The CFPB finalized its General
Qualified Mortgage (QM) definition, and the new Seasoned
QM regulations under the Truth in Lending Act (Regulation Z). The
changes made in these final rules were generally responsive to CUNA’s requests and credit
unions will need to review these changes and make their processes and systems
to meet the new QM requirements.
General QM
As requested by CUNA,
the final General QM rule amends Regulation Z to, among other things, replace
the 43% debt-to-income (DTI) requirements and Appendix Q DTI calculation
requirements with a more streamlined price-based approach. As expected,
the new rule retains the same product-feature and underwriting requirements and
limits on points and fees as the old definition, but replaces the DTI test for
first lien QM loans with a price threshold that caps the annual percentage rate
(APR) on these loans to an amount that does not exceed the average prime offer
rate (APOR) for a comparable transaction by more than 2.25 percentage points as
of the date the interest rate is set. This spread is 0.25% higher than
the 2% that the CFPB proposed initially, in recognition that “a
2.25-percentage-point pricing threshold strikes the best balance between
ensuring consumers’ ability to repay and ensuring continued access to
responsible, affordable mortgage credit.”
In a separate rulemaking finalized in October, the CFPB
extended the sunset date for the related Temporary GSE QMs until the “mandatory
compliance date” for this new General QM definition. This final General
QM rule establishes that mandatory compliance date as July 1, 2021, meaning
that lending pursuant to an application received from a member after July 1,
2021 must meet the new General QM requirements to qualify for the regulation’s
liability protections. Interestingly, applications received after the
effective date of the regulation (60 days after publication in the Federal
Register, estimated to be Friday, February 12, 2021) but before the July 1,
2021 mandatory compliance date can receive protections by meeting either the
Temporary GSE QM or new General QM definitions. The final rule
incorporates higher QM thresholds for loans with smaller loan amounts and for
subordinate-lien transactions, allowing, for example, General QM protections
for first lien loans with up to a 6.5% spread if the loan is for an amount
between $66,156 (indexed for inflation) and $110,260 (indexed for inflation).
No changes were made to the safe harbor thresholds, which
provide safe harbor protections for QM loans that do not exceed an APOR for a
comparable transaction by 1.5 percentage points or more as of the date the
interest rate is set (or by 3.5 percentage points or more for subordinate lien
transactions).
Seasoned QM
In addition to the changes made
to the General QM definition the Bureau also finalized the creation of a new
“Seasoned QM” category. The final rule defines Seasoned QMs as first-lien,
fixed-rate covered transactions that meet certain performance requirements over
a seasoning period of at least 36 months, are held in portfolio until the end
of the seasoning period, comply with general restrictions on product features
and points and fees, and meet certain underwriting requirements.
Specifically, a covered transaction
must meet the following product restrictions to be eligible to become a
Seasoned QM:
- 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; and
- The loan is not a
high-cost mortgage as defined in § 1026.32(a).
The rule also requires that the
creditor consider the consumer’s DTI ratio or residual income, income or assets
other than the value of the dwelling and debts, and verify that information
using the same “consider and verify” requirements established for General QMs
in the General QM Final Rule.
Regarding the rule’s performance
requirement, seasoning is available only for 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.
This Seasoned QM rule will take effect 60 days after
publication in the Federal Register, which aligns with the effective date for
the General QM Final Rule.