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The Ability to Repay/Qualified Mortgage rules have always provided a range of options for compliance. During the past two years options have expired, existing options been revised, and new options have been created. The turmoil of changes raises two issues:
- Is your institution in compliance with current rules?
- Has your institution selected the best options for its situation?
In a final rule released on October 20, 2020 (the Extension Final Rule), the Consumer Financial Protection Bureau (CFPB) amended Regulation Z to replace the January 10, 2021 sunset date of the Temporary GSE QM loan definition with a provision stating that the Temporary GSE QM loan definition will be available only for covered transactions for which the creditor receives the consumer’s application before the mandatory compliance date of final amendments to the General QM loan definition in Regulation Z.
On December 10, 2020, the 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.
The new and revised rules were effective on March 1, 2021.
- Compliance with the revised General QM rule was mandatory on July 1, 2021 with optional compliance between the effective date and July 1, 2021 mandatory date. The CFPB has extended the mandatory use date until October 1, 2022.
- The existing Temporary GSE QM option expires on the mandatory date, and creditors using that option must select an alternative option by that date.
- The seasoned QM rule will apply to covered transactions for which creditors receive an application on or after March 1, 2021. The CFPB has decided not to apply the final rule to loans in existence prior to the effective date.
This recording explains the recent changes and the current status of Section 1026.43 of Regulation Z.
Upon completion of this recording you’ll understand:
- The revised General QM rule, including the:
- Prohibition on loan features;
- Underwriting requirements. The final rule:
- Replaces the existing General QM loan definition with its 43 percent DTI limit with a price-based General QM loan definition.
- Grants QM status only if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set.
- Provides higher thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions.
- Retains the existing product-feature and underwriting requirements and limits on points and fees.
- Requires that the creditor consider the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and DTI ratio or residual income and verify the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan and the consumer’s current debt obligations, alimony, and child support.
- Removes appendix Q.
- Preserves the current threshold separating safe harbor from rebuttable presumption QMs, under which a loan is a safe harbor QM if its APR does not exceed APOR for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set (or by 3.5 percentage points or more for subordinate-lien transactions). and
- Effective date.
- Prohibition on loan features;
- The new Seasoned QM rule:
- The definition of a covered transaction;
- Product Restrictions;
- Points and fees limits;
- Debt-to-income ratio;
- The concept of the seasoning period;
- Performance Requirements; and
- Effective Date
- The elimination of the Temporary GSE QM rule.
The recording is designed for Compliance Officers, Loan Officers, Loan Processors, Auditors, and others with responsibilities related to the origination and servicing of mortgage loans.