The Bureau received many comments on the reasons that it described in the proposal for delaying the mandatory compliance date, which are related to the impact of the COVID-19 pandemic on the mortgage market. TILA identifies the factors a creditor must consider in making a reasonable and good faith Start Printed Page 22846assessment of a consumer's ability to repay. Valuations, Joint Release/Quality Control Standards for Automated Valuation Models Notice of Proposed Rulemaking, FDIC National Survey of Unbanked and Underbanked Households, Quarterly Banking TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. [60] 61. Cross-references to those definitions are listed in 1026.43(e)(4) to acknowledge the covered transactions covered by those definitions are qualified mortgages for purposes of this section. Brandon Ivey, Outlook on Non-Agency MBS Issuance: Bright and Gloomy, Inside Mortg. As the proposal stated, while the Bureau acknowledges that policies, agreements, or legislation created by parties other than the Bureauincluding the PSPAsmay limit the impact of the mandatory compliance date delay, the Bureau is unable to predict how such agreements or restrictions might change in the future. Borrowers, FDIC's Supervisory Policy on Predatory Lending, Interagency Expanded Examination Guidance for Subprime Lending 12 U.S.C. CFPB Finalizes Ability to Repay/Qualified Mortgage Rules The loan does not have negative-amortization, interest-only, or balloon-payment features, a term that exceeds 30 years, or points and fees that exceed specified limits; The creditor underwrites the loan based on a fully amortizing schedule using the maximum rate permitted during the first five years; The creditor considers and verifies the consumer's income and debt obligations in accordance with appendix Q; The consumer's DTI ratio is no more than 43 percent, determined in accordance with appendix Q. Nonetheless, many non-QM creditors and investors expect the non-agency market to continue to strengthen in 2021 and recover to its pre-pandemic levels of production. [33] Qualified Vs. Nonqualified Mortgage Loans | Quicken Loans As discussed in detail in part IV of the proposal, the Bureau has two concerns related to access to responsible, affordable mortgage credit. The Bureau does not expect the final rule to impose costs on small entities relative to the baseline. Response. 1296 (2018). [9] There are four types of qualified mortgages. This commenter also stated that borrowers most likely to have been impacted by the pandemic include those who suffered an income disruption or increased debt loads, and that the Bureau had not explained how those particular borrowers are likely to benefit from the original, DTI-based General QM loan definition, which requires substantial income documentation. PDF General Comparison of Ability-to-Repay Requirements with Qualified Frequently asked questions, advisories, statements of policy, and The Bureau also notes that, while many industry commenters stated that uncertainty about potential reconsideration of the revised, price-based General QM loan definition will deter creditors from implementing the revised General QM loan definition (and therefore mitigate benefits from that final rule), commenters did not identify examples of this occurring in the market. [79] The non-QM market has since been recovering, with strong investor demand for non-QM MBS due to better-than-expected performance during the pandemic. It needs to meet the same requirements as a general qualified mortgage, except it is open to borrowers with any debt-to-income ratio. system. Congress.gov. The Bureau consulted with the prudential regulators and other appropriate Federal agencies regarding the consistency of the final rule with prudential, market, or systemic objectives administered by such agencies as required by section 1022(b)(2)(B) of the Dodd-Frank Act. The comment did not provide a copy of or citation to the survey described. Prot., Ability to Repay and Qualified Mortgage Assessment Report (Jan. 2019), https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf. She has a broad range of experience in research and writing, having covered subjects as diverse as the history of New York City's community gardens and Beyonce's 2018 Coachella performance. Fin. [58] Resources to help industry participants understand, implement, and comply with the Ability to Repay/Qualified Mortgage (ATR/QM) rule. 12 CFR 1026.43(e)(2)(vi)(A) through (D). On February 23, 2021, the Bureau issued a statement titled Statement on Mandatory Compliance Date of General QM Final Rule and Possible Reconsideration of General QM Final Rule and Seasoned QM Final Rule (February 23, 2021 Statement or Statement). [21] requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations. Regarding potential compliance costs, as noted above, a trade association commented that delaying the mandatory compliance date would disrupt market Start Printed Page 22857participants' efforts to bring their systems into compliance with the General QM Final Rule and cause market participants to incur additional compliance-related costs. Anticipating that a number of homeowners would struggle to pay their mortgages due to the pandemic and related economic impacts, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)[42] The Bureau is finalizing this proposal because it is concerned that requiring creditors to transition to the revised, price-based General QM loan definition on July 1, 2021and eliminating the Temporary GSE QM loan definition and the original, DTI-based General QM loan definition at that timewill exacerbate these credit-access concerns. For example, as discussed in the section 1022(b) analysis in part V, of the 33,000 additional consumers expected to obtain conventional QM loans priced 2.25 percentage points or higher above APOR due to this rule, 28,000 are expected to obtain QM status through the original, DTI-based General QM loan definition. Bureau of Consumer Fin. The General QM Final Rule established a March 1, 2021 effective date and a July 1, 2021 mandatory compliance date. 12 CFR 1026.43(e)(4), as was in effect on February 26, 2021. Therefore, finalizing this rule will allow FHFA to exercise this authority for the GSEs and other secondary market participants to instead purchase these loans with QM status, which may increase access to credit through lower pricing and greater secondary market liquidity. 10, 2020), https://www.ginniemae.gov/issuers/program_guidelines/Pages/mbsguideapmslibdisppage.aspx?ParamID=105. When a loan is known as a temporary qualified mortgage, it meets the same requirements as a general qualified mortgage. The Bureau acknowledges these comments but considers them to be outside the scope of this final rule. Covered transactions that met the requirements of 1026.43(e)(2)(i) through (iii), were eligible for purchase or guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) (or any limited-life regulatory entity succeeding the charter of either) operating under the conservatorship or receivership of the Federal Housing Finance Agency pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 5481(12)(O) (defining enumerated consumer laws to include TILA). While many of these consumers may have obtained mortgages of some kind under the baseline, the largest benefits to consumers accrue to the consumers who will obtain a conventional QM loan under the final rule but would not have obtained a mortgage under the baseline. We're the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly. It was created in 2014 to increase the chances a borrower would be able to repay their loan. They also provide incentives for lenders who wish to sell their loans in the secondary market (since qualified mortgage loans are more appealing to underwriters in structured product deals). In addition, consumers who would have obtained non-QM loans under the baseline but instead obtain QM loans under the final rule forgo the benefit of retaining the ATR causes of action and defenses against foreclosure. The General QM Final Rule had an effective date of March 1, 2021, and a mandatory compliance date of July 1, 2021. Section 105(a) of TILA directs the Bureau to prescribe regulations to carry out the purposes of TILA and states that such regulations may contain such additional requirements, classifications, differentiations, or other provisions and may further provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. characters. 81. Loss mitigation procedures, 1026.20, Disclosure requirements regarding Laurie Goodman et al., Urban Inst., Housing Finance at a Glance, Monthly Chartbook (Mar. amended the Truth in Lending Act (TILA)[5] L. 111-203, 124 Stat. ", Consumer Financial Protection Bureau. What Is a Qualified Mortgage? If you still have a question, you may submit it using the link below. Borrowers must have a reasonable debt-to-income ratio (DTI), and mortgage lenders can't offer mortgage products with artificially low introductory monthly payments that sharply increase when the teaser period ends. Products, CFPB Resources on the TILA Higher Priced Mortgage Loans Appraisal Rule, CFPB Resources on the TILA Higher Priced Mortgage Loan Escrow Rule, CFPB Resources on the Loan Originator Rule, CFPB Resources on the Ability to Repay/Qualified Mortgage Rule, Qualified Mortgage Definition under the Truth in Lending Main ATR/QM rule provisions and official interpretations can be found in: Executive summary of the final rule extending the mandatory compliance date of the General QM final rule, Executive summary of the December 2020 amendments to the ATR/QM Rule, Executive summary of the October 2020 amendments, Unofficial redline of the final rule extending the mandatory compliance date of the General QM final rule, Unofficial redline of the General QM Final Rules and Seasoned QM Final Rules amendments to the ATR/QM Rule, Unofficial redline of the Patch Extension Final Rules amendments to the ATR/QM Rule, Factsheet on prepaid interest and the General QM APR special rule for adjustable rate mortgages, Summary of the August 2020 proposal to amend the ATR/QM Rule, Summary of June 2020 proposals to amend the ATR/QM Rule, Unofficial redline of the Patch Extension NPRMs proposed changes to the ATR/QM Rule, Unofficial redline of the General QM NPRMs proposed changes to the ATR/QM Rule. If you work a fairly traditional job and have a good handle on your debt, a qualified mortgage, as opposed to a non-qualified mortgage (which we'll discuss in detail below), is likely your best bet. Unlike for General QMs, the January 2013 Final Rule did not prescribe a DTI limit for Temporary GSE QMs nor did it require use of appendix Q to verify and calculate debt, income, and DTI ratios. As discussed above, this final rule will delay the mandatory compliance date of the General QM loan definition from July 1, 2021 to October 1, 2022. If your loan is a Qualified Mortgage it means the lender met certain requirements and its assumed that the lender followed the ability-to-repay rule. Response. Is this true? [30] 21, 2020), https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-Forbearance.aspx. collection of financial education materials, data tools, This final rule does not make any other changes to the General QM loan definition. ", Consumer Financial Protection Bureau. As discussed below, this final rule delays the mandatory compliance date of the General QM Final Rule to help ensure access to responsible, affordable mortgage credit and to preserve flexibility for consumers affected by the COVID-19 pandemic and its economic effects. 04/29/2021 at 8:45 am. The Bureau also concludes that the adverse impact of the pandemic on mortgage markets may persist longer than anticipated at the time of publication of the General QM Final Rule. The Acting Director of the Bureau, David Uejio, having reviewed and approved this document, is delegating the authority to electronically sign this document to Laura Galban, a Bureau Federal Register Liaison, for purposes of publication in the Federal Register. The Dodd-Frank Act, officially known as the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, was created in 2010 in response to the 2008 financial crisis. As a result, even if the PSPAs continue to restrict GSE purchases that rely on the Temporary GSE loan QM definition after July 1, 2021, as some commenters noted, the Bureau concludes that the final rule will increase access to mortgage credit relative to the current rule under which the original, DTI-based General QM loan definition would no longer be available starting July 1, 2021. While servicers are required to hold liquid reserves to cover anticipated advances, early in the pandemic there were significant concerns that higher-than-expected forbearance rates over an extended period of time could lead to liquidity shortages, particularly among many non-bank servicers. [51], The Bureau is issuing this final rule to amend Regulation Z pursuant to its authority under TILA and the Dodd-Frank Act. Second, as discussed in the proposal, the Bureau has concerns about mortgage credit availability for some creditworthy consumers who would qualify for a mortgage but for the disruptive market effects of the pandemic, and believes that such concerns warrant a delay of the mandatory compliance date. These commenters were concerned that such limitations would impair access to credit and noted that a quick implementation of the revised, price-based General QM loan definition may mitigate some of these impacts. Another industry commenter suggested that the Bureau delay the mandatory compliance date for as long as possible. Not all of them necessarily have risky features like balloon payments and interest-only periods, but they typically come with higher interest rates. "H.R.4173 - Dodd-Frank Wall Street Reform and Consumer Protection Act." The CARES Act provides certain protections for borrowers with federally backed mortgages, such as those whose mortgages are purchased or securitized by a GSE or insured or guaranteed by the FHA, VA, or U.S. Department of Agriculture (USDA). Enforcement for Mortgage Licensing (SAFE) Act. c. Revise section 43(e)(4) Qualified mortgage definedother agencies. Qualified Mortgage Rule . A qualified mortgage is a mortgage that meets all the consumer protection requirements outlined in the Dodd-Frank Act. A NINJA loan is a slang term for a loan extended to a borrower with "no income, no job and no assets.". The Bureau is issuing this final rule pursuant to its authority under TILA section 129C(b)(3)(B)(i). It is not legal advice or regulatory guidance. This final rule is separate from the Bureau's pending proposal to amend certain provisions of Regulation X to assist borrowers affected by the COVID-19 pandemic, which was published in the Federal Register on April 9, 2021. [39] 45. Specifically, these commenters cited the PSPA limitation on the acquisitions of loans with two out of three high-risk characteristics, defined as a loan-to-value ratio (LTV) of 90 percent or greater, a DTI of 45 percent or greater, and a credit score of 680 or less. 68. to establish, among other things, ability-to-repay (ATR) requirements in connection with the origination of most residential mortgage loans. The General QM Final Rule acknowledged that the COVID-19 pandemic has had a significant effect on the U.S. economy. This commenter reiterated that even if these capacity constraints and overlays are substantiated, the Bureau has not provided evidence that a delay of the mandatory compliance date would mitigate these identified concerns. What Is A Qualified Mortgage? Commenters did not explain why delaying the mandatory compliance date to October 1, 2022, in and of itself, would meaningfully increase uncertainty in the market about whether the Bureau will reconsider other aspects of the General QM Final Rule, and the Bureau does not believe that delaying the mandatory compliance date to October 1, 2022 would have this effect. In the proposed rule, the Bureau focused its analysis on the impact of expanded access to credit on facilitating interest rate-reducing refinances as well as allowing creditworthy purchasers to absorb some of the distressed properties that may enter the market due to the inability of the seller to maintain a post-forbearance payment. Explore guides to help you plan for big financial goals, Comparison of ATR requirements with QM origination requirements, Small creditor qualified mortgages flowchart, Eligibility for making qualified mortgages, Transaction coverage and exemptions for the 2013 mortgage origination rules, Statement on Mandatory Compliance Date of General QM Final Rule and Possible Reconsideration of General QM Final Rule and Seasoned QM Final Rule, 2016 Rural-small interim final rule executive summary, 2015 Amendments relating to small creditors and rural or underserved areas executive summary, Factsheet for small creditors operating in rural or underserved areas, Ability to Repay and Qualified Mortgages (ATR/QM), Mortgage Appraisals and Other Written Valuations, Rules Governing Loan Origination Practices, Secure and Fair Enforcement of Mortgage Licensing (SAFE Act), Real Estate Settlement Procedures Act (RESPA), 1026.43(d), Refinancing of non-standard mortgages, 1026.43(f), Balloon-payment qualified mortgages made by certain creditors, Appendix Q to Part 1026Standards for determining monthly debt and income, Supplement I to Part 1026 (including official interpretations for the above provision). [11] Practices, Interagency Statement on Meeting the Needs of Creditworthy For complete information about, and access to, our official publications Comments on uncertainty about the General QM loan definition. The June 2013 ATR/QM Concurrent Final Rule and July 2013 Final Rule. These requirements are based on an analysis of the borrower's ability to repay their mortgage (according to their income, assets, and debts). 1. A home mortgage is a loan given by a bank, mortgage company, or other financial institution for the purchase of a primary or investment residence. Comments on general implementation issues. 19. The benefits from leaving the Temporary GSE QM loan definition in place until October 1, 2022 and the benefits from creditors using the original, DTI-based General QM loan definition during that period are, in the Bureau's view, each independently sufficient reasons for delaying the mandatory compliance date. There are several exceptions to qualified mortgage rules. In it, the Bureau stated, in relevant part, that it expected to issue a proposal to delay the July 1, 2021 mandatory compliance date of the General QM Final Rule. These parameters require that the borrower has not taken on monthly debt payments in excess of 43% of pre-tax income; that the lender has not charged more than 3% in points and origination fees; and that the loan has not been issued as a risky or overpriced loan with terms such as negative-amortization, balloon payment, or interest-only mortgage. Impact of the Proposed Provisions on Consumers in Rural Areas, PART 1026TRUTH IN LENDING (REGULATION Z), Supplement I to Part 1026Official Interpretations, Section 1026.43Minimum Standards for Transactions Secured by a Dwelling, https://www.federalregister.gov/d/2021-09028, MODS: Government Publishing Office metadata, https://www.consumerfinance.gov/documents/9505/cfpb_qm-statement_2021-02.pdf, https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm, https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm, https://www.insidemortgagefinance.com/articles/220770-expanded-credit-mortgage-originations-slowly-recovering-from-shock, https://www.banking.senate.gov/imo/media/doc/Powell%20Testimony%205-19-20.pdf, https://www.urban.org/sites/default/files/publication/101926/housing-finance-at-a-glance-a-monthly-chartbook-march-2020.pdf, https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm, https://www.insidemortgagefinance.com/articles/217623-non-agency-mbs-issuance-slowed-in-first-quarter, https://www.insidemortgagefinance.com/articles/220373-non-qm-originations-and-mbs-ready-to-rebound-after-the-refi-boom, https://www.insidemortgagefinance.com/articles/219861-expanded-credit-lending-ticks-up-in-3q-amid-slow-recovery, https://www.insidemortgagefinance.com/articles/220261-mixed-views-on-the-outlook-for-non-agency-mbs-issuance-in-2021, https://www.urban.org/sites/default/files/publication/103746/housing-finance-at-a-glance-a-monthly-chartbook-february-2021_0.pdf, https://www.whitehouse.gov/briefing-room/statements-releases/2021/02/16/fact-sheet-biden-administration-announces-extension-of-covid-19-forbearance-and-foreclosure-protections-for-homeowners/, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-COVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-Forbearance.aspx, https://www.mba.org/2021-press-releases/april/share-of-mortgage-loans-in-forbearance-decreases-to-466-percent, https://www.insidemortgagefinance.com/articles/217636-fhava-lenders-raise-fico-credit-score-requirements, https://www.fhfa.gov/Media/PublicAffairs/Pages/Adverse-Market-Refinance-Fee-Implementation-Now-December-1.aspx, https://www.ginniemae.gov/issuers/program_guidelines/Pages/mbsguideapmslibdisppage.aspx?ParamID=105, https://www.ginniemae.gov/newsroom/Pages/PressReleaseDispPage.aspx?ParamID=194, https://home.treasury.gov/system/files/261/FSOC2020AnnualReport.pdf, https://www.nationalmortgagenews.com/opinion/the-originations-feast-and-credit-availability-famine, https://home.treasury.gov/system/files/136/Executed-Letter-Agreement-for-Fannie-Mae.pdf, https://www.insidemortgagefinance.com/articles/220914-some-non-agency-lenders-embracing-cfpbs-qm-changes, https://www.consumerfinance.gov/data-research/hmda/, https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf, https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/4Q2020FPR.pdf. The ATR/QM Rule also defines a temporary category of QMs that is also affected by this final rule. In 2020, the Bureau issued three final rules amending the ATR/QM Rule, two of which relate to this final rule. PDF Executive Summary of the December 2020 Amendments to the ATR/QM Rule This commenter also stated that the current economic conditions do not create an environment conducive to the implementation of major regulatory changes. Share & print. This document reflects rules issued on or before April 27, 2021 but does not reflect amendments made by the Economic Growth, Regulatory Relief, and Consumer Protection Act. on NARA's archives.gov. The Benefits to Consumers section of the proposal stated that between July 1, 2021 and October 1, 2022, approximately 33,000 additional consumers would obtain conventional QM loans priced 2.25 percentage points or higher above APOR under the final rule due to the availability of the original, DTI-based General QM loan definition and the Temporary GSE QM loan definition. They stated that loans originated under the Temporary GSE QM loan definition are crucial to maintaining market stability and access to credit for certain segments of the market, such as minorities and low- to moderate-income consumers. Federal Register provide legal notice to the public and judicial notice Additionally, a purpose of TILA sections 129B and 129C is to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive. While a qualified mortgage won't have any risky features like an interest-only period, negative amortization, or balloon payments, a non-qualified mortgage could have those features. made by certain creditors, 1026.19(e), (f), and (g), Procedural and timing See 85 FR 86402 (Dec. 29, 2020). The rule presumes that a lender who makes a Qualified Mortgage (QM) has met the requirements of the ATR rule. [37] Loans that meet the ATR/QM Rule's requirements for QMs obtain certain protections from liability. This table of contents is a navigational tool, processed from the Biden cancels $10,000 in federal student loan debt for most - CNBC Disclosure (TRID) Rule, Flood Insurance, Mortgage Servicing Rules, the Home Ownership and Equity Protection Act (HOEPA) Rule, the Homeowners Protection Act, and the Secure and Fair The most sizable potential costs to covered persons are effectively transfers between creditors for the duration of the mandatory compliance date delay, reflecting temporarily reduced loan origination volume for creditors that primarily originate FHA or Under-43-Percent-DTI non-QM loans and temporarily increased origination volume for lenders who primarily originate Under-43-Percent-DTI conventional loans priced 2.25 percentage points or more over APOR. To be eligible for a qualified mortgage, borrowers must meet certain requirements; these requirements are meant to determine a borrower's ability to repay their mortgage. Some features of non-QM loans include: Risky features. initially responded to the risk of elevated forbearances and higher-than-expected monthly advances by imposing credit overlaysi.e., additional underwriting standardsfor new originations. Investopedia requires writers to use primary sources to support their work. 78 FR 6408, 6527-28 (Jan. 30, 2013) (noting that appendix Q incorporates, with certain modifications, the definitions and standards in HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage Insurance on One-to-Four-Unit Mortgage Loans). The GSEs typically repurchase loans out of the trust after they fall 120 days delinquent, after which the servicer is no longer required to advance principal and interest, but Ginnie Mae requires servicers to advance principal and interest until the default is resolved. 84. TILA section 129C(b) provides that loans that meet certain requirements are "qualified mortgages" and that creditors making QMs "may presume" that such loans have met the ATR requirements.