On December 10, 2020, the Consumer Financial Protection Bureau (CFPB) issued two final rules related to qualified mortgage (QM) loans. The first final rule, the General QM Rule, replaces the current requirement for General QM loans that the consumer’s debt-to-income ratio (DTI) not exceed 43 percent with a limit based on the loan’s pricing. The second final rule, reveals a new Seasoned QM.
General QM – Under the final rule a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. In addition, the General QM Rule:
- Provides higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions.
- Retains the General QM loan definition’s existing product-feature and underwriting requirements and limits on points and fees.
- Requires lenders to consider a consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and removes appendix Q and provides more flexible options for creditors to verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts for QM loans.
Seasoned QM – The final rule creates a Seasoned QM for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. To be eligible to become a Seasoned QM, a loan must be a first-lien, fixed-rate loan with no balloon payments and must meet certain other product restrictions. As under the General QM Rule, the creditor must also consider the consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts. The loan can have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. The creditor or first purchaser also generally must hold the loan in portfolio until the end of the seasoning period.
Important Dates – Both rules will take effect 60 days after publication in the Federal Register, which is expected soon.
- The General QM Rule will have a mandatory compliance date of July 1, 2021. Between the General QM Rule’s effective date and mandatory compliance date, there will be an optional early compliance period during which creditors will be able to use either the current General QM definition or the revised General QM definition.
- The Seasoned QM Rule will apply to covered transactions for which creditors receive an application on or after the effective date.
Next Steps – To assist with the implementation of the new rules Compliance Resource is:
- Developing a webinar (Registration information will be available soon);
- Updating existing training manuals and related materials that will be used in 2021 seminars and webinars; and
- Is creating a Director Senior Management Update, a policy update, a procedures update and other materials.