Read the NPRM on the proposed extension of the GSE Patch (Docket CFPB-2020-0021) here and the NPRM on the General QM definition (Docket CFPB-2020-0020) here

  • Source: consumerfinance.gov

Treliant Takeaway:

Treliant knows mortgage lending. If you need assistance in assessing the impact of the proposed changes in the Qualified Mortgage rule on your institution, Treliant can help.

Article Highlights:

On June 22, 2020, the Consumer Financial Protection Bureau (CFPB) issued two Notices of Proposed Rulemaking (NPRMs) related to the Qualified Mortgage (QM) rule. Among other requirements, a QM under the General QM definition is required to have a back-end debt-to-income ratio (DTI) of 43 percent. Loans eligible for purchase or guarantee by one of the GSEs are also considered to be QM, although this designation is temporary. The temporary QM status of GSE-eligible loans, known as the GSE Patch, is scheduled to expire on January 10, 2021, or when the GSEs exit conservatorship, whichever occurs first. In addition to permitting a higher DTI, GSE Patch loans may also document and verify debt and income in a way that does not conform with appendix Q.

In the Docket CFPB-2020-0021, the CFPB proposes to extend the GSE Patch until rulemaking under Docket CFPB-2020-0020 is finalized. This is intended to allow an orderly transition between the rules without market disruption.

In Docket CFPV-2020-0020, the CFPB proposed revising the QM rule to replace the DTI limit with a price-based approach that also considers DTI. Key aspects of the proposal include:

  • A loan would meet the General QM if the APR exceeds the Average Prime Offer Rate (APOR) by less than 2.0 percentage points as of the date the interest rate is set. To promote access to credit, higher spreads over APOR are permitted for smaller loans and subordinate lien transactions.
  • Loans insured by the U.S. Department of Housing and Urban Development (FHA loans), the U.S. Department of Veterans Affairs (VA loans), and the U.S. Department of Agriculture (USDA) will remain QM loans.
  • The safe harbor QM for loans where APR exceeds APOR by less than 1.5 percentage points (3.5 percentage points for subordinate lien transactions) as of the date the rate is set would be retained.
  • For adjustable rate loans where rate adjustments may occur during the first five years, the maximum rate within the first five years will be used for determining QM status.
  • Appendix Q would be removed from the regulation, but verification of income, assets, debts, alimony, and child support would still be required.

If the NPRM to revise the QM rule is adopted, the pricing aspect of QM compliance will become similar to Home Ownership and Equity Protection Act (HOEPA) compliance, although the thresholds will be substantially lower.

Author

Lynn Woosley

Lynn Woosley is a Senior Director with Treliant.  She is a seasoned executive with extensive risk management experience in regulatory compliance, consumer and commercial credit risk, credit and compliance risk modeling, model governance, regulatory change management, acquisition due diligence, and operational risk in both financial services and regulatory environments.