The Consumer Financial Protection Bureau today wrapped up its efforts to revise the Qualified Mortgage standard by issuing final rules defining both the general QM category and a “seasoned” QM standard for certain portfolio loans. The final rule aligns with ABA’s recommendations for reforming these regulations, allowing the so-called “GSE patch” to lapse while expanding the general QM definition.
Specifically, to receive the QM safe harbor, the annual percentage rate on covered transactions must not exceed the annual prime offer rate for a comparable transaction by 1.5 percentage points. Loans with an APR that exceeds the APOR by 1.5 to 2.25 percentage points will receive a QM rebuttable presumption of ability to repay, with higher pricing thresholds set for smaller loan amounts, manufactured home loans and certain other transactions.
For purposes of meeting the new general QM requirements, the final rule removes the 43% debt-to-income threshold and the rigid underwriting definition contained in Appendix Q. It retains the product feature and underwriting requirements and points-and-fees limits of the current QM standard and requires creditors to “consider” the consumer’s income or assets, debt obligations and DTI ratio or residual income. As with the existing QM standard, creditors would need to consider the borrower’s debt-to-income ratio or residual income and verify their obligations and income, but would provide more flexible options. As ABA recommended in its comments, the CFPB added a list of specific standards to its commentary providing a safe harbor for the verification requirement.
Meanwhile, the seasoned QM standard applies to mortgages held in portfolio that have met 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. To receive seasoned QM status, loans must be secured by a first lien; have a fixed rate with fully amortizing payments and no balloon payments; must not exceed 30 years in term; and have total points and fees under specified limits.
Both the general and seasoned QM standards will take effect 60 days after they are published in the Federal Register. Creditors must comply with the general QM standard by July 1, 2021, but may optionally comply starting on the effective date. July 1, 2021, is also when the temporary “GSE patch” providing QM status to loans eligible for purchase by Fannie Mae or Freddie Mac expires.