Revised Qualified Mortgage Rule
This blog was authored by my colleague Theresa Duggan, Director.
In December of 2020, the Consumer Finance Protection Board (CFPB) issued a new General Qualified Mortgage (QM) final rule. Although the new final rule took effect on June 30, 2021, the required compliance date of July 1, 2021 was pushed back to October 1, 2022. For applications received prior to the new compliance date, lenders can choose to follow the original QM rule, the GSE Patch QM rule (if Fannie Mae and Freddie Mac do not exit conservatorship during this time period), or the new final QM rule. Applications dated October 1, 2022 or later must follow the new rule. The CFPB chose to delay mandatory compliance due to the impact of COVID-19.
The most significant impact of the new rule is the amendment of Regulation Z which replaces the definition of the ability to repay from a 43% maximum debt-to-income ratio with a price-based threshold. This new model takes into consideration annual percentage rate (APR), rate spread, and the average prime offer rate (APOR).
Under the new rule, there is a conclusive presumption that a borrower can repay the loan if the APR does not exceed the APOR for a comparable loan by 1.5% as of the date the interest rate is set. Additionally, there is a rebuttable presumption that a borrower can repay the loan if the APR exceeds the APOR for a comparable loan by more than 1.5% but less than 2.25%. Note that the thresholds are higher for small loans, manufactured housing and subordinate liens. Additionally, there is no change to the current underwriting criteria for points and fees.
The new rule applies to consumer transactions that are secured by a dwelling and subject to the Ability to Repay (ATR) QM Rule. It does not cover Truth in Lending Act and ATR exempt loans or loans that are exempt from these requirements in Regulation Z, such as investment properties and loans originated by Housing Finance Agencies. HELOCs are also excluded from the rule.
Although the CFPB delayed their compliance date until October of 2022, Fannie Mae and Freddie Mac have not aligned their guidelines with this delay. As of July 1, 2021, Fannie Mae and Freddie Mac will only purchase loans that comply with the new rule. Loans with application dates prior to July 1, 20201 that do not meet the requirements of the new QM rule must be purchased by August 31, 2021. However, construction to permanent loans have an extended purchase date of February 28, 2022. For additional information please see the Fannie Mae Lender Letter and Freddie Mac Bulletin
How can we help?
CLA is prepared to assist your institution. Our mortgage professionals can help you evaluate the impact this new rule has on your operations. We are here to know you and help you. Contact Us with any questions or to learn how we can assist your mortgage operations.
Elizabeth Dailey, JD, is a Regulatory Compliance Director with CLA. She is a graduate of the University of New Hampshire and earned her juris doctor at New England Law. She is admitted to the Massachusetts Bar.
Comments are closed.