CFPB Releases Qualified Mortgage Rule
January 11, 2012: On Thursday, Jan. 10, 2013, NAR achieved a significant victory in obtaining a safe harbor in the QM rule for loans underwritten to the automated standards of the GSEs, FHA, VA, and RHS and within their respective loan limits for up to seven years and with regard to the GSEs, seven years or whenever they leave conservatorship. FHA, VA, and RHS may establish their own QM standard under Dodd-Frank and they will have seven years to do so if they so choose. Also, loans that do not have risky features and do not have a total debt to income of greater than 43 percent will receive safe harbor protections. This basically means that if all your debt expenses (including total mortgage payment) do not exceed 43 percent of your gross income (before taxes are withheld) you will qualify for a QM. Other more risky loans that meet the other criteria but exceed 43 percent DTI will only receive rebuttable presumption protections.
The biggest area of concern with regard to the underwriting standards for QM will be jumbo loans with DTI in excess of 43 percent. This is a relatively small percentage of the market but could affect lending in high cost areas. Likewise, there is some concern that manually underwritten loans for all loan amount levels with DTI in excess of 43 percent may also suffer.
Manual underwriting can be an effective tool for scenarios where the buyer has some defect that fails them in the automated system but has many compensating factors that indicate they are credit worthy. Finally, there is serious concern that low-income and minority borrowers will suffer somewhat under this rule and this thought was expressed several times during a Baltimore field hearing held the day the rule was released.
The major challenge ahead is fixing how fees and points are calculated toward the 3 percent cap on fees and points in the QM definition. The current manner in which they are calculated could severely impact real estate firms with mortgage affiliates, independent mortgage bankers, and mortgage brokers' ability to serve all of their customers. NAR will be working with CPFB, Congress, and industry partners to address this critical issue. The QM rule will be implemented by Jan. 10, 2014.