Department News COMPLIANCE
Te Evolution of the Qualified Mortgage Rule By Gina Jolly, Vice President of Compliance Services
sweeping changes to mortgage loan
rules.One of the most confusing and extensive set of rules is related to lenders determining the borrower’s ability to repay a requested mortgage loan. If the loan meets certain criteria, it can receive a designation as a “Qualified Mortgage,” which potentially provides the lender a safe harbor to receive certain protections from liability in the event of future allegations that the bank negligently made a loan to a borrower without determining the repayment ability. A debt-to-income ratio of 43%, limits on repayment terms and fees, and Regulation Z Appendix Q underwriting requirements were attempts to standardize mortgages for the industry. However, trying to apply the same rules for all borrowers and lenders across the country made it difficult to ensure compliance and to qualify certain borrowers for mortgage loans.
Recognizing these difficulties, the industry and consumer advocacy groups provided feedback to improve the QM rules to broaden mortgage availability while still providing the safe harbor for lenders.
On Dec. 10, 2020, the Consumer Financial Protection Bureau issued revised QM rules that replaced Appendix Q and the 43% DTI ratio with a priced-based QM loan definition. Te revised QM rules also terminated the “GSE Patch” under which certain loans eligible for purchase by Fannie Mae and Freddie Mac do not have to be underwritten to Appendix Q or
satisfy the 43% DTI requirement. Te rule took effect March 1, 2021, with a mandatory compliance date of July 1, 2021. Te GSE Patch would have expired on that date.
On April 27, 2021, the CFPB pushed the mandatory compliance date of the General QM to Oct. 1, 2022. By extending the compliance date, lenders have the option of complying with the revised General QM definition or the original DTI-based General QM definition on applications received on or aſter March 1, 2021, but before Oct. 1, 2022. In addition, the rule pushed the GSE Patch expiration date to Oct. 1, 2022, or the date the applicable GSE exits conservatorship, whichever comes first.
However, on April 8, 2021, it was announced that Fannie/ Freddie will no longer acquire GSE Patch loans that fail to meet the requirements of the new General QM Rule that went into effect in March. As a result, GSE Patch loans will no longer be eligible for sale to the GSEs aſter July 1, and in effect, the GSE Patch disappears aſter that date, regardless of the CFPB’s intent for it to continue until Oct. 1, 2022. Tis contradicts the CFPB’s April rulemaking delaying the mandatory effective date of the revised QM rules until Oct. 1, 2022.
This article is for information purposes and does not contain or convey legal advice. The information should not be used or relied upon in regard to any particular situation without consultation with your bank attorney. MBA Compliance Services and its Compliance Force program offer various programs to aid banks with compliance needs. For more information, call 573-636-8151.
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