what's the definition of a qualified mortgage?

This period was somewhat unusual in the number of homes with negative equity and the slowness of the subsequent economic recovery. Fannie Mae's Selling Guide states that loans subject to non-disaster related payment accommodations may be eligible [for representation and warranty enforcement relief] on the basis of a quality control review of the loan file if certain other requirements are met. Biden's plan would have provided relief to most federal student loan borrowers - as many as 43 million people. Qualified Mortgage Definition under the Truth in Lending Act The Bureau does not expect that the proposed rule would impose costs on small entities relative to any of the baselines. Assume a loan is consummated on October 15, 2022, that the consumer's periodic payment is due on the 1st of each month, and that the consumer timely made the first periodic payment due on December 1, 2022. [152] Application to subsequent transferees. The Bureau anticipates that the extent to which the proposal may increase access to credit would be a function of the size of the eligible loan population that could benefit from the seasoning proposal: the more loans that would be eligible to become Seasoned QMs, the more loans might be made that would not otherwise be made. The Assessment Report noted that, at least for loans intended for sale in the secondary market, creditors generally offer a Temporary GSE QM loan even when a General QM loan could be originated.[54]. For example, a consumer could at consummation lack the ability to make a fully amortizing mortgage payment but manage to make interest-only payments in the first three years. The Bureau is aware that some servicers elect or may be required to treat consumers as having made a timely payment even if the payment is less than the full periodic payment due by a small amount. 1 provides that evidence that a creditor's ATR determination was reasonable and in good faith may include the fact that the consumer demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, for a significant period of time after consummation. 33. For example, a covered transaction does not violate the requirements in 1026.43(e)(7)(iii) if the covered transaction is sold pursuant to a capital restoration plan under 12 U.S.C. The Bureau has determined that this proposal does not contain any new or substantively revised information collection requirements other than those previously approved by OMB under OMB control number 3170-0015. A creditor or assignee of a qualified mortgage complies with the repayment ability requirements of paragraph (c) of this section if: (A) The loan is a qualified mortgage as defined in paragraphs (e)(2), (4), (5), (6), or (f) of this section that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section; or. Qualified and Non-Qualified Mortgage Programs Flashcards - Quizlet Varying the number of allowable 30-day delinquencies does have some impact on foreclosure risk. Public Law 104-121, tit. The Bureau is proposing a conforming amendment to 1026.43(e)(2) to include a reference to 1026.43(e)(7), which would set out the requirements applicable to Seasoned QMs. Apr. rendition of the daily Federal Register on FederalRegister.gov does not Further, for the protection from liability to apply, the institution must consider and document the debt, income, and financial resources of the consumer. The comment explains further that the longer a consumer successfully makes timely payments after consummation or recast, the less likely it is that the creditor's determination of ability to repay was unreasonable or not in good faith. 1 / 30. 12 CFR 1026.43(e)(2)(i) through (iii). Eighty-six percent of the loans that would be potentially seasonable at consummation under Baseline 2 are still open after three years, of which 98 percent would satisfy the proposed performance requirements of Seasoned QM. Although both the GSEs and mortgage insurers appear to count time spent in a disaster-related forbearance plan towards the 36-month time period, the Bureau believes that excluding temporary payment accommodations related to a disaster or pandemic-related national emergency from the seasoning period may best advance its goal of ensuring that the seasoning period allows enough time to assess whether the creditor made a reasonable assessment of the consumer's ability to repay at origination. 4. The Bureau recognizes that creditors may be uncertain about whether certain loans fall within the existing QM definitions for different reasons. Accordingly, the Bureau preliminarily concludes that allowing an alternative pathway to a QM safe harbor may encourage creditors to lend to consumers with less traditional credit profiles and income sources at an affordable price based on an individualized determination of a consumer's ability to repay. As explained in the section-by-section analysis of proposed 1026.43(e)(7)(iv)(B), the Bureau preliminarily concludes that certain unusual circumstances involving disasters or pandemic-related emergencies warrant using a principal and interest amount that has been modified or adjusted after consummation. Features of a "qualified mortgage". Providing creditors with an alternative pathway to greater ATR compliance certainty for loans that satisfy the criteria set forth in proposed 1026.43(e)(7) also may result in greater access to responsible, affordable mortgage credit. The consumer demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, for a significant period of time after consummation or, for an adjustable-rate, interest-only, or negative-amortization mortgage, for a significant period of time after recast . HMDA requires many financial institutions to maintain, report, and publicly disclose loan-level information about mortgages. In another proposal (General QM Proposal)[2] Eight percent of analyzed loans would be non-QM loans or rebuttable presumption QM loans at consummation in Baseline 2 and potentially could gain safe harbor status via the proposed Seasoned QM performance criteria. As described above, TILA section 129C(b)(2) and (3) grants the Bureau authority to determine the precise contours of the QM definition. The Bureau also noted that a safe harbor provides greater legal certainty for creditors and secondary market participants and may promote enhanced competition and expand access to credit. This analysis indicates the relative magnitude of the potential effects of the proposal on these costs. In addition, TILA section 129C(b)(3)(A) directs the Bureau to prescribe regulations to carry out the purposes of TILA section 129C(b). Here's What Happens When You Take On a Smaller Mortgage Than You 1 in the current ATR/QM Rule. [34] As discussed in the section-by-section analysis of proposed 1026.43(e)(7)(i) above, a covered transaction must meet, among other things, the conditions set forth in proposed 1026.43(e)(7)(ii) to be a QM under proposed 1026.43(e)(7). QMs are generally considered to be higher priced if they have an annual percentage rate (APR) that exceeds the applicable average prime offer rate (APOR) by at least 1.5 percentage points for first-lien loans and at least 3.5 percentage points for subordinate-lien loans. Section 1026.43(e)(2) sets out the general criteria for meeting the definition of a QM and provides exceptions for QMs covered by requirements set out in other specific paragraphs in 1026.43(e). S1719-20 (daily ed. In light of these possible reliance interests, the Bureau has opted not to apply the proposal to loans in existence prior to the effective date. Based on these considerations, and as discussed in more detail in parts VI and VII, the Bureau preliminarily concludes that a consumer's timely payments for 36 months, in combination with provisions to assure the consumer's own ability to make the payments due and the loan's compliance with other proposed provisions, indicate that the consumer had the ability to repay the loan at consummation, such that granting of safe harbor QM status to the loan is warranted subject to certain limitations. QM status under EGRRCPA section 101 is available to both fixed and variable rate mortgages, as well as subordinate-lien loans, and section 101 also does not impose any requirements on post-consummation loan performance. Dodd-Frank Act section 1022(b). The Regulatory Flexibility Act (RFA),[159] Consistent with the GSEs' representation and warranty framework and the master policies of mortgage insurers, the Bureau is proposing that more than two delinquencies of 30 days or more during the seasoning period or any delinquency of 60 days or more would disqualify a covered transaction from being a QM under proposed 1026.43(e)(7). The loans potentially would have met the Seasoned QM proposal's performance criteria in 2015 and 2016. A creditor that makes a loan that meets the standards for a QM loan but is higher priced is entitled to a rebuttable presumption that it has complied with the Rule.[46]. Depository institutions and credit unions that are also creditors making covered loans (depository creditors) with $10 billion or less in total assets would be expected to benefit from the proposal. The second group is all first-lien, fixed-rate rebuttable presumption Small Creditor QM loans. The Bureau seeks comments on methods and data that would allow the Bureau to do so. However, additional protections may be helpful to ensure that creditors who seek to use the flexibility that would be provided under this proposal have an additional incentive to engage in responsible lending and make affordable loans. This variation and its persistence in the years following the Rule's publication suggest that creditors have not developed a common approach to measuring and predicting risk of noncompliance with the Rule, as they have accomplished for other types of risks, such as prepayment and default. A second, temporary category of QM loans defined in the Rule consists of mortgages that (1) comply with the same loan-feature restrictions and points-and-fees limits as General QM loans and (2) are eligible to be purchased or guaranteed by the GSEs while under the conservatorship of the FHFA (Temporary GSE QM loans). Bureau of Consumer Financial Protection: Qualified Mortgage Definition As discussed above, the Bureau preliminarily concludes that meeting these criteriain particular, the fact that a consumer has made timely payments for the duration of the seasoning periodindicates that the consumer was offered and received a loan on terms that the creditor reasonably determined reflected the consumer's ability to repay the loan. The Bureau also requests data on the number of loans that would be in existence as of the proposed effective date and would meet the specifications of the proposal but for the effective date, as well as comment on any legal or policy considerations that the Bureau should take into account relating to those loans. 12 CFR 1026.43(e)(2)(i) through (iii). The Bureau requests comment on this proposed effective date for a final rule relating to this proposal. In summary, in that proposed rule, the Bureau proposed a price-based General QM loan definition to replace the DTI-based approach because it preliminarily concluded that a loan's price, as measured by comparing a loan's annual percentage rate (APR) to the average prime offer rate (APOR) for a comparable transaction, is a strong indicator of a consumer's ability to repay and is a more holistic and flexible measure of a consumer's ability to repay than DTI alone. [101] Specifically, the consideration of alternatives is similar to the analysis of the proposal in that the Bureau cannot reliably predict how many additional loans would be originated under its alternatives. [102] The Bureau also proposes to make a technical correction to comment 43(e)(1)-1 to add references to 1026.43(e)(5) and (6). Fannie Mae, Amended and Restated GSE Rescission Relief Principles for Implementation of Master Policy Requirement #28 (Rescission Relief/Incontestability) (Sept. 10, 2018), https://singlefamily.fanniemae.com/media/16331/display. As discussed in the section-by-section analysis below, the Bureau is proposing to issue certain provisions of this proposed rule pursuant to its authority under TILA section 129C(b)(2)(A)(vi). Mirroring the approach of the foreclosure analysis in section VII.B.1 above, the Bureau analyzes the same data on conventional, fixed-rate, first-lien purchase and refinance mortgage loans without prohibited features that were originated in 2012 and 2013 and held privately in portfolio at consummation. Additionally, a purpose of TILA sections 129B and 129C is to assure that consumers are offered and receive residential mortgage loans on terms that Start Printed Page 53576reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive. and services, go to These proposed performance requirements are discussed more fully in the section-by-section analysis of proposed 1026.43(e)(7)(ii) below. As discussed in the General QM Proposal, commenters from the mortgage industry and its trade associations, as well as several research centers, recommended that a mortgage that is originated as a non-QM or rebuttable presumption QM should be eligible to season into a QM safe harbor loan if a consumer makes timely payments for a predetermined length of time. Similar to the GSEs' representation and warranty framework, the Bureau believes that payments made from escrow accounts established in connection with the loan should not be considered in assessing performance for seasoning purposes because a creditor could escrow funds from the loan proceeds to cover payments during the seasoning period even if the loan payments were not actually affordable for the consumer on an ongoing basis. Upon satisfying all the requirements of the Seasoned QM definition, these loans would obtain QM status or a stronger presumption of compliance, or would not need to satisfy the portfolio retention requirements of the EGRRCPA. The General QM Proposal contains an overview of these comments. See 12 CFR 1026.43(f). [12] See 12 CFR 1026.43(f). PDF Basic guide for lenders What is a Qualified Mortgage? 71. For purposes of 1026.43(e)(7), the consumer is 30 days delinquent if the consumer fails to make a payment (sufficient to cover the scheduled January 1, 2023 periodic payment of principal, interest, and, if applicable, escrow) before February 1, 2023. These additional provisions include requirements intended to eliminate creditor attempts to evade the seasoning period requirement and a further requirement that loans season in a creditor's portfolio until the end of the seasoning period. Proposed 1026.43(e)(7)(i)(A) would apply the definition of fixed-rate mortgage set out in 1026.18(s)(7)(iii). At that time, you can make an appointment to inspect the documents by telephoning 202-435-9169. It would also extend a Start Printed Page 53578conclusive presumption of compliance to the subset of the higher-priced covered transactions that are afforded only a rebuttable presumption of ATR compliance at consummation through other QM definitions. The Bureau is also proposing to require a total cumulative seasoning period of 36 months, excluding the period of temporary payment accommodation, to ensure that there is sufficient information to evaluate the consumer's performance history using the performance requirements in proposed 1026.43(e)(7)(ii). Fannie Mae limits the usage of the payment tolerance to three monthly payments during a 12-month period,[132] Accordingly, the Director certifies that this proposal, if adopted, would not have a SISNOSE. Lenders that generate such loans will be presumed to have also met the Ability-to-Repay rulemandated by the Dodd-Frank Act. 132. The Assessment Report provides quantitative and qualitative information on questions relevant to the analysis that follows, including the share of lenders that originate non-QM loans. The Bureau preliminarily concludes that a consumer's record of sustained, on-time payments that meet the proposed requirements, taken together with the loan's compliance with other proposed provisions, indicates that the creditor made a reasonable determination at consummation of the consumer's ability to repay the loan. . Dodd-Frank Act Section 1022(b) Analysis, B. 79 FR 77601 (Dec. 24, 2014). As a result, the analysis of impacts of the proposal on creditor costs from reduced uncertainty related to legal liability relies on simplifying assumptions and qualitative information as well as the limited data that are available. Now consider Baseline 2. In addition, income and debt for such loans, and DTI ratios, generally are verified and calculated using GSE standards, rather than appendix Q. In addition, TILA section 129C(b)(3)(A) provides the Bureau with authority to prescribe regulations to carry out the purposes of the qualified mortgage provisionsto ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C. Also, Balloon Payment QM loans must carry a fixed interest rate, payments other than the balloon must fully amortize the loan over 30 years or less, and the loan term must be at least five years. Generally, the statute of limitations for a private action for damages for a violation of the ATR requirement is three years after the date on which the violation occurs. All methods of compliance with the ATR requirements under a particular baseline would remain available to small entities if the proposal is adopted. 141. Analysis of HMDA data for Baseline 2 excludes loans where rate spread or DTI are not observed. 4, 2012). 17, 2018). Commenters who recommend alternative approaches are encouraged to submit data and analyses to support their recommendations. However, there is neither an exact period of time after which all delinquencies can be attributed to a lack of ability to repay at consummation, nor an exact period after which no delinquencies can be attributed to a lack of ability to repay at consummation. Although EGRRCPA section 101 took effect upon enactment, the Bureau has not undertaken rulemaking to address any statutory ambiguities in Regulation Z. These loans would benefit from the proposal by obtaining safe harbor QM status if they meet the performance and portfolio requirements of the seasoning period, and not otherwise. EGRRCPA section 101 provides that loans must be originated and retained in portfolio by a covered institution, except for limited permissible transfers. [15] 1601 et seq.). The loan complies with certain requirements relating to consideration and verification of the consumer's monthly income and debt.[121]. Except as provided in paragraph (e)(4), (5), (6), (7), or (f) of this section, a qualified mortgage is a covered transaction: (7) Qualified mortgage definedseasoned loans. The concerns raised in these comments were similar to those raised in response to the Assessment RFI. In contrast, Small Creditor QM loans are only considered higher priced if the APR exceeds APOR by at least 3.5 percentage points for either a first- or subordinate-lien loan. Because the Temporary GSE QM loan definition generally affects only loans that conform to the GSEs' guidelines, the Assessment Report's discussion of the Temporary GSE QM loan definition focused on the conforming segment of the market, not on non-conforming (e.g., jumbo) loans. Moreover, a loan that seasons from non-QM to safe harbor QM status may increase in value and may be easier or more profitable to sell, thereby potentially encouraging the origination of new loans that would not have otherwise been made. TILA section 129C also exempts certain residential mortgage loans from the ATR requirements. Qualified Mortgage Definition Under the Truth in Lending Act Proposed 1026.43(e)(7)(i)(A) would limit the Seasoned QM definition to fixed-rate mortgages with fully amortizing payments. However, TILA also accords consumers the right to assert violations of the ATR requirements as defenses against foreclosure by recoupment or setoff, subject to no statute of limitations. 107. The Bureau seeks additional information or data which could inform its quantitative estimates of the effects of the proposal. Figure 1 in part VII below illustrates the percentage of loans that remain active 36 months after consummation, the length of the proposed seasoning period. The Bureau also preliminarily concludes that providing such a safe harbor is consistent with the Bureau's authority under TILA section 129C(b)(3)(B)(i) to prescribe regulations that revise, add to, or subtract from the criteria that define a QM upon a finding that such Start Printed Page 53581regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of this section, necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections. The Bureau estimates that there would be 24,039 loans in 2018 that would fall into this category. Appendix Q addresses how to determine a consumer's employment-related income (e.g., income from wages, commissions, and retirement plans); non-employment-related income (e.g., income from alimony and child support payments, investments, and property rentals); and liabilities, including recurring and contingent liabilities and projected obligations.[21]. Other categories of QM loans provide more flexible standards for certain loans originated by certain small creditors. As a result, a lower share of loans remained active beyond three years, and so the potential effects of the proposal would be smaller. The Bureau is proposing this alternative definition because it preliminarily concludes that many loans made to creditworthy consumers that do not fall within the existing safe harbor QM loan definitions at consummation may be able to demonstrate through sustained loan performance compliance with the ATR requirements. as amended by the Small Business Regulatory Enforcement Fairness Act of 1996,[160] The Bureau tentatively finds that these provisions would be necessary and proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner that is consistent with the purposes of TILA section 129C and are necessary and appropriate to effectuate the purposes of TILA section 129C, which includes assuring that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loan. If you put down 20% ($87,360) at today's average rate of 7.19%, your 30-year loan would be $349,440, just at . The Assessment Report first highlighted commenters' concerns with the perceived lack of clarity in appendix Q and found that such concerns may have contributed to investors'and at least derivatively, creditors'preference for Temporary GSE QM loans instead of originating loans under the General QM loan definition. The impact analyses rely on data from a range of sources. 60 days delinquent. 28. What is a Zestimate? Zillow's Zestimate Accuracy | Zillow [133] See comment 43(c)(1)-1.ii.A. As such, for the Seasoned QM definition, the Bureau is proposing to include consider and verify requirements that allow some latitude in application. has no substantive legal effect. Consumers who would select loans without safe harbor QM status under both the baseline and the proposal may or may not benefit from the proposal. The Bureau also requested comment on how much time industry would need to change its practices in response to any changes the Bureau makes to the General QM loan definition. These non-QMs and rebuttable presumption QMs are the population whose ATR compliance presumption status would be affected by becoming Seasoned QMs. The Bureau is, therefore, proposing to extend the seasoning period under these circumstances until the loan is no longer delinquent. Consider first all of the non-QM loans under Baseline 2 that meet all of the requirements at consummation for a Seasoned QM loan and would benefit if they met the performance and portfolio requirements of the seasoning period. 102. First, at consummation, the covered transaction must not be subject to a commitment to be acquired by another person. Therefore, under proposed 1026.43(e)(7)(i)(A), only loans for which the scheduled periodic payments do not require a balloon payment to fully amortize the loan within the loan term could become Seasoned QMs. Altogether, 77 percent of the loans that would be rebuttable presumption QM loans and non-QM loans under Baseline 1 would perform well enough to gain safe harbor via Seasoned QM under the proposal. [61] 85 FR 41716, 41773, 41766 (July 10, 2020). The Bureau of Consumer Financial Protection (Bureau) is issuing this proposal to create a new category of QMs (Seasoned QMs) for first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period, are held in portfolio until the end of the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. The Bureau is concerned that proposing a broader exclusion from the seasoning period, such as, for example, excluding a period of temporary payment accommodation entered into as the result of financial hardship arising from circumstances not foreseeable at origination, could lead to an uncertain standard whereby financial hardships resulting in temporary payment accommodations would need to be evaluated on a case-by-case basis to determine whether a loan subject to such accommodations could season into a QM. In contrast, varying the seasoning period from 12 months to 60 months captures vastly different numbers of loans that would still be open. Use the PDF linked in the document sidebar for the official electronic format. Qualified Mortgages have three types of requirements: restrictions on loan features, points and fees, and underwriting. Additionally, commenters in support of seasoning suggested that seasoning could improve investor confidence by addressing the issue of assignee liability and litigation risk with non-QMs and rebuttable presumption QMs. Further, the Bureau preliminarily concludes that another benefit of this proposal would be to provide additional legal certainty for loans that are made in accordance with other QM definitions. Although the various QM categories may overlap, each QM category is based on a particular set of factors that support a presumption that the creditor at consummation complied with the ATR requirements. For purposes of proposed 1026.43(e)(7), proposed 1026.43(e)(7)(iv)(A)(3) would provide that for any given billing cycle for which a consumer's payment is less than the periodic payment due, a consumer is not delinquent if: (1) The servicer chooses not to treat the payment as delinquent for purposes of any section of subpart C of Regulation X, 12 CFR part 1024, if applicable, (2) the payment is deficient by $50 or less, and (3) there are no more than three such deficient payments treated as not delinquent during the seasoning period. To be a qualified mortgage under this paragraph (e)(7) of this section, the covered transaction must 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. [32], The Bureau created the Small Creditor QM category based on its determination that the characteristics of a small creditorits small size, community-based focus, and commitment to relationship lendingand the inherent incentives associated with portfolio lending together justify extending QM status to loans that do not meet all of the ordinary QM criteria. For example, a servicer may have systems in place to accept minimally deficient payments and not count them as delinquent for purposes of calculating delinquency under subpart C of Regulation X, 12 CFR part 1024. 78 FR 35430, 35485 (June 12, 2013) (The Bureau believes that 1026.43(e)(5) will preserve consumers' access to credit and, because of the characteristics of small creditors and portfolio lending described above, the credit provided generally will be responsible and affordable.).
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