The CFPB adopted two final rules relating to the definition of "qualified mortgages" ("QMs"), both of which have the effect of broadening the scope of that definition under Regulation Z ("Truth in Lending Act"). The adoption of these rules will expand the types of mortgages that government-sponsored enterprises ("GSEs") may purchase, which in turn will have the effect of making it more likely that lower-income borrowers will be able to obtain mortgages. (See here for previous coverage of both proposals.)
One rule amends the definition of "General QM" to replace the 43 percent limit on a consumer's debt-to-income ratio ("DTI"). The final rule provides higher thresholds for (i) smaller loan amounts, (ii) certain manufactured housing loans and (iii) subordinate-lien transactions. Additionally, the final rule:
- maintains the product-feature and underwriting requirements (e.g., it takes into account the interest rate charged on a mortgage) and limits on points and fees under the General QM loan's existing definition;
- mandates that lenders take into consideration a consumer's DTI, assets and income aside from the value of the dwelling, and debts; and
- provides creditors with more flexible income and asset verification options.
The other rule establishes a new QM category, "Seasoned QMs," which are defined as transactions in which the loan (i) is secured by a first lien, (ii) has a fixed rate with payments that are fully amortizing and non-balloon, and (iii) has a term that does not exceed 30 years. Additionally, the transactions must satisfy points-and-fees limits and underwriting requirements over a "36-month seasoning period." Seasoned QMs will be limited to covered transactions that have no more than two 30-day delinquencies and no 60-day delinquencies, not including nonpayments resulting from a temporary payment accommodation.
Each final rule goes into effect 60 days after its respective publication in the Federal Register. The mandatory compliance date for the "General QM" rule is July 1, 2021.
Primary Sources
- CFPB Press Release: Consumer Financial Protection Bureau Issues Two Final Rules to Promote Access to Responsible, Affordable Mortgage Credit
- CFPB Final Rule: Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition
- CFPB Final Rule: Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): Seasoned QM Loan Definition
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