A&B abstract: On December 10th, 2020, the Consumer Financial Protection Bureau (CFPB) issued an innovative final set of rules that pave the way to “Safe Harbor” Qualified Mortgage (QM) status for performing non-QM and “rebuttable presumption” QM credits creates that meet a specific performance criteria portfolio requirements over a maturity period of at least 36 months and that meet specific product restrictions, point and fee limits, and underwriting requirements prior to completion.
The CFPB has announced this “Seasoned QM” regulation at the same time as the rule that ends the “QM patch” and changes the general QM rules (as in our post from December 28th).
The “Seasoned QM” rule applies to applications received on or after March 1, 2021.
According to the revised general QM rule, a loan in first-lien transactions receives a conclusive assumption that the consumer was able to repay (and thus receives the “Safe Harbor” presumption of QM compliance) if the APOR for a comparable transaction by 1.5 percentage points or more from the date on which the interest rate is fixed.
A senior loan receives a “rebuttable presumption” that the consumer was able to repay if the APR exceeds the APR on a comparable transaction by 1.5 percentage points or more but less than 2.25 percentage points. The revised general QM rule provides for higher threshold values for loans with lower loan sums, for subordinated business and for certain home loans. Loans with higher APR than the above thresholds are referred to as non-QM.
To qualify for QM status, the loan must meet the legal requirements for the three percentage point and fee limit and must not have negative amortization, no balloon payment (except in the existing restricted circumstances) or a term of more than 30 years contain.
Path to Safe Harbor QM status
As a rule, a non-QM loan or a “rebuttable presumption” QM at the end of a maturity period of at least 36 months receives a safe haven from ATR liability as a “proven QM” if it fulfills certain product restrictions, points – and fee limits and underwriting requirements, and the loan meets set performance and portfolio requirements over the term. The stated purpose of the CFPB is to “improve access to affordable mortgage credit” and “encourage non-QM and ‘rebuttable presumption’ QM credits that a creditor expects to have a sustained and timely payment history” .
Criteria for an “experienced QM”
In order to become a “Seasoned QM” and thus receive a safe haven from the ATR liability after the 36-month maturity period has expired, the loan must meet the following criteria:
- The loan is secured by a mortgage;
- The loan has a fixed rate of interest with regular, essentially equal periodic payments that are fully amortized and no balloon payments;
- The credit period is no more than 30 years;
- The loan is not subject to the Home Ownership and Equity Protection Act;
- Loan points and fees do not exceed the three percent threshold or other specified applicable limit;
- Believer must Consider the DTI ratio or the consumer’s residual income, income or assets other than home value, and debt, and check the consumer’s income or property, excluding the value of the home, and the consumer’s debts using the same Consider and check Requirements for general QMs in the general QM rule;
- With a few exceptions, the lender must hold the loan for the entire 36-month term; and
- The loan must meet certain performance criteria, ie there must be no more than two defaults of 30 or more days and no defaults of 60 or more days at the end of the maturity period.
The Seasoning, portfolio and performance Criteria are discussed below.
The CFPB defines the soTransitional period as a period of 36 months, starting on the day on which the first regular payment becomes due after completion except that in the event of a delay of 30 days or more at the end of the 36th month of the maturity period, the maturity period continues until this delay ends.
In addition, the seasoning period is suspended (and therefore does not include) any period of time the consumer is in “temporary payment accommodation” extended in the context of a disaster or pandemic-related national emergency, as long as certain conditions are met. The rule makes it clear that after temporary placement, maturity can only be resumed if any late payment is cured either according to the original terms of the loan or through a “qualifying change”.
The rule defines a “qualifying change” as an agreement made during or after a temporary payment arrangement in connection with a disaster or pandemic-related national emergency that ends a pre-existing insolvency and meets certain other conditions, such as: B. no increase in the amount of interest will be charged to the consumer during the entire term of the loan due to the agreement or the charging of fees.
The rule requires that the lender granting the loan hold it in their portfolio for the entire 36 month term, unless one of the limited exceptions applies. In particular, the rule allows the creditor to obtain a single as long as the assignee retains the loan for the remainder of the maturity period and the loan is not securitized. The other two exceptions to the portfolio include (i) sales or assignments of credit during a merger involving the obligee and another party and (ii) transfers of ownership due to certain regulatory sales such as a preservation or bankruptcy.
To qualify as a “Seasoned QM”, the loan must not have more than two Payment defaults of 30 or more days and no Payment defaults of 60 days or more at the end of the 36 month maturity period. Under the rule:
“Default means the failure to make a regular payment (in one full payment or in two or more installments) sufficient to cover principal, interest and (if applicable) escrow account for a specific accounting period up to the due date of the regular payment in accordance with the terms of the statutory Obligation. Other amounts, such as any late payment surcharges, are not taken into account.
(1) A regular payment is 30 days in arrears if it is not paid before the due date of the following regular regular payment.
(2) A regular payment is 60 days in arrears if the consumer is more than 30 days in arrears with the first of two consecutive regular payments and does not make both consecutive regular payments before the due date of the next scheduled regular payment after the two sequential ones planned regular payments. “
In addition, except to compensate for nominal shortfalls (i.e. $ 50 or less), payments from the following sources may not be made more than three times during the maturity period: Not when assessing “failures” are taken into account:
(i) trust funds in connection with the loan; or
(ii) monies paid on behalf of the consumer by the lender, service provider or assignee.
The CFPB has advised that payments from escrow accounts set up in connection with the loan or from third parties on behalf of the consumer should not be taken into account when evaluating the performance for condiment purposes, as, for example, a lender holds funds from the loan proceeds in trust to cover could keep payments during the maturity period, even if the loan payments were actually not permanently affordable to the consumer. The CFPB argues that if a creditor needs to withdraw funds from an escrow account or from a third party to cover an outstanding recurring payment, the payment from the escrow account or the third party raises doubts about the consumer’s ability to make the recurring payment.
GSE and insurer guarantee framework
When drawing up the performance framework for the 36-month season, the CFPB has based itself on the existing standards of the GSEs and certain mortgage insurers. The CFPB noted that each GSE generally grants creditors an exemption from enforcement in relation to certain representations and guarantees that a creditor must make to the GSE in relation to taking out a loan after the first 36 monthly payments if the Borrower no more than two 30-day defaults and no defaults of 60 days or more.
Similarly, the CFPB found that the general policies of mortgage insurers generally provide that the mortgage insurer will not withdraw from certain representations and guarantees from the original lender if the borrower is within 36 months of the borrower’s first payment, among other things.
From the point of view of the CFPB, the creation of a special “Seasoned QM” is justified, since from their point of view many loans to creditworthy consumers, which do not fall under the existing QM loan definitions when executed, comply with the ATR requirements due to a sustainable credit performance. When looking at the GSE’s guarantee framework, the CFPB found that in most, if not all, cases, default after 36 months of loan settlement is normal Not is due to poor lending, but rather to a change in the consumer’s circumstances that the lender could not reasonably have foreseen prior to execution.
In addition, the limitation period for a positive private claim for damages due to an ATR violation is usually three years from the date of the violation. As a result, a consumer would not be prevented from making an ATR claim during the designated maturation period.
However, granting Safe Harbor QM status for a loan that was granted as a non-QM or as a “rebuttable presumption” QM after the required maturity period would limit the consumer’s ability to avert an ATR violation as a defense In the event of foreclosure or civil law claims for damages, a claim for reparation can be made after 36 months, unless the maturity period is extended. Therefore, the CFPB argues that the special category “Seasoned QM” will provide incentives for non-QM credits that might otherwise be granted Not due to perceived litigation, civil liability risks or other defense against foreclosure risks – or at a significantly higher price – even if a creditor trusts that he can grant the loan in accordance with the ATR requirements.
Unsurprisingly, while the residential mortgage industry strongly supported the rulemaking, consumer groups in general rejected not only essential aspects of the rule but also the concept of “skilled QM” despite the many concessions the CFPB made to them. Although the rule has limited applicability due to its many requirements, it is uncertain whether a new CFPB director appointed to the Biden administration will maintain the rule in its current form.