On May 9, 2014, the U.S. Department of Veterans Affairs (VA) issued its interim final rule on qualified mortgages (QMs) for VA-guaranteed loans. The Dodd-Frank Act required the VA, the U.S. Department of Housing & Urban Development (HUD), the U.S. Department of Agriculture (USDA) and the Rural Housing Service (RHS) to prescribe regulations for QMs that each will insure, guarantee or administer.
The VA’s interim final rule provides that any guaranteed or insured loan by the VA other than Interest Rate Reduction Refinance Loans (IRRRLs) will be classified as safe harbor QMs. This list includes all VA direct loans made pursuant to 38 U.S.C. 3711, Native American direct loans made pursuant to 38 U.S.C. 3761, and vendee loans made pursuant to 38 U.S.C. 3720 and 3733.
VA IRRRLs are only classified as safe harbor QMs if the following conditions are met:
1. The loan being refinanced was originated at least six months before the date of the new loan's closing, and the veteran has not been more than 30 days past due during such six-month period;
2. The recoupment period for all fees and charges financed as part of the loan or paid at closing does not exceed 36 months;
3. The IRRRL is either exempt from the income verification requirements in 38 CFR 36.4307 or complies with the income verification requirements in 38 CFR 36.4340 as well as the Truth-in-Lending Act (TILA) (15 U.S.C. 1639C) and its implementing regulations; and
4. All other applicable requirements of Subpart B of 38 CFR Part 36 are met.
A VA IRRRL that does not meet any of the above requirements will be considered a rebuttable presumption QM if it satisfies the requirements in bullet points three and four above.
The VA interim final rule also incorporates, without change, the Consumer Financial Protection Bureau’s (CFPB) category of exempt transactions in 12 CFR 1026.43(a)(3), other than reverse mortgages, which are omitted because the VA does not guarantee, insure or make these type of loans.
This interim final rule, which became effective May 9, 2014, replaces the CFPB's temporary QM definition for VA loans.
Melanie A. Feliciano Esq. is DocMagic Inc.’s chief legal officer and currently serves as editor-in-chief of DocMagic’s electronic compliance newsletter, The Compliance Wizard. She received her JD from the Georgetown University Law Center, and is licensed in California and Texas. She may be reached by phone at (800) 649-1362 or e-mail [email protected]
This article originally appeared in the June 2014 issue of National Mortgage Professional Magazine.