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Tuesday, May 13, 2014

Final QM Guidelines Issued for VA Mortgages

The Department of Veterans Affairs issued definitions for Qualified Mortgages for VA mortgage loans. Under the interim final rule, almost all VA loans that meet current VA underwriting standards will be safe harbor QMs, the agency said. The principal exception is for certain loans made through VA’s Interest Rate Reduction Refinance Loan (IRRRL) program.

In order to receive safe harbor QM designation, an IRRRL must satisfy several specific seasoning and recoupment tests. IRRRLs that do not pass will qualify for a QM’s rebuttable presumption of ability to repay. IRRRLs will also be exempt from several income verification requirements under certain circumstances. The department noted that a loan’s QM status does not affect its eligibility for a VA guarantee provided that VA underwriting standards are met.

The department noted that its definitions of QMs may differ in some regards from the CFPB’s, and that where they differ — in providing more flexibility on negative amortization, FICO score documentation or debt-to-income ratios, for example — VA intends for its definition to preempt the CFPB’s for loans guaranteed or issued by VA. The agency said:

Congress has authorized VA to deliver veterans’ benefits in a way that helps as many veterans as possible. In so doing, VA’s statutory framework expressly includes authority for … taking into consideration the unique circumstances that affect veterans.

Read the interim final rule.

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