CFPB proposes a new category of

CFPB PROPOSES A NEW CATEGORY OF QUALIFIED MORTGAGES: SEASONED QM

The Consumer Financial Protection Bureau (CFPB) is advocating for the creation of a new category of loans called Seasoned Qualified Mortgages. The new loan category is meant to protect lenders from legal liability for making risky loans. In the statement, CFPB indicated that they hoped this new loan category would “encourage

innovation and help ensure access to responsible, affordable mortgage credit.”

WHO QUALIFIES UNDER THE PROPOSAL?

To qualify as a Seasoned Qualified Mortgage (QM) under the proposal, a loan would have to be firstlien, fixed-rate covered transactions that have met certain performance requirements over a seasoning period of 36 months. On the same, covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features, points, and fees, while meeting certain underwriting requirements. Also, for a loan to be eligible to become a Seasoned QM, the proposal requires the creditor to consider and verify the consumer’s debt-to-income ratio (DTI) or residual income at origination.

The new loan category would also only be available for covered transactions that do not exceed 30- day delinquencies and no delinquencies of 60 or more days at the end of the seasoning period. Additionally, in case of a disaster or pandemic-related national emergency, and as long as certain conditions have been fulfilled, the proposal does not disqualify a loan from becoming a Seasoned QM for the failure to make full contractual payments if the borrower received a temporary payment accommodation.

“Today’s proposal continues the Bureau’s work to encourage safe and responsible innovation in the mortgage origination

market,” said Consumer Financial Protection Bureau Director, Kathleen L. Kraninger. “Our goal

through our very deliberative rulemaking process is to protect, promote and preserve the financial well-being of American consumers while at the same time offering access to responsible, affordable mortgage credit.”

CRITICS

Consumer advocates immediately criticized the proposal, citing it would give lenders the freedom to make high-cost loans with no consequences, and that it contradicts the Dodd-Frank Act’s requirement that lenders make a good faith determination of a borrower’s ability to repay a loan.

Consumer advocates argued that the proposal would be subject to a challenge under the Administrative Procedure Act, which oversees how agencies issue regulations. So far, the CFPB has already issued two other notices of proposed rulemaking this summer. The first notice is about amending the QM definition in Regulation Z that eliminates the debt-to-income ratio limit with a price-based approach. The other one is about extending the QM Patch.

However, the CFPB provided a period of 30 days to receive comments from the public. You can get the whole proposal here: https:// www.consumerfinance.gov/documents/9118/ cfpb_proposed-rule_seasoned-qm-loandefinition_2020-08.pdf.

Works cited.

https://www.consumerfinance.gov/about-us/newsroom/ cfpb-proposes-new-category-qualified-mortgagesencourage-access-affordable-mortgage-credit/. https://www.americanbanker.com/news/cfpb-proposesa-new-category-of-seasoned-qualified-mortgages.