FHLB Clarifies VA Mortgage QM Rules for MPF Program
by: Anna DeSimone
June 16, 2014 the Federal Home Loan Bank Board (FHLB) published PFI Advisory 06-16-14, Department of Veterans Affairs Safe Harbor Qualified Mortgages. The purpose of the Advisory was to reiterate and clarify the criteria for VA Mortgages sold under the MPF Program. Each VA Mortgage closed on or after 5/9/14, the effective date of the Rule, must meet all of the requirements of a safe harbor QM under the Rule to be eligible for delivery under the MPF Program.
Please refer to my article published May 8, 2013, VA Clarifies Policy on Unallowable Origination Fees.
The article summarizes CIRC. 26-14-13: Policy Clarification on Unallowable Fees issued on May 7, 2014 by the Department of Veterans Affairs. The purpose of the Circular clarified the Department of Veterans Affairs (VA) policy on the treatment of unallowable fees when lenders charge a loan origination fee that is less than one percent of the loan amount on purchase and cash-out transactions, and less than one percent of the payoff amount on interest rate reduction refinance loans (IRRRLs).
In its Advisory, the FHLB stated the following: As PFIs are aware, on May 9, 2014, the U.S. Department of Veterans Affairs (VA) published an interim final rule (the Rule) defining the types of VA loans that are qualified mortgages (QM) for the purpose of the ability to repay (ATR) rule under TILA, which became effective upon publication of the Rule. See, Department of Veterans Affairs Loan Guaranty: Ability-To-Repay Standards and Qualified Mortgage Definition Under the Truth In Lending Act. The Rule may be found in the Federal Register, Volume 79, No. 90, page 26620, May 9, 2014.
Consistent with the requirements of Origination Guide Chapter 2.6.3, (provided below) each VA Mortgage closed on or after May 9, 2014, the effective date of the Rule, must meet all of the requirements of a safe harbor QM under the Rule to be eligible for delivery under the MPF Program.
Note: PFIs should especially be attentive to the safe harbor QM requirements for VA Interest Rate Reduction Refinancing Loans (IRRRLs). While all IRRRLs will be considered QMs under the Rule, only IRRRLs meeting specific requirements in the Rule are safe harbor QM. Therefore, certain IRRRLs may be ineligible for sale under the MPF Program. Since the Rule is an interim final rule, the Origination Guide will be updated with a future PFI Notice once the Rule is finalized.
MPF Origination Guide Chapter 2.6.3: Borrower’s Ability to Repay (01/02/14)
The MPF Program relies on the PFI’s reasonable and good faith determination that Borrowers have a reasonable ability and likelihood of repaying their Mortgage debt and that the Mortgage meets all of the requirements for a “safe harbor” qualified mortgage, as defined by Applicable Law for the type of Mortgage (for example. Under Regulation Z (12 CFR § 1026.43(e)(1)(i)) for Conventional Loans or under HUD regulation (24 CFR § 203.19(b)(3)) for FHA Loans).
Regardless of the underwriting method the PFI uses, the PFI’s underwriting of the Mortgage confirms that, at the time of origination, the Borrower can afford to make the Mortgage payments. This determination of the Borrower’s ability to repay is made by comparing the Borrower’s income, assets and liabilities to the proposed Mortgage payment. Refer to the MPF Underwriting Guide, Chapter 4, for Borrower Eligibility.
The MPF Banks’ willingness to fund or to purchase Mortgages made to Borrowers with higher credit risk, is still predicated on the use of the MPF Program underwriting guidelines that require the Borrower have a reasonable ability to make the Mortgage payments and likelihood do so in a manner that will enable him or her to successfully maintain homeownership.
About the Author:
Anna is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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