Ability to Repay/Qualified Mortgage

CFPB Issues “Seasoned Qualified Mortgage” Rule

January 4, 2021 By Stephen Ornstein

A&B ABstract: On December 10, 2020, the Consumer Financial Protection Bureau (CFPB) issued an innovative final rulemaking that creates a pathway to “safe harbor” Qualified Mortgage (QM) status for performing non-QM and “rebuttable presumption” QM loans that meet certain performance criteria portfolio requirements over a seasoning period of at least 36 months and that satisfy certain product restrictions, points and fees limits, and underwriting requirements prior to consummation.

The CFPB promulgated this “Seasoned QM” rulemaking simultaneously with the rule that terminates the “QM Patch” and amends the general QM rules (as discussed in our December 28 post).

The “Seasoned QM” rule is effective with respect to applications received on or after March 1, 2021.

Background

Under the revised general QM rule, for first-lien transactions, a loan receives a conclusive presumption that the consumer had the ability to repay (and hence receives the “safe harbor” presumption of QM compliance) if the APR does not exceed the APOR for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set.

A first-lien loan receives a “rebuttable presumption” that the consumer had the ability to repay if the APR exceeds the APOR for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. The revised general QM rule provides for higher thresholds for loans with smaller loan amounts, for subordinate-lien transactions, and for certain manufactured housing loans. Loans with higher APRs than the thresholds noted above are designated as non-QMs.

In order to qualify for QM status, the loan must meet the statutory requirements regarding the three percent points and fees limits, and must not contain negative amortization, a balloon payment (except in the existing limited circumstances), or a term exceeding 30 years.

Pathway to Safe Harbor QM Status

In the “Seasoned QM” rule, a non-QM loan or “rebuttable presumption” QM receives a safe harbor from ATR liability at the end of a seasoning period of at least 36 months as a “Seasoned QM” if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and the loan meets the designated performance and portfolio requirements during the seasoning period. The CFPB’s stated purpose of the rule is to “enhance access to affordable mortgage credit”, and to incentivize “the origination of non-QM and ‘rebuttable presumption’ QM loans that a creditor expects to demonstrate a sustained and timely payment history.”

Criteria for a “Seasoned QM”

In order to become eligible to become a “Seasoned QM”, and hence, receive a safe harbor from ATR liability at the end of the 36- month seasoning period, the loan must meet the following criteria:

The loan is secured by a first lien;
The loan has a fixed rate, with regular, substantially equal periodic payments that are fully amortizing and no balloon payments;
The loan term does not exceed 30 years;
The loan is not subject to the Home Ownership and Equity Protection Act;
The loan’s points and fees do not exceed the three percent threshold or the other specified applicable limit;
creditor must consider the consumer’s DTI ratio or residual income, income or assets, other than the value of the dwelling, and debts, and verify the consumer’s income or assets, other than the value of the dwelling, and the consumer’s debts, using the same consider and verify requirements established for general QMs in the general QM rule;
subject to limited exceptions, the creditor must hold the loan for the entire 36- month seasoning period; and
the loan must meet certain performance criteria, namely, there must have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period.

The seasoning, portfolio and performance criteria are further discussed below.

Seasoning Criteria

The CFPB defines the seasoning period as a period of 36 months beginning on the date on which the first periodic payment is due after consummation except that if there is a delinquency of 30 days or more at the end of the 36th month of the seasoning period, the seasoning period continues until there is this delinquency ends.

Further, the seasoning period is tolled (and hence, does not include) any period during which the consumer is in a “temporary payment accommodation” extended in connection with a disaster or pandemic-related national emergency as long as certain conditions are met. The rule clarifies that the seasoning period can only resume after the temporary accommodation if any delinquency is cured either pursuant to the loan’s original terms or through a “qualifying change”.

The rule defines a “qualifying change” as an agreement entered into during or after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency that ends any preexisting delinquency and meets certain other conditions such as not increasing the amount of interest charged over the full term of the loan as a result of the agreement or imposing fees on the consumer.

Portfolio Retention

The rule requires the creditor that originates the loan to hold it in its portfolio for the entire 36-month period seasoning period unless one of the limited exceptions applies. Notably, the rule permits the creditor to sell or assign a single loan as long as the assignee retains the loan for the remainder of the seasoning period and the loan is not securitized. The two other exceptions to the portfolio include (i) sales or assignments of loans during a merger involving the creditor and another party and (ii) transfers of ownership pursuant to certain supervisory sales such as a conservatorship or bankruptcy.

Loan Performance

To be an eligible as a “Seasoned QM”, the loan must have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the 36- month seasoning period. Under the rule:

“Delinquency means the failure to make a periodic payment (in one full payment or in two or more partial payments) sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle by the date the periodic payment is due under the terms of the legal obligation. Other amounts, such as any late fees, are not considered for this purpose.

(1) A periodic payment is 30 days delinquent when it is not paid before the due date of the following scheduled periodic payment.

(2) A periodic payment is 60 days delinquent if the consumer is more than 30 days delinquent on the first of two sequential scheduled periodic payments and does not make both sequential scheduled periodic payments before the due date of the next scheduled periodic payment after the two sequential scheduled periodic payments.”

Further, notably, except for purposes of making up nominal deficiency amounts (i.e., $50 or less) no more than three times during the seasoning period, payments from the following sources may not be considered in assessing “delinquencies”:

(i) funds in escrow in connection with the loan; or

(ii) Funds paid on behalf of the consumer by the creditor, servicer, or assignee.

The CFPB has indicated that payments made from escrow accounts established in connection with the loan or from third parties on the consumer’s behalf should not be considered in assessing performance for seasoning purposes because, for example, a creditor could escrow funds from the loan proceeds to cover payments during the seasoning period even if the loan payments were not actually affordable for the consumer on an ongoing basis. The CFPB reasons that if a creditor needs to take funds from an escrow account or from a third party to cover an outstanding periodic payment, the payment from the escrow or third party raises doubt about the consumer’s ability to make the periodic payment.

GSE and Insurers Warranty Framework

In devising the performance framework for the 36-month seasoning period, the CFPB looked to the existing standards of the GSEs and certain mortgage insurers. The CFPB observed that each GSE generally provides creditors relief from its enforcement with respect to certain representations and warranties a creditor must make to the GSE regarding its underwriting of a loan after the first 36 monthly payments if the borrower had no more than two 30-day delinquencies and no delinquencies of 60 days or more.

Similarly, the CFPB noted that the master policies of mortgage insurers generally provide that the mortgage insurer will not issue a rescission with respect to certain representations and warranties made by the originating lender if the borrower had no more than two 30-day delinquencies in the 36 months following the borrower’s first payment, among other requirements.

Takeaways

The CFPB believes that the creation of a special “Seasoned QM” is warranted because, in its view, many loans made to creditworthy consumers that do not fall within the existing QM loan definitions at consummation may be able to demonstrate through sustained loan performance compliance with the ATR requirements. In considering the GSEs’ warranty frameworks, the CFPB noted that in most, albeit not all, instances, a default after 36 months of loan performance is usually not attributed to deficient loan underwriting, but rather to a change in the consumer’s circumstances that the creditor could not have reasonably anticipated prior to consummation.

Further, the statute of limitations period for an affirmative private right of action for damages for an ATR violation is generally three years from the date of the violation. Consequently, a consumer would not be prevented from bringing an ATR claim during the contemplated seasoning period.

Nevertheless, conferring safe harbor QM status on a loan that was originated as a non-QM or a “rebuttable presumption” QM after the requisite seasoning period would curtail the consumer’s ability to invoke an ATR violation as a defense to foreclosure or assert civil damages as a recoupment claim after 36 months unless the seasoning period is extended. Therefore, the CFPB contends that the special “Seasoned QM” category will incentivize the origination of non-QM loans that otherwise may not be made –or made at a significantly higher price–due to perceived litigation, civil liability exposure or other defense to foreclosure risks, even if a creditor has confidence that it can originate the loan in compliance with the ATR requirements.

Not surprisingly, while the residential mortgage industry strongly supported the rulemaking, consumer advocacy groups generally opposed not only significant aspects of the rule, but also the concept of a “Seasoned QM” notwithstanding the many concessions that the CFPB made to them. Although the rule has limited applicability given its many requirements, it is uncertain whether a new CFPB Director appointed in the Biden Administration will retain the rule in its present form.

CFPB Retires the “QM Patch” and Revises QM Rules

December 28, 2020 By Stephen Ornstein

A&B ABstract:

In a significant final rulemaking with potentially far-reaching consequences for the residential mortgage markets, the Consumer Financial Protection Bureau (“CFPB”) is terminating the “QM Patch” and significantly revising the criteria for what constitutes a qualified mortgage (“QM”) loan.

Notably, in this rule, issued on December 10, 2020, the CFPB replaces the dreaded Appendix Q and strict 43% debt-to-income underwriting threshold with a priced-based QM loan definition. The rule takes effect on February 27, 2021, but compliance with it is not mandatory until July 1, 2021. The QM Patch will expire on the earlier of (i) July 1, 2021 or (ii) the date that the GSEs exit conservatorship.

In a separate rulemaking, the CFPB promulgated new rules for “seasoned QM loans”. We will discuss that rulemaking in a separate post.

Background

The CFPB’s ability-to-repay/QM regulations, promulgated pursuant to the Dodd-Frank Act, require a creditor to make a reasonable, good-faith determination at or before consummation that a consumer will have a reasonable ability to repay the loan according to its terms. (The obligation applies to a consumer credit transaction secured by a dwelling.)

The regulations currently provide:

a “safe harbor” for compliance with the ability-to-repay rules to creditors or assignees of loans that satisfy the definition of a QM and are not higher-priced mortgage loans; and
a “rebuttable presumption” of compliance with the ability-to-repay rules to creditors or assignees for higher-priced mortgage loans.

A “higher-priced mortgage loan” has an annual percentage rate (“APR”) exceeding the average prime offer rate (“APOR”) by 1.5 or more percentage points for first-lien loans, or by 3.5 or more percentage points for subordinate-lien loans.

The QM Patch

In many instances, in order for a loan to achieve QM status, it must be underwritten in accordance with exacting standards of Appendix Q, and the consumer’s debt-to-income (“DTI”) ratio may not exceed a 43% hard limit. However, the CFPB regulations eliminate these particular requirements if the loan is eligible for purchase by, among others, Fannie Mae and Freddie Mac. Consequently, a loan satisfies the QM Patch if it can be sold to one of the GSEs and meets certain other QM criteria. (Such criteria include that the points do not exceed the three percent threshold, and the loan is fully amortizing and doesn’t have a term exceeding 30 years.)

The QM Patch has significantly enhanced the presence of the GSEs in the QM market, as the GSEs are in effect backstopping the underwriting of these loans. The regulations scheduled this exemption to expire upon the earlier of the termination of the conservatorship of the particular GSEs, or January 10, 2021.

What the rule did not anticipate is that the conservatorship of the GSEs would continue years after the effective date of the CFPB regulations (January 10, 2014). Many have criticized the QM Patch for unduly advantaging the government subsidized GSEs at the expense of the private residential mortgage market participants, and have clamored for its elimination.

The Final Rulemaking: QM Patch Expiration

Notably, under the final rule, the QM Patch permanently sunsets on the earlier of (i) July 1, 2021 or (ii) the date that the GSEs exit conservatorship. The timing is tricky because Mark Calabria, the Director of the Federal Housing Finance Agency, the entity that supervises the conservatorships of Fannie Mae and Freddie Mae, has indicated that he might seek to terminate the conservatorships prior to President Trump’s departure from office. In recent remarks, however, Treasury Secretary Steven Mnuchin has indicated that termination of the conservatorships is not imminent.

Significantly, the expiration of the QM Patch does not affect the QM definitions that apply to Federal Housing Administration (FHA), US Department of Veterans Affairs (VA), US Department of Agriculture (USDA) or Rural Housing Service loans. In other words, loans eligible to be insured or guaranteed by these agencies may still constitute QMs if they meet the agencies’ respective definitions of a QM.

Appendix Q and 43% DTI Requirement Removal

Further, in this final rule, the CFPB eliminates the Appendix Q 43 percent DTI underwriting requirements and replaces them with a priced-based QM definition.

Under the rule, for first-lien transactions, a loan receives a conclusive presumption that the consumer had the ability to repay (and hence receives the “safe harbor” presumption of QM compliance) if the APR does not exceed the APOR for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set. A first-lien loan receives a “rebuttable presumption” that the consumer had the ability to repay if the APR exceeds the APOR for a comparable transaction by 1.5 percentage points or more but by less than 2.25 percentage points. The final rule provides for higher thresholds for loans with smaller loan amounts, for subordinate-lien transactions, and for certain manufactured housing loans.

In order to qualify for QM status, the loan must continue to meet the statutory requirements regarding the 3% points and fees limits, and must not contain negative amortization, a balloon payment (except in the existing limited circumstances), or a term exceeding 30 years.

Consider and Verify Consumer Income and Assets

In lieu of underwriting to Appendix Q, the final rule requires that the creditor consider the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, debt obligations, alimony, child support, and DTI ratio or residual income. The final rule also requires the creditor to verify the consumer’s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan and the consumer’s current debt obligations, alimony, and child support.

Consider Requirement

In particular, in order to comply with the requirement to “consider” under the rule, the CFPB provides creditors the option to “consider” either the consumer’s monthly residual income or DTI. The CFPB imposes no bright line DTI limits or residual income thresholds.

As part of the consider requirement, a creditor must maintain policies and procedures for how it takes into account the underwriting factors enumerated above, as well as retain documentation showing how it took these factors into account in its ability to repay determination.

The CFPB indicates that this “this documentation may include, for example, an underwriter worksheet or a final automated underwriting system certification, in combination with the creditor’s applicable underwriting standards and any applicable exceptions described in its policies and procedures, that shows how these required factors were taken into account in the creditor’s ability-to-repay determination.”

Verify Requirement and “Safe Harbor”

With respect to the “verify” requirement, the rule does not prescribe specific methods of underwriting that a creditor must use, as long as the creditor uses third-party records that provide reasonably reliable evidence of the consumer’s income or assets. Indeed, the rule permits the creditor to use any “reasonable verification method and criteria”.

Nevertheless, in an especially significant provision of the rule, the CFPB provides a “safe harbor” to creditors using verification standards from relevant provisions from Fannie Mae’s Single Family Selling Guide, Freddie Mac’s Single-Family Seller/Servicer Guide, FHA’s Single Family Housing Policy Handbook, the VA’s Lenders Handbook, and the Field Office Handbook for the Direct Single Family Housing Program and Handbook for the Single Family Guaranteed Loan Program of the USDA. In other words, under the rule, a creditor is deemed to have complied with this “verify” requirement if it complies with the verification standards in one or more of these agency manuals.

In fact, the rule permits the creditor to “mix and match” verification standards from different agency manuals. Stated another way, the creditor is deemed to comply with the “verify” requirement if it complies with one of more of the verification standards of the manuals listed above. Again, creditors are not required to verify income and debt according to the standards the CFPB specifies.

Treatment of Certain Five-Year ARM Loans

Under the rule, the CFPB creates a special provision for adjustable rate mortgages (ARMs) with initial fixed-rate periods of five years or less. In these transactions, the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due.

For purposes of determining whether these ARMs are accorded QM status, the creditor is required to ascertain the APR by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan. As an illustration of the foregoing, the rule provides:

For example, assume an adjustable-rate mortgage with a loan term of 30 years and an initial discounted rate of 5.0 percent that is fixed for the first three years. Assume that the maximum interest rate during the first five years after the date on which the first regular periodic payment will be due is 7.0 percent. Pursuant to [ the rule], the creditor must determine the annual percentage rate based on an interest rate of 7.0 percent applied for the full 30-year loan term.

Takeaways

On its face, the final rule appears to significantly alter the criteria for QM loans and seemingly diminishes the presence of the GSEs in in the QM market. In eliminating the QM Patch, Appendix Q and the hard 43% DTI threshold, the rule gives a creditor certain flexibility in originating QMs as long as it underwrites the loans using the specified “consider” and “verify” standards.

Ironically, the much-maligned Appendix Q provided a recognized measure of certainty of compliance with the QM underwriting rules if the creditor could adhere it its sometimes-arbitrary standards. Further, for GSE-conforming loans, as long as the loan was eligible to be purchased by Fannie Mae or Freddie Mac, and otherwise met the product feature and point/fee limits, the loan was automatically deemed QM.

Under the final rule, however, unless the creditor avails itself of the “safe harbor” for verifying the consumer’s income, assets, debt obligations, alimony and child support, the creditor’s underwriting of the loan to achieve QM status is inherently subjective , and hence, at least initially may not be accorded the same recognition in the secondary market as a loan that had been underwritten to Appendix Q or had been subject to the QM Patch under the existing rule. Consequently, as the rule is implemented, creditors will be strongly incentivized to avail themselves of the “safe harbor” by complying with the verification standards of one or more of the agency manuals. Perhaps the revised rule will not diminish the presence of the GSEs in the QM market as anticipated.

CFPB Director Provides Update Relating to QM Patch Expiration

January 31, 2020 By Stephen Ornstein

A&B ABstract: A recent letter from Consumer Financial Protection Bureau (“CFPB”) Director Kathleen Kraninger provides clues about the potential future of the so-called “QM Patch.”

Discussion:

In a December 17, 2020 letter to Senator Mike Rounds (“Letter”), CFPB Director Kathleen Kraninger, revealed a number of interesting insights about the CFPB’s ongoing evaluation of the reformation of the Ability-to-Repay/Qualified Mortgage (ATR/QM) Rule, including the phase-out of the “QM Patch”.

Background:

The CFPB enacted the QM Patch as a temporary provision of the ATR/QM regulations promulgated pursuant to the Dodd-Frank Act. It exempts lenders from having to underwrite loans with debt-to-income ratios not exceeding 43% in accordance with the exacting standards of Appendix Q to Regulation Z if the loans otherwise meet the definition of a qualified mortgage and are eligible for purchase by, among others, Fannie Mae and Freddie Mac.

On July 25, 2019, the CFPB issued an advance notice of proposed rulemaking (“ANPR”) seeking public comment regarding the fate of the “QM Patch”, which is scheduled to expire no later than January 10, 2021. In seeking public comment in the ANPR, however, the CFPB announced that it does not intend to extend the “QM Patch” permanently.

The Letter:

Based on public comments submitted in response to the ANPR, Director Kraninger indicated that the CFPB, in amending the definition of what constitutes a qualified mortgage, will issue a Notice of Proposed Rulemaking (“NPRM”) by no later than May 2020.

The Letter provides further detail on the NPRM. First, the CFPB will propose to eliminate the current 43% debt-to-income requirement and impose an alternative measure such as a pricing threshold (“i.e., the difference between the loan’s APR and the average prime offer rate for a comparable transaction”). Director Kraninger asserted that the pricing threshold would help facilitate the offering of “responsible, affordable mortgage credit”. Second, the CFPB will propose to extend the expiration of the QM Patch for a short period pending the effective date of the proposed alternative.

Perhaps even more significantly, Director Kraninger indicated that the CFPB in a separate NPRM may adopt a new “seasoning” mechanism that would confer QM Safe Harbor treatment to certain loans that have a history of timely payments. This mechanism would greatly facilitate the sale and securitization of non-QM loans that may have missed being classified as QM due to some blemish prior to consummation.

Takeaway:

Director Kraninger’s brief comments in the Letter indicate that the CFPB is determined to eliminate the QM Patch after a short extended transition period. Further, the CFPB has demonstrated its commitment to reforming the definition of a qualified mortgage in a manner that will enhance credit availability to a broader spectrum of the credit markets—or so it is thought—and give a lifeline to seasoned highly performing loans that have previously been excluded from the gold standard QM Safe Harbor category. The credit markets anxiously await the promulgation of these anticipated proposed rulemakings.

CFPB Rules Permit Qualified Mortgage “Cures”

September 23, 2019 By Stephen Ornstein

A&B Abstract:

What happens when a proposed qualified mortgage is later discovered to have points and fees in excess of the statutory threshold? The answer lies in a cure provision scheduled to sunset on January 21, 2021.

CFPB Rules Permit Qualified Mortgage “Cures”

What happens to an originator or assignee of a “qualified mortgage” who discovers after the loan has been consummated that the points and fees charged in connection with the transaction exceed the permitted 3% threshold? Such a change not only jeopardizes the QM status of the loan, but also prevents the mortgage from being considered a “qualified residential mortgage” (and, therefore, from being exempt from risk retention requirements) if it is intended to be securitized. Is the loan irrevocably relegated to non-QM and non-QRM status? Under certain circumstances, the answer is “no”.

A little-known provision in the CFPB’s qualified mortgage/ability-to-repay rules provides a “cure” for loans consummated before January 10, 2021. When the creditor or assignee determines after consummation that the transaction’s total points and fees exceed the applicable limit (in most situations, 3% of the total loan amount), the creditor or assignee may “cure” the error and preserve and the QM status of the loan.

The “cure” is available if the following conditions are met:

Within 210 days of consummation, the creditor or assignee refunds the excess fees to the borrower;
The loan otherwise complies with the other QM requirements;
The loan is not 60 days past due;
The borrower has not instituted an action in connection with the loan or apprised the creditor, assignee or servicer that the points and fees exceed the applicable threshold; and
The creditor or assignee, as applicable, maintains and follows policies and procedures for post-consummation review of the points and fees charged to borrowers.

The Take Away

This “cure” provision is a valuable tool for creditors and their assignees and may be used under the circumstances described above to salvage the QM and QRM status of a mortgage loan. However, this limited “cure” provision does not remedy other errors that could jeopardize the loan’s QM status, such as failure to adhere to Appendix Q underwriting standards.

In order to take advantage of this cure provision, it is imperative that creditors and their assignees develop post-closing quality control mechanisms to ensure that the points and fees charged in connection with loans intended to be QMs do not exceed the prescribed thresholds. Note, however, that unless extended, this cure mechanism sunsets on January 21, 2021.

QM Patch Update: CFPB Proposes to Let Patch Expire

August 4, 2019 By Stephen Ornstein

A&B Abstract

The CFPB has issued an Advance Notice of Proposed Rulemaking regarding the fate of the “QM Patch,” indicating that it will not extend the “QM Patch” permanently.

Advanced Notice of Proposed Rulemaking

In a surprise development, on July 25, 2019, the Consumer Financial Protection Bureau (“CFPB”) issued an advance notice of proposed rulemaking (“ANPR”) seeking public comment regarding the fate of the “QM Patch,” which is scheduled to expire no later than January 10, 2021. The comment period is short, reflecting the urgency of promulgating a final rulemaking before the impeding “QM Patch” termination. Comments must be received by the CFPB within 45 days after publication of the ANPR in the Federal Register.

Background

The CFPB created the “QM Patch” as a temporary provision of the qualified mortgage (“QM”)/ability-to-repay (“ATR”) regulations adopted pursuant to the Dodd-Frank Act. It exempts lenders from having to underwrite loans with debt-to-income (“DTI”) ratios not exceeding 43% in accordance with the exacting standards of Appendix Q to Regulation Z if the loans otherwise meet the definition of a QM and are eligible for purchase by, among others, Fannie Mae and Freddie Mac.

The CFPB’s Proposal

In seeking public comment in the ANPR, however, the CFPB announced that it does not intend to extend the “QM Patch” permanently. This shocking pronouncement has potentially profound ramifications for the residential mortgage lending markets. A substantial proportion of the markets have relied extensively on the “QM Patch” in underwriting qualified mortgages, not to mention significantly reducing the role of the GSEs in these markets. For years, GSE critics have complained about Fannie Mae’s and Freddie Mac’s dominance of the residential lending markets. Yet the January 2021 “QM Patch” expiration would raise critical questions: Will the private markets be able to absorb the GSE’s large share of qualified mortgage lending? If not, what are the possible detrimental impacts on consumers, especially those in distressed communities?

Other QM Changes?

In the ANPR, the CFPB indicates that it may make other significant changes to the qualified mortgage regulations, based in part on the public comments it receives. For example, the CFPB is considering whether the general QM definition should retain a direct measure of a consumer’s personal finances, such as DTI or residual income and how that measure should be structured. The CFPB is also seeking comment on whether the definition should: (1) include an alternative method for assessing financial capacity, or (2) be limited to the express statutory criteria. Under one approach that seems to be attracting the CFPB’s interest, bright-line pricing delineation would replace the DTI criteria altogether. Under such an approach, loans with APRs exceeding the average prime offer rate by certain thresholds would be deemed rebuttable presumption QM loans or non-QM loans, as the case may be. Loans not exceeding certain thresholds would receive safe harbor QM status. Under such a bright line pricing delineation method, the loans would have to comply with other statutory criteria in order to retain QM status.

Takeaway

The 45-day deadline for comments seems rushed, especially considering the dramatic effect that changes to the qualified mortgage rules could have on the residential mortgage finance and housing markets. Further, in an ideal world, the CFPB should be considering amendments of the qualified mortgage/ability-to-repay rules in tandem with the federal high cost mortgage, the residential mortgage risk retention, and the loan originator compensation rules as a holistic approach rather than in isolation.