CFPB Issues Final Qualified Mortgage Rules

The Consumer Financial Protection Bureau (CFPB) today issued two final rules related to qualified mortgage (QM) loans. 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. The second rule creates a new category for QMs, Seasoned QMs.

In adopting a price-based approach to replace the specific DTI limit for General QM loans, the CFPB determined that a loan's price 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. A loan meets the general QM definition if its annual percentage rate exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25 percentage points.

In addition, the General QM Final Rule:

• Provides higher pricing thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions.
• Retains the General QM loan definition’s existing product-feature and underwriting requirements and limits on points and fees.
• Requires lenders to consider a consumer’s DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and removes appendix Q and provides more flexible options for creditors to verify the consumer’s income or assets other than the value of the dwelling and the consumer’s debts for QM loans.

"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."

CFPB also is encouraging innovation in the mortgage origination market through the issuance of the Seasoned QM Final Rule. The rule creates a new category of Seasoned QMs for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.

The two rules will take effect 60 days after publication in the Federal Register, with a mandatory compliance date for the General QM Final Rule of July 21, 2021. However, lenders can use the new rule during the optional compliance period between the effective date and July 21.

The CFPB had previously extended the "Government-Sponsored Enterprise (GSE) Patch" that allows mortgage loans that are eligible for purchase by Fannie Mae and Freddie Mac to receive a safe harbor granted to qualified mortgages QMs. The Patch will expire on the General QM Final Rule's mandatory compliance date or if Fannie Mae and Freddie Mac exit conservatorship.

Read the General QM final rule.

Read the Seasoned QM final rule.

For more information, contact Curtis Milton at 800-368-5242 x8597.