CFPB Finalizes Two QM Mortgage Loan Rules

The Consumer Financial Protection Bureau (CFPB) has issued two final rules related to qualified mortgage (QM) loans.

The first final rule, the General QM Final Rule, replaces the current requirement for General QM loans that the consumer’s debt-to-income ratio (DTI) not exceed 43% with a limit based on the loan’s pricing. According to a statement from the CFPB, a loan will now receive “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. 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 CFPB added that the General QM Final Rule will provide higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions. It will also retain the General QM loan definition of the existing product-feature and underwriting requirements and limits on points and fees. Lenders will need to consider a consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling and debts.

“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.”

The second final rule creates a new category called Seasoned QMs. To qualify for the category, a loan must be a first-lien, fixed-rate loan with no balloon payments and meet performance requirements at the end of the seasoning period that include 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 creditor or first purchaser also generally must hold the loan on portfolio until the end of the seasoning period.

“This Seasoned QM Final Rule will ensure access to responsible, affordable credit in the mortgage market through responsible innovation,” said 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.”

The CFPB added the rules were designed to “support a smooth and orderly transition away from the [GSE] Patch and maintain access to responsible, affordable mortgage credit upon its expiration.” The Patch is set to expire on the July 21, 2021, mandatory compliance date of the General QM Final Rule or when the GSEs exit conservatorship, whichever occurs first.