the mandatory compliance date of the General QM Final Rule by changing the date “July 1, 2021” where it appears in those comments to “October 1, 2022.” The proposal would also add new comment 43(e)(2)-1 to clarify the General QM loan definitions available to creditors for applications received on or after March 1, 2021 but prior to October 1, 2022.

If this proposal is finalized, for covered transactions for which creditors receive an application on or after March 1, 2021 and before October 1, 2022, creditors would have the option of complying with either the revised General QM loan definition or the General QM loan definition in effect prior to March 1, 2021. Under the proposal, the revised regulations would apply to covered transactions for which creditors receive an application on or after October 1, 2022.

The ATR/QM Rule also defines a second, temporary category of QMs for mortgages that (1) comply with the same loan-feature prohibitions and points-and-fees limits as General QMs and (2) are eligible to be purchased or guaranteed by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the government-sponsored enterprises or GSEs), while operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA). This proposed rule refers to these loans as Temporary GSE QM loans, and the provision that created this loan category is commonly known as the GSE Patch. In October 2020, the Bureau issued a final rule stating that the Temporary GSE QM loan definition will be available only for covered transactions for which the creditor receives the consumer’s application before the mandatory compliance date of the General QM Final Rule. Therefore, under the proposal, the Temporary GSE QM loan definition would expire upon the earlier of October 1, 2022 or the date the applicable GSE exits Federal conservatorship (rather than on the current mandatory compliance date of July 1, 2021 or the date the applicable GSE exits Federal conservatorship).

The Bureau is proposing to delay the mandatory compliance date of the General QM Final Rule to help ensure access to responsible, affordable mortgage credit and to preserve flexibility for consumers, particularly those affected by the COVID-19 pandemic. This proposal would not make other changes to the General QM loan definition. The Bureau plans to evaluate the General QM Final Rule’s amendments to the General QM loan definition and will consider at a later date whether to initiate another rulemaking to reconsider other aspects of the General QM Final Rule.

The Bureau proposes that a final rule based on this proposal be effective 60 days after publication in the Federal Register. The Bureau anticipates that this would make the final rule effective before the current July 1, 2021 mandatory compliance date.
Summary of the rule currently in effect: With certain exceptions, Regulation Z requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay any residential mortgage loan, and loans that meet Regulation Z’s requirements for “qualified mortgages” (QMs) obtain certain protections from liability. One category of QMs is the General QM category. For General QMs, the ratio of the consumer’s total monthly debt to total monthly income (DTI or DTI ratio) must not exceed 43 percent. This final rule amends the General QM loan definition in Regulation Z. Among other things, the final rule removes the General QM loan definition’s 43 percent DTI limit and replaces it with price-based thresholds. Another category of QMs consists of loans that are eligible for purchase or guarantee by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) (government-sponsored enterprises or GSEs), while operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA). The GSEs are currently under Federal conservatorship. In 2013, the Bureau established this category of QMs (Temporary GSE QMs) as a temporary measure that would expire no later than January 10, 2021 or when the GSEs cease to operate under conservatorship. In a final rule released on October 20, 2020, the Bureau extended the Temporary GSE QM loan definition to expire on the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z (or when the GSEs cease to operate under the conservatorship of the FHFA, if that happens earlier). In this final rule, the Bureau adopts the amendments to the General QM loan definition that are referenced in that separate final rule.
FR Doc: 2021-04698 (would revise final rule published as FR Doc 2020-27567)
Date proposed: March 3, 2021
Comments due date:

April 5, 2021

Final rule effective date: March 1, 2021, with compliance required by July 1, 2021, unless delayed by new proposed rule.
Rule compliance date:
Agency release: CFPB Proposes Delay of Mandatory Compliance Date for General Qualified Mortgage Final Rule (March 3, 2021)

Consumer Financial Protection Bureau Takes Steps to Address GSE Patch

Related Reg Report item(s):

Compliance date for new QM rule would be delayed 15 months to October 2022 under proposal (March 3, 2021)

Bureau proposes ‘price-based approach’ to replace GSE patch before it expires (with an extension offered just in case)

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