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Thursday, January 10, 2013

Final ‘Qualified Mortgage’ Standard to Cover Most Current Mortgages

The CFPB has released its final ability-to-repay rule—along with its “qualified mortgage” standard and related safe harbor provisions.

The CFBP has also issued a fact sheet and summary of the final rule that show the “qualified mortgage”—or QM—definition under the regulation will be broad enough to encompass almost all current types of mortgages.

Loans that are not considered QMs under the rule are those with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. So-called “no-doc” loans also cannot be QMs.

“Finally, a loan generally cannot be a qualified mortgage if the [consumer’s] points and fees … exceed 3 percent of the total loan amount, although certain ‘bona fide discount points’ are excluded for prime loans,” the CFPB summary said.

The summary explained that QMs generally will be provided to people with debt-to-income ratios less than or equal to 43%.

For a temporary, transitional period, loans that don’t have a 43% debt-to-income ratio but meet government affordability or other standards—such as those that are eligible for purchase by Fannie Mae or Freddie Mac—will be considered QMs.

The final rule also implements a special Dodd-Frank Act provision that treats certain balloon-payment loans as QMs if they are originated and held in portfolio by small banks in predominantly rural or underserved areas.

While the summary didn’t provide the details the final rule will, it noted that safe harbor legal protections would be given to lower-priced QMs, which are typically made to borrowers who pose fewer risks.

ABA believes the rule’s safe harbor protections should cover a wide variety of mortgage types in today's market, or loans passed by the GSEs’ underwriting systems.

The ability-to-repay final rule will take effect in January 2014.

Read the ability-to-repay rule summary.
Read the ability-to-repay rule fact sheet.
Check here for the final regulation, to be posted later today.

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