For General QMs, the ratio of the consumer's total monthly debt to total monthly income (DTI or DTI ratio) must not exceed 43 percent. Both coalitions of consumer advocacy groups stated that non-QMs and QMs that only receive a rebuttable presumption of compliance with the ATR requirements at consummation should not be allowed to season into QM safe harbor loans because the right a consumer has to raise the lack of ability to repay as a defense to foreclosure is not subject to the three-year statute of limitations. 08/27/2020 at 8:45 am. As discussed above, the Bureau anticipates that innovations in technology and diversification of the economy will facilitate and encourage creditors to assess consumers' financial information and repayment ability in new ways. These topics included: (1) Whether and how the Bureau should Start Printed Page 53574revise the DTI limit in the General QM loan definition; (2) whether the Bureau should supplement or replace the DTI limit with another method for directly measuring a consumer's personal finances; (3) whether the Bureau should revise appendix Q or replace it with other standards for calculating and verifying a consumer's debt and income; and (4) whether, instead of a DTI limit, the Bureau should adopt standards that do not directly measure a consumer's personal finances. The Bureau also recognizes that there could be legal issues related to the application of rules governing mortgage origination to loans existing prior to the effective date. QM status under EGRRCPA section 101 is available to both fixed and variable rate mortgages, as well as subordinate-lien loans, and section 101 also does not impose any requirements on post-consummation loan performance. What Is a Non-Qualified Mortgage? | The Motley Fool Proposed 1026.43(e)(7)(iv)(A)(1) through (5) would address additional, specific aspects of the definition of delinquency, which are discussed in turn in the section-by-section analyses that follow. [87] Fannie Mae, Selling Guide 56 (Aug. 5, 2020), https://singlefamily.fanniemae.com/media/23641/display. 1602(dd)(5). Since the effective date of the ATR/QM Rule, creditors properly originating QMs have been able to rely on the loan's QM status in responding to a defense against foreclosure under TILA section 130(k). U.S. Department of the Treasury, Housing Reform Plan 38 (Sept. 2019), https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf?mod=article_inline. 78o-11(e)(4). TILA section 129C(b)(2)(A)(vi). Fannie Mae, Amended and Restated GSE Rescission Relief Principles for Implementation of Master Policy Requirement #28 (Rescission Relief/Incontestability) (Sept. 10, 2018), https://singlefamily.fanniemae.com/media/16331/display. The General QM Proposal contains an overview of these comments. This is 50 points higher than the average credit score across all loans at the time, and 50 points higher than the average score among those who purchased homes a decade prior, implying that mortgage origination markets may have over-corrected relative to the economic fundamentals at the time. This is known as the " ability-to-repay " rule. Nonetheless, the Bureau preliminarily concludes that it may be important for the Seasoned QM definition to be limited to loans that are held in a creditor's portfolio. Similarly, increasing the number of allowed 30-day delinquencies by one increases the difference by approximately 4 percent. EGRRCPA's legislative history contains the following testimony from Senator Pat Toomey with respect to the portfolio requirement: [I]f the bank is keeping the loan on its own books, then it should be obvious to everyone that the bank has every incentive to make sure the loan is made to someone who can repay it. 164 Cong. (4) The principal and interest used in determining the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid are the principal and interest payment amounts established by the terms and payment schedule of the loan obligation at consummation. The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule or Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms. In June 2017, the Bureau published an RFI in connection with the Assessment Report (Assessment RFI). As discussed in greater detail below, the proposed performance and portfolio requirements would provide an added incentive for creditors to originate affordable loans and practice responsible lending. QM rule released with two legal liability standards - HousingWire The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms. 154. 40. The loan complies with certain requirements relating to consideration and verification of the consumer's monthly income and debt.[121]. to the courts under 44 U.S.C. [29] The Bureau also requested comment on how much time industry would need to change its practices in response to any changes the Bureau makes to the General QM loan definition. As noted above, on July 25, 2019, the Bureau issued an ANPR. The Bureau is aware that the GSEs have specific requirements to address these types of concerns in their representation and warranty frameworks. The authority citation for part 1026 continues to read as follows: Authority: (B) Qualifying change means an agreement that meets the following conditions: (1) The agreement is entered into during or after a temporary payment accommodation in connection with a disaster or pandemic-related national emergency as defined in paragraph (e)(7)(iv)(D) of this section, and must end any pre-existing delinquency on the loan obligation when the agreement takes effect; (2) The amount of interest charged over the full term of the loan does not increase as a result of the agreement; (3) The servicer does not charge any fee in connection with the agreement; and. 83. The Assessment Report included findings about the effects of the ATR/QM Rule on the mortgage market generally, as well as specific findings about Temporary GSE QM loan originations. Due to data limitations in the NMDB, the analysis of loan performance makes three assumptions. The Small Creditor QM requirements are more flexible than the General QM requirements because they allow additional latitude in calculating the payment on the covered transaction. The analysis below predicts the annual number of loan originations under each baseline, in years similar to 2018, that meet all of the requirements of a Seasoned QM loan and would benefit if they met the performance and portfolio requirements of the seasoning period. [126] [76] Use the PDF linked in the document sidebar for the official electronic format. The loan would then have to meet the performance requirements under proposed 1026.43(e)(7)(ii) at the conclusion of the extended seasoning period based on performance over the entire, extended seasoning period. Proposed 1026.43(e)(7)(i)(B) would require that Seasoned QMs comply with general restrictions on product features and points and fees and meet certain underwriting requirements. In other words, such transactions would become QM safe harbor loans. In summary, in that proposed rule, the Bureau proposed a price-based General QM loan definition to replace the DTI-based approach because it preliminarily concluded that a loan's price, as measured by comparing a loan's annual percentage rate (APR) to the average prime offer rate (APOR) for a comparable transaction, is a strong indicator of a consumer's ability to repay and is a more holistic and flexible measure of a consumer's ability to repay than DTI alone. Proposed 1026.43(e)(7)(iii) would be based on the legal authorities that are discussed in the section-by-section analysis of proposed 1026.43(e)(7)(i) above. virtually all closed-end residential mortgage loans. [57] The Board proposed a rule to implement the new 1296 (2018). In situations where the delinquency is not resolved quickly, the Bureau believes that it may not be appropriate for the loan to become a Seasoned QM, as the extended delinquency, when considered with the consumer's prior payment history, could suggest that the creditor failed to make a reasonable, good faith determination of ability to repay at consummation. Yes. The Bureau concluded that the statutory language is ambiguous and does not mandate either interpretation and that the presumptions should be tailored to promote the policy goals of the statute. [65] Only covered transactions that 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 could become Seasoned QMs. [162] Title X of the Dodd-Frank Act (including section 1061), along with TILA and certain subtitles and provisions of title XIV of the Dodd-Frank Act, are Federal consumer financial laws.[89]. TILA section 129C also exempts certain residential mortgage loans from the ATR requirements. TILA also provides that if a creditor, an assignee, other holder or their agent initiates a foreclosure action, a consumer may assert a violation by the creditor of the ATR requirement as a matter of defense by recoupment or set off without regard for the time limit on a private action for damages. As a result, the analysis of impacts of the proposal on creditor costs from reduced uncertainty related to legal liability relies on simplifying assumptions and qualitative information as well as the limited data that are available. 157. The Bureau believes that a loan's performance during time spent in a temporary payment accommodation due to a disaster or pandemic-related national emergency should be excluded from this period because such accommodations typically involve reduced payments or no payment and are therefore not likely to assist in determining whether the creditor made a reasonable assessment of the consumer's ability to repay at consummation. Mirroring the approach of the foreclosure analysis in section VII.B.1 above, the Bureau analyzes the same data on conventional, fixed-rate, first-lien purchase and refinance mortgage loans without prohibited features that were originated in 2012 and 2013 and held privately in portfolio at consummation. The Bureau's primary objective in providing the proposed new Seasoned QM definition is to increase access to responsible and affordable credit by incentivizing the origination of non-QM loans for which creditworthy consumers have an ability to repay, but that may not otherwise be eligible for QM status for various reasons. legal research should verify their results against an official edition of 15 U.S.C. The proposed portfolio requirements are similar to those that apply to Small Creditor QMs under the Rule. .). Although the proposed Seasoned QM definition would not require loans to meet a specific DTI ratio or pricing threshold, the Bureau tentatively concludes that the consider and verify requirements are sufficiently consumer-protective especially when coupled with the proposed performance and portfolio requirements. One of the underwriting requirements under the general definition for Qualified Mortgages is that the borrower's total debt- to-income ratio is not higher than 43 percent. [152] The proposal 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 to ensure the loan remains affordable. The Bureau is proposing to adopt a Seasoned QM definition primarily to encourage creditors to originate more responsible, affordable loans that are not QMs at consummation, and to ensure that responsible, affordable credit is not lost because of legal uncertainty in non-QM status. This document has been published in the Federal Register. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. To encourage creditors that seek to use the Seasoned QM definition to exercise discipline in considering consumers' ability to repay at origination, the Bureau believes that it may be appropriate for such creditors to bear the risk of the consequences of their ATR decision-making by requiring them to hold the loan in portfolio until the end of the seasoning period. Proposed comment 43(e)(7)(i)(A)-2 would clarify that loans that require balloon payments would not be eligible to become Seasoned QMs. (last visited Aug. 14, 2020). The lack of uniformity is likely due in part to the difficulties associated with measuring and quantifying the litigation and compliance risk associated with originating non-QM loans. 127. General. The Bureau further proposes to remove the first sentence of comment 43(e)(1)(i)-1, which would be duplicative of regulatory text, and to redesignate that comment as comment 43(e)(1)(i)(A)-1. The Assessment Report found that while non-depository institutions sold non-QM loans on the secondary market, almost all surveyed depository institutions kept non-QM loans in their portfolio. Id. In making this preliminary determination, the Bureau focused on loans that would be eligible to be Seasoned QMs based on the proposal as described in part VI. The loan does not have negative-amortization, interest-only, or balloon-payment features, a term that exceeds 30 years, or points and fees that exceed specified limits; The creditor underwrites the loan based on a fully amortizing schedule using the maximum rate permitted during the first five years; The creditor considers and verifies the consumer's income and debt obligations in accordance with appendix Q; The consumer's DTI ratio is no more than 43 percent, determined in accordance with appendix Q. Consistent with these comments, the Bureau considered the existing practices of the GSEs and mortgage insurers in developing the time period for successful payment history to include in this proposal. Higher-priced covered transactions. 101. 76. Proposed 1026.43(e)(7)(ii), which would be based on the legal authorities discussed in the section-by-section analysis of proposed 1026.43(e)(7)(i) above, establishes performance requirements relating to the number and duration of delinquencies that a covered transaction may have at the end of the seasoning period. The Assessment Report discussed several possible reasons for the continued prevalence of Temporary GSE QM loan originations. 77. Under Regulation Z, this category of QMs (Temporary GSE QM loans) is scheduled to expire no later than January 10, 2021. As noted, the portfolio requirement for the Seasoned QM definition is similar to the portfolio requirements in the current ATR/QM Rule for Small Creditor QMs, and the Bureau has modeled proposed 1026.43(e)(7)(iii) on those provisions.[130]. and for which the APR exceeds APOR by the amounts specified in the General QM Proposal's proposed amendments to 1026.43(e)(2)(vi)(A) through (E). 49. Loans that meet the Rule's requirements for qualified mortgages (QMs) obtain certain protections from liability. For example, a consumer could at consummation lack the ability to make a fully amortizing mortgage payment but manage to make interest-only payments in the first three years. According to these commenters, when a loan defaults after performing for some period of time, such as three or five years, it is reasonable to conclude that the default was not caused by the creditor's failure to reasonably determine the consumer had the ability to repay at the time of origination. [102] The analyses first classify loans by whether they would satisfy the General QM requirements for safe harbor and rebuttable presumption in Baseline 1 at consummation. The analyses of alternatives also make the same assumptions on how loans with certain characteristics can obtain safe harbor status and hold constant the quantity and composition of the loans. As discussed above, the statute does not specify whether the presumption of compliance means that the creditor receives a conclusive presumption or a rebuttable presumption of compliance with the ATR provisions. headings within the legal text of Federal Register documents. 22, 2020), https://www.consumerfinance.gov/about-us/newsroom/agencies-provide-additional-information-encourage-financial-institutions-work-borrowers-affected-covid-19/;;; see also 85 FR 39055 (June 30, 2020) (the Bureau's June 2020 interim final rule amending Regulation X to allow mortgage servicers to finalize loss mitigation options without collecting a complete application). The Bureau also believes that a Seasoned QM definition may provide incentives for making additional rebuttable presumption loans. Section 15G requires the QRM agencies to jointly define what constitutes a QRM, taking into consideration underwriting and product features that historical loan performance data indicate result in a lower risk of default. But the Bureau requests comment on whether the proposed requirements regarding consideration of the consumer's DTI ratio or residual income and verification of the consumer's debt obligations and income would be sufficient to ensure a similar outcome.
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