Bureau makes final two new QM rules: one on ‘general QMs,’ the other on ‘seasoned QMs’

Two final rules related to “qualified mortgages” (QMs) – one instituting a limit on lending based on a loan’s pricing, and the second creating a “seasoned QM” – were released Thursday by the federal consumer financial protection agency.

The final rules issued by the Consumer Financial Protection Bureau (CFPB), the agency said, will “support a smooth and orderly transition away” from the so-called “QM Patch,” which is slated to expire July 1, 2021. The patch covers loans issued by government-sponsored enterprises (GSEs) Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), most of which are considered QMs. After July 1, those loans will not automatically be given QM status.

In a release, the CFPB said the first of the two rules will replace the current requirement for general QM loans that the borrower’s debt-to-income ratio (DTI) not exceed 43% with a new requirement of a limit based on the loan’s pricing. The second of the rules will establish the “seasoned QM,” which would apply to portfolio loans meeting certain performance requirements over a 36-month seasoning period, including having no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days.

The bureau said that it adopted the price-based approach for limiting lending in replacement of the specific 43% DTI limit after determining that a loan’s price is a strong indicator of a consumer’s ability to repay. The bureau called it “a more holistic and flexible measure of a consumer’s ability to repay than DTI alone.” Additionally, the CFPB said, conditioning QM status on a specific DTI limit “could impair access to responsible, affordable credit.”

The final rule establishing the lending limit, CFPB said, provides a loan a “conclusive presumption” that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. “A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points,” the bureau stated.

The “seasoned QM” rule, the CFPB said, creates a new category 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.

A loan becomes eligible as a seasoned QM, the bureau stated, when it is a first-lien, fixed-rate loan with no balloon payments and meets certain other product restrictions. As under the general QM final rule, the bureau said, the creditor must also consider the consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts “and verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts.”

The loan must also “season” by meeting certain performance requirements at the end of the seasoning period, CFPB said. Specifically, according to the bureau, the loan can have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. The creditor or first purchaser also generally must hold the loan in portfolio until the end of the seasoning period.

Both rules will take effect 60 days after publication in the Federal Register. The first rule (the general QM final rule) will have a mandatory compliance date of July 1, 2021. However: between the general QM final rule’s effective date and mandatory compliance date, the bureau said, there will be an optional early compliance period during which creditors will be able to use either the current general QM definition or the revised general QM definition.

The seasoned QM final rule will apply to covered transactions for which creditors receive an application on or after the effective date, the bureau said.

General QM final rule

Seasoned QM final rule

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