The Consumer Financial Protection Bureau (CFPB) took to a Webinar on Wednesday to engage and educate the public regarding the qualified mortgage (QM) rule, as well as the ability-to-repay rule, both effective Jan. 10, 2014. Representatives from the CFPB also took the time to outline balloon payments, as well as other issues related to QM and the changing regulations. The Webinar was essentially a short-form guide to the process of adhering to the ability-to-repay and QM ruling, as opposed to a step-by-step illustration.
Small creditors will not have to meet the 43 percent debt-to-income (DTI) requirement. A small creditor, for the record, is defined as having less than $2 billion in assets and originated less than 500 covered mortgages during a calendar year. A small creditor also must maintain a hold on their portfolio for three years.
Balloon QMs were defined as not having as much risk as they once did under initial Dodd-Frank ruling. Fifty percent of the mortgages must be made to rural and underserved regions for the previous year. The Bureau is also going to be redefining “rural” and “underserved,” in terms of how they pertain to QM and lending. This “redefinition” process won’t occur until around 2015, which gives individuals two years to explore what the current definitions are. That two-year period will also allow for balloon payments to be made.
Underwriting was also taken into consideration during the Webinar. The process will include the consideration and verification of assets, as well as current debt obligations. This is fairly standard, however; there will be increased attention paid to this particular part of the process. DTI will also be taken into consideration at this phase, as well. The underwriter will also be responsible for underwriting the monthly payment.
Regarding the oft-cited three percent rule, a new, very basic breakdown hopefully illuminates just what passes under the new regulation:
►$20,000-$59,000: Five percent
►Less than $12,500: Eight percent
The CFPB also fielded questions from those listening in on the Webinar. A majority of the concerns were related to balloon payments and QM; however, individuals can get a look at the new guidelines and regulations by logging on to www.consumerfinance.gov/regulatory-implementation.