Beyond the patch: CFPB finalizes the repayment capacity / qualified mortgage

The Consumer Financial Protection Bureau (CFPB or the Bureau) has finalized changes to the Repayment Ability / Qualified Mortgage (ATR / QM) rules which change the criteria for a loan to be considered a QM and exceed the so-called GSE patch. The final rules were published in the Federal Register December 29, 2020. As of July 1, 2021, creditors will have to comply with the new general quality management rules and criteria established by the Bureau.

General final rule for quality management

The General final rule for quality management Replaces General QM’s 43% DTI ratio limit with an APR limit. Under the final rule, the APR on the loan cannot exceed the Average Prime Rate (APOR) for a comparable transaction by certain defined percentages. These include:

The final rule does not affect all parts of the existing ATR / QM rule. To be eligible, loans must be fixed rate, fully amortizing, and have regular and approximately equal monthly payments. For an adjustable rate loan or a graduated rate mortgage, the loan must be fully amortized, must allow the deferral of the repayment of the loan principal (with certain exceptions) and must not include a lump sum payment, except in compliance with Regulation Z. The maximum term of a QM loan is always 30 years, and the final rule does not update the point and fee requirements and limitations. In addition, the final rule does not change the MQ framework defined by the FHA, VA or USDA.

Credits should always, as proposed, take into account the consumer’s current or reasonably expected income or assets (other than the value of the security property), current debts, alimony and child support, and monthly DTI ratio or residual income.

Creditors are also required to (1) examine and verify the consumer’s current or reasonably expected income or assets (other than the value of the security property) using third party records which provide reasonably reliable evidence of the income. or consumer assets in accordance with Section 1026.43 (c) (4) of the Ability to Repay Rule, and (2) review and verify consumer debts, alimony and child support payments to the using reasonably reliable third party records. This requirement to “consider and verify” underwriting information replaced the old underwriting standards in Appendix Q.

The finalized verification security rules apply if the verification method used by the creditor meets (or is substantially similar to) the following standards:

  • Chapters B3-3 through B3-6 of the Fannie Mae Single Family Selling Guide, published June 3, 2020;
  • Sections 5102 to 5500 of the Freddie Mac Single-Family Seller / Servicer Guide, published June 10, 2020;
  • Sections II.A.1 and II.A.4-5 of the FHA Single Family Housing Policy Handbook, published October 24, 2019;
  • Chapter 4 of the VA Lender’s Handbook, revised February 22, 2019;
  • USDA Field Office Handbook for the Direct Single Family Housing Program Chapter 4, revised March 15, 2019; and
  • Chapters 9-11 of the USDA Single Family Guaranteed Loan Program Manual, revised March 19, 2020.

Seasoned QM Loan Final Rule

According to the preamble of the Seasoned QM Loan Final Rule, seasoned QMs will provide an “alternative basis to a conclusive presumption” of the consumer’s ability to repay the loan, and therefore additional legal certainty regarding the status of the loan and the liability of the creditor and his successors (as well as the rights of the consumer). The CFPB notes in the final rule that “a fundamental objective of … the seasoned QM category … to encourage creditors to increase non-QM loan origination in a responsible manner”. The seasoned QM final rule provides a safe haven for seasoned QMs whether or not the loan is a higher priced loan.

To be eligible for Seasoned QM status, a loan must meet the following requirements:

Product restrictions:

  • The loan is secured by a first lien. If a loan is a subordinated loan, the loan is not eligible to be a seasoned QM.
  • The loan has a fixed rate. Variable rate or graduated rate mortgages are not eligible to be seasoned QMs.
  • The loan has regular, roughly equal installments that are fully amortized, does not allow negative amortization, and does not have a lump sum payment. A loan has fully amortized payments if periodic payments of principal and interest pay off the loan in full over the life of the loan.
  • The term of the loan does not exceed 30 years.
  • The loan is not a high cost mortgage within the meaning of Regulation Z, 12 CFR 1026.32 (a).

Portfolio Requirements:

  • With a few exceptions, for consumption, the loan is not subject to a commitment to be acquired by another person, and the creditor keeps the loan in the portfolio until the end of the seasoning period.

Performance requirements:

  • With few exceptions, the loan cannot have more than two defaults of 30 days or more and no defaults of 60 days or more at the end of the seasoning period.

Seasoning period:

  • The seasoning period lasts 36 months, starting from the date on which the first periodic payment is due after consumption. Arrears of 30 days or more, or temporary payment accommodations, extend the end of the seasoning period.

Effective dates and compliance dates

The final regulations will come into force on March 1, 2020 (60 days after their publication in the Federal Register). For the general QM rule, the mandatory compliance date is July 1, 2021. This means that the existing general QM based on a DTI ratio of 43%, and the GSE patch, cease to be operational for requests received on or after July 1, 2021. Until the mandatory compliance date of the final general rule of quality management, creditors will have the option of continuing to use the GSE fix and the existing general rule of quality management, or d ” use the general final rule of quality management.

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