The CFPB Missed a chance to fix the

CFPB ISSUES NEW QM DEFINITION AND SEASONING PROVISIONS. WHAT DOES THIS MEAN FOR THE REAL ESTATE INDUSTRY?

The CFPB was previously thought to have missed a perfect chance to fix the QM rule once and for all. But this doesn’t mean they were not going to do it. On December 13, 2020, the Bureau issued two relatively welcome surprises. One, along with discarding the debt-toincome (DTI) ratio limit, the Bureau expanded its proposed general Qualified Mortgage (QM) to include loans up to 2.25 percentage points over the average prime offer rate. Mortgage lenders are allowed to adopt the new QM as early as 60 days from the publication of the rule (which is likely by late February 2021), though compliance will become mandatory from July 1, 2021.

Secondly, the Bureau will begin allowing loans to season into a QM after 36 months of timely payments, as long as the loan isn’t sold more than once during that time and is not securitized.

Elsewhere, the CFPB issued a separate final rule, confirming once and for all that the GSE Patch, which is a temporary QM category for loans eligible for purchase by the GSEs, would expire on the mandatory compliance date of the agency’s rule revising the general QM definition.

Since 2014, in general terms, a closed-end residential mortgage loan could only constitute a QM if the borrower’s DTI did not exceed 43%, or if the loan were GSE-eligible. Since the GSE Patch was set to expire on January 10, 2021, the CFPB promised to rethink the 43% DTI requirement and offer a smooth and orderly transition to a post-Patch QM. Also, the Bureau decided to loosen up several of its proposals due to the public comments it received.

WHERE WILL THE NEW GENERAL QM RULE APPLY?

The new general QM and its compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

• The loan has an annual percentage rate (“APR”) that does not exceed the average prime offer rate (“APOR”) by 2.25 or more percentage points; • The loan meets the existing QM product feature and underwriting requirements and limits on points and fees; • The creditor has considered the consumer’s current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income; and • The creditor has verified the consumer’s current or reasonably expected income or assets, debt obligations, alimony, and child support.

WHAT DOES THE FINAL RULE MEAN TO CREDITORS?

The final rule provides creditors significant flexibility and room for innovation in considering and verifying the factors described above. However, the CFPB provides for a safe harbor if the creditor follows the verification standards in specified single-family underwriting manuals of Fannie Mae, Freddie Mac, the Federal Housing Administration, the Department of Veterans Affairs, or the Department of Agriculture. A creditor even may pick-and-choose among those agency standards. If an agency updates its standards from the versions in the final rule, a creditor still may rely on the updated standards so long as they are substantially similar. Determining what constitutes a “substantially similar” version may cause problems in future. However, a creditor does not have to follow those safe harbor agency standards, so long as it complies with the rule’s obligation to verify the amounts on which it relies.

Moreover, under the final rule, a creditor is required to maintain policies and procedures for how it takes into account, pursuant to its underwriting standards, income or assets, debt obligations, alimony, child support, and monthly DTI or residual income in its abilityto-repay determination. The creditor also must retain documentation showing how it considered those, including how it applied its policies and procedures.

The final rule’s commentary clarifies that the required documentation may consist of the creditor’s underwriting standards, plus an underwriter worksheet or a final automated underwriting system certification for each loan, along with any applicable exceptions.

Work cited.

https://www.consumerfinance.gov/rules-policy/finalrules/qualified-mortgage-definition-under-truth-lendingact-regulation-z-seasoned-qm-loan-definition/.