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CFPB Issues Two Final Rules On QM Loans

Navi Persaud
Dec 11, 2020
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The Consumer Financial Protection Bureau issued two final rules related to qualified mortgages. The General QM Final Rule replaces the current requirement for General QM loans that the consumer's debt-to-income ratio not exceed 43% with a limit based on the loan's pricing. The second rule features the newly created Seasoned QMs category, according to a press release.

"Under the General QM Final Rule, a loan receives a conclusive presumption that the consumer had the ability to repay if the annual percentage rate does not exceed the average prime offer rate for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set," according to the release. "A loan receives a rebuttable presumption that the consumer had the ability to repay if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points."

The General QM Final Rule also provides higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans and for subordinate-lien transactions. The Final Rule also retains the General QM loan definition's existing product-feature and underwriting requirements and limits on points and fees. It also requires lenders to consider a consumer's DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and removes appendix Q and provides more flexible options for creditors to verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts for QM loans, according to the CFPB.

"Through this General QM Final Rule, we are working to create an appropriate, more flexible General QM loan definition," said CFPB director Kathleen L. Kraninger. "Our final rule’s price-based approach strikes the best balance between assessing consumers’ ability to repay and promoting access to responsible, affordable mortgage credit."

Meanwhile, the Seasoned QM Final Rule was created for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements, according to the CFPB.

"This Seasoned QM Final Rule will ensure access to responsible, affordable credit in the mortgage market through responsible innovation," said CFPB Director Kraninger. "Allowing lenders the flexibility to respond to changes in the economy while still ensuring a consumer has the ability to repay will help many consumers achieve their dream of owning a home."

Click here to read more about the CFPB's latest rules regarding General and Seasoned QMs.

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