The Qualified Mortgage Rule
On September 13, 2013, the Consumer Financial Protection Bureau (CFPB) issued final regulations implementing provisions in the Dodd-Frank Act that require all creditors to determine a consumer's ability to repay a mortgage before making a loan. The final rule includes a "qualified mortgage" standard broad enough to encompass most current types of mortgages. It also provides "safe harbor" legal protection to most qualified mortgages.
What is a Qualified Mortgage?
According to the CFPB, a loan that meets the product feature requirements listed below can be considered a Qualified Mortgage (QM) under any of three main categories: (1) the general definition; (2) the "GSE-eligible" provision; or (3) the small creditor provision.
Mandatory product feature requirements for all QMs
- Maximum loan term is less than or equal to 30 years.
- No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: balloon loans originated until January 10, 2016 that meet the other product features are QMs if originated and held in portfolio by small creditors);
- Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed);
Three main categories of QMs
- General definition: Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM.
- GSE-eligible: Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio (this QM category applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until an agency issues its own QM rules, or January 10, 2021, whichever occurs first)
- Small creditor: For lenders with less than $2B in assets and originate 500 or fewer first mortgages per year, any loan that meets the product feature requirements and is held in portfolio is a QM as long the lender has considered and verified a borrower's debt-to-income ratio (though no specific DTI limit applies).
Avantus provides a wide array of verification, compliance and fraud products that can help you determine a borrower's Ability to Repay under the Qualified Mortgage Rule. We are committed to provide our customers with the products and services you need to help you stay compliant now and in the future.
If you are not a customer of Avantus and would like more information, contact us via email or give us a call at 800-243-0120.