The Bureau concludes that providing creditors an alternative path to a QM safe harbor for these types of loans is likely to increase creditors' willingness to make these loans despite their ineligibility for a QM safe harbor at consummation. 5. Accordingly, the Bureau proposed that if a qualifying change as defined in proposed 1026.43(e)(7)(iv)(B) is made to the loan obligation, the principal and interest used in determining the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid would be the principal and interest payment amounts established by the terms and payment schedule of the loan obligation at consummation as modified by the qualifying change. The Bureau is revising 1026.43(e)(1) pursuant to its adjustment authority under TILA section 105(a) to establish a conclusive presumption of compliance for loans that meet the criteria in proposed 1026.43(e)(7). This analysis indicates the relative magnitude of the potential effects of this final rule on these costs. However, if the creditor simply chose to sell the same covered transaction as one way to comply with general regulatory capital requirements in the absence of supervisory action or agreement, then the covered transaction cannot become a qualified mortgage as a seasoned loan under 1026.43(e)(7), unless the sale met the requirements of 1026.43(e)(7)(iii)(B)(3) or the covered transaction qualifies under another definition of qualified mortgage. Under the proposal, for a covered transaction to become eligible for Seasoned QM status, the creditor that originates the transaction would have to hold the transaction in its portfolio, unless one of two exceptions, set forth in proposed 1026.43(e)(7)(iii)(B)(1) (transfers of ownership pursuant to certain supervisory sales) or 1026.43(e)(7)(iii)(B)(2) (transfers of ownership pursuant to certain mergers or acquisitions), applied. The Bureau acknowledges that its foreclosure analysis reflects characteristics of loans originated in the past and not necessarily those that would be originated as a result of this final rule. Consumer advocate groups and an organization representing State regulators further asked the Bureau to provide an extension to the comment period of up to an additional 60 days. Accordingly, the Bureau determines that it is appropriate to exercise its authority under TILA sections 105(a), 129C(b)(2)(A)(vi), (3)(A), and (3)(B)(i) to make the Seasoned QM definition available to any first-lien covered transaction that meets the requirements in 1026.43(e)(7), including transactions that might be eligible at consummation for the General QM loan definition, the Small Creditor QM definition, or the EGRRCPA QM definition. As discussed above, it is conceivable that under certain circumstances, the record of a consumer's payments could make it appear that the consumer had the ability to repay at consummation even when that is not in fact the case. Prot., Sources and Uses of Data at the Bureau of Consumer Financial Protection at 55-56 (Sept. 2018), https://files.consumerfinance.gov/f/documents/bcfp_sources-uses-of-data.pdf;; Robert B. Avery et al., National Mortgage Database Technical Report 1.2, at 1 (Nat'l Mortg. On the other hand, consumer advocate commenters urged the Bureau not to apply the rule to loans in existence before the effective date, suggesting that doing so would likely violate the vested rights of non-QM borrowers. The Bureau proposed a conforming amendment to 1026.43(e)(2) to include a reference to 1026.43(e)(7), which sets out the requirements applicable to Seasoned QMs and is described in the section-by-section analysis below. Creditors will have to satisfy consider and verify requirements and keep the loans in portfolio until the end of the seasoning period, excepting a single whole-loan transfer, transfers related to mergers and acquisitions, and certain supervisory sales during the seasoning period. Fed. Additional proposed requirements were set out generally in 1026.43(e)(7)(i)(A) through (D) and included restrictions on product features and points and fees, as well as certain underwriting and performance requirements. (833) 208-2535. haf@ohfa.org. Urban Inst., Housing Finance at a Glance, at 17-18, (Oct. 2020), https://www.urban.org/sites/default/files/publication/103123/october-chartbook-2020_2.pdf. The Bureau is not requiring that the escrow amount (if applicable) be considered in determining whether a delinquency exists for purposes of 1026.43(e)(7) be the amount disclosed to the consumer at consummation, because escrow payments are subject to changes over time. Several commenters supported aligning this final rule's effective date with that of the General QM Final Rule. None of the alternatives permits 60-day delinquencies. Updated Ability-To-Repay and Qualified Mortgage Requirements - NCUA These practices, which extend to a significant portion of covered transactions, suggest that the GSEs and mortgage insurers have concluded, based on their experience, that after 36 months of loan performance, a default should not be attributed to underwriting, but rather a change in the consumer's circumstances that the creditor could not have reasonably anticipated from the consumer's application or the records. [131] For Seasoned QMs that are non-QM loans or rebuttable presumption QM loans at consummation, this final rule will effectively limit the consumer's ability to establish non-compliance with the ATR requirements after the seasoning period has run as a general matter. As the Bureau explained in the proposal,[186] [28] should verify the contents of the documents against a final, official The Bureau has decided, however, that unless limits are imposed, servicers and creditors could use payment tolerances to mask unaffordability in a way that might undermine the purposes of this final rule. The Bureau also received a number of comments in response to the General QM Proposal that relate to the Seasoned QM Proposal. To explain further, loans enumerated in 1026.43(a) are not "covered transactions" under the Bureau's ability-to-repay requirements in 1026.43, and thus cannot be qualified mortgages (entitled to a rebuttable presumption or safe harbor of compliance with the ability-to-repay requirements of 1026.43, see, e.g., 1026.43(e)(1 . Qualified mortgage definedgeneral, add paragraph 1; and. the less likely it is that the creditor's determination of ability to repay was unreasonable or not in good faith. This prototype edition of the This contrasts to post-crisis origination years where initial mortgage rates and foreclosure start rates remained low and a larger share of loans remained active beyond three years. Shadrick has years of financial experience from past positions at PriceWaterhouseCoopers, CountryWide, and Reverse it! These commenters stated that the proposed amendments to 1026.43(e)(1), and the proposal in general, retain consumer safety considerations and legal protections consistent with the existing ATR/QM Rule. HMDA was originally enacted by Congress in 1975 and is implemented by Regulation C. See Bureau of Consumer Fin. Industry commenters agreed that providing safe harbor QM status to loans that season would incentivize responsible non-QM lending, while maintaining market stability. 182. 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. Bankers Ass'n, Share of Mortgage Loans in Forbearance Increases to 5.54% (Dec. 1, 2020), https://www.mba.org/2020-press-releases/december/share-of-mortgage-loans-in-forbearance-increases-to-554-percent. The same commenter also argued that it would be hard for creditors to game a seasoning approach because they would not be able to easily time harmful mortgages to go delinquent only after a given period following consummation. (iii) Portfolio requirements. 110. In this respect, the Seasoned QM definition is similar to some other QM definitions such as the Small Creditor QM definition. 804(2). QuickCert is a member of the National Reverse Mortgage Lender's Association as well as the Better . For example, in addition to imposing conditions around the number and duration of delinquencies, Fannie Mae's lender selling representation and warranty framework provides that: With the exception of mortgage loans with temporary buydowns, neither the lender nor a third party with a financial interest in the performance of the loan . In January 2019, the Bureau published its ATR/QM Rule Assessment Report Start Printed Page 86406(Assessment Report). Moreover, the Assessment Report also found that there was significant variation in the extent to which creditors have tightened credit for non-GSE eligible high DTI loans following the publication of the January 2013 Final Rule. The proposal noted that the prospect that at consummation a consumer may lack the ability to repay a loan yet still make timely payments for three years, as well as the potential benefits that a Seasoned QM definition might offer in terms of fostering access to responsible, affordable mortgage credit, would tend to vary depending on the loan characteristics. On August 18, 2020, the Bureau issued a proposed rule to create a new category of QMs, Seasoned QMs, for first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period, are held in portfolio until the end of the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements (Seasoned QM Proposal). Under 1026.18(s)(7)(iii), the term fixed-rate mortgage means a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage. Some consumer advocate commenters generally asserted that three years of performance history was not sufficient to establish that a creditor had made a reasonable determination of ability to repay at origination. Creditors' methods of assessing consumers' ability to repay mortgages evolve to accommodate these changes, but creditors may be left with some uncertainty as to whether these methods constitute, or can be part of, a reasonable determination of a consumer's ability to repay under the ATR/QM Rule. Analysis of HMDA data for Baseline 1 excludes loans where rate spread is not observed. Among the loans that would have satisfied this final rule's Seasoned QM performance requirements, foreclosure proceedings began for 1.6 percent of loans that would be non-QM loans in Baseline 1 and for 0.5 percent of loans that would be rebuttable presumption QM loans under Baseline 1. Second, legal title to the loan could not be sold, assigned, or otherwise transferred to another person before the end of the seasoning period, except in circumstances specified in proposed 1026.43(e)(7)(iii)(B)(1) and (2). As stated above, under Baseline 2, no amendments to the General QM loan definition are adopted, and the Temporary GSE QM loan definition expires when the GSEs cease to operate under conservatorship. The Bureau proposed a seasoning period of 36 months based on a range of policy considerations, rather than any singular measure of delinquency, as discussed in the section-by-section analysis of 1026.43(e)(7)(iv)(C). These commenters noted that the secondary market for non-QM loans is less liquid due to litigation and compliance risks as well as the costs of additional due diligence that many secondary market investors require prior to purchase. As such, to the extent that all or part of the seasoning period remains after the transfer, the purchaser will have an incentive to ensure the loan is high quality, which in turn will incentivize the creditor to make a diligent ATR determination at consummation. Proposed comment 43(e)(7)(i)(A)-2 also would have clarified that the requirement that a Seasoned QM have fully amortizing payments does not prohibit a qualifying change, as defined in the proposal, that is entered into during or after a temporary payment accommodation in connection with a disaster or pandemic-related national emergency.[134]. Regulation Z currently defines high-cost mortgage[146] The comments also raised concerns about, among other things, the risks of allowing the Temporary GSE QM loan definition to expire without any changes to the General QM loan definition or appendix Q. There were less than $20 billion in new origination private-label securities (PLS) issuances in 2017, compared with $1 trillion in 2005,[55] In contrast to statutes of limitations or reposewhich limit liability based solely on the passage of time measured after a certain event occursthe performance requirements in the final rule are based on a series of events, periodic payments, that must occur before a loan can season. TILA section 129C(b)(3)(A) and (B)(i). (iii) There are no more than three such deficient payments treated as not delinquent during the seasoning period. First, loans with large balances for fees and charges related to delinquency (such as foreclosure preparation expenses) will likely already be disqualified from seasoning eligibility based on the performance requirements in 1026.43(e)(7)(ii). Table 2Share of Loans That Entered Foreclosure Under Baseline 1. & Urban Dev., FHA Extends Foreclosure And Eviction Moratorium For Homeowners Through Year End (Aug. 27, 2020), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_20_134;; Veterans Benefits Admin., Extended Foreclosure Moratorium for Borrowers Affected by COVID-19 (Aug. 24, 2020), https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-20-30.pdf;; Rural Dev., U.S. Dep't of Agric., Extension of Foreclosure and Eviction Moratorium for Single Family Housing Direct Loans (Aug. 28, 2020), https://content.govdelivery.com/accounts/USDARD/bulletins/29c3a9e. As illustrated in Figure 3 in part VIII below, the Bureau estimates that nearly two-thirds of loans that experience delinquencies that would prevent a loan from becoming a Seasoned QM under the final rule do so within 36 months, and the rate at which loans disqualify diminishes beyond 36 months. 1602bb). CFPB Amends Ability-to-Repay/Qualified Mortgage Rule under Truth - NCUA The Bureau issued a proposal in August 2020 to create a new category of QMs, Seasoned QMs. Covered persons, specifically mortgage creditors, primarily benefit Start Printed Page 86443from decreased litigation risk under this final rule. For these reasons, the Bureau has decided to base its adoption of a 36-month seasoning period in part on the 36-month representation and warranty sunset for GSE loans. The Bureau also notes that a deficient periodic payment does not trigger a delinquency of 30 days or more under 1026.43(e)(7)(iv)(A)(1) if the consumer pays the deficient amount before the next periodic payment comes due. HAF provides financial assistance on behalf of homeowners who have experienced a significant financial hardship due to COVID-19. The Bureau concludes that a loan's performance during time spent in a temporary payment accommodation due to a disaster or pandemic-related national emergency should be excluded from this period because such accommodations typically involve reduced payments or no payment and are therefore not likely to assist in determining whether the creditor made a reasonable assessment of the consumer's ability to repay at consummation. 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. After the introductory interest rate expires, the interest rate adjusts periodically and could increase through the life of the loan. Another industry trade association noted that aligning the product features and underwriting requirements of different kinds of QMs is appropriate and avoids inappropriately incentivizing any particular category of QMs. In the Seasoned QM Proposal, the Bureau preliminarily concluded that, in conjunction with the QM statutory and other requirements in proposed 1026.43(e)(7), a loan's satisfaction of portfolio and seasoning requirements provides sufficient grounds for supporting a conclusive presumption that the creditor made a reasonable determination that the consumer had the ability to repay, in compliance with the ATR requirements. The Bureau sought comment on all aspects of the proposal that would be applicable to determining whether, by meeting the requirements of 1026.43(e)(7) for a particular loan, a creditor has demonstrated that the consumer had a reasonable ability to repay the loan according to its terms and the loan should be accorded safe harbor QM status. The Director of the Bureau, Kathleen L. Kraninger, having reviewed and approved this document, is delegating the authority to electronically sign this document to Grace Feola, a Bureau Federal Register Liaison, for purposes of publication in the Federal Register. The Bureau concludes that these additional criteria deriving from the statutory definition of QM best assure that consumers have a reasonable ability to repay their Seasoned QMs. The General QM Final Rule removes appendix Q. QuickCert is a national nonprofit agency founded in April 2007 with headquarters in Tulsa, OK. We serve clients in all 50 states - excluding North Carolina - but, including Puerto Rico. The General QM Final Rule provides the verification safe harbor in connection with specified provisions of the GSE, FHA, VA, and USDA underwriting manuals. The Small Creditor QM definition also does not include any such criteria. The Bureau concludes that the Seasoned QM definition in this final rule should help counteract these impacts. Others argued that ATR arguments in foreclosure defense can be pivotal to the outcome of individual cases, and thus very valuable to individual consumers, but that in aggregate, there is not enough foreclosure litigation to substantially lower costs that would be passed on to consumers en masse. Second, while the remainder did enter foreclosure at a higher rate than in other periods, lower priced loans that would have had a safe harbor from origination became delinquent and entered foreclosure at an even higher rate. Definition of Qualified Mortgage (QM) - Updated for 2015 at 57; Freddie Mac, Seller/Servicer Guide at 1301-19 (Aug. 5, 2020), https://guide.freddiemac.com/ci/okcsFattach/get/1002095_2. The Bureau is issuing this final rule to create a new category of QMs because it seeks to encourage safe and responsible innovation in the mortgage origination market, including for certain loans that are not QMs or are rebuttable presumption QMs under the existing QM categories. 43(e)(1) Safe harbor and presumption of compliance. Section 1022(d) of the Dodd-Frank Act requires the Bureau to assess each of its significant rules and orders and to publish a report of each assessment within five years of the effective date of the rule or order. Depository institutions and credit unions that are also creditors making covered loans (depository creditors) with $10 billion or less in total assets are expected to benefit from this final rule. Among other things, the review allows the QRM agencies to consider the QRM definition in light of any changes to the QM definition adopted by the Bureau. 75. Currently, for a residential mortgage loan t o fit . 144. To be a qualified mortgage under this paragraph (e)(7) of this section, the covered transaction must satisfy the following requirements: (A) The covered transaction is not subject, at consummation, to a commitment to be acquired by another person, except for a sale, assignment, or transfer permitted by paragraph (e)(7)(iii)(B)(3) of this section; and. The CARES Act provides additional 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 Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA). Under each baseline, there are different numbers of loans that would be originated, and which would meet all of the requirements for a Seasoned QM at consummation except for the performance and portfolio requirements of this final rule. Alternative income documentation includes alternative sources of income verification (e.g., bank statements), which vary from traditional income underwriting forms/documents such as W-2 forms, paystubs, and tax returns. In response to the call for evidence, the Bureau received comments on the ATR/QM Rule from stakeholders, including consumer advocate groups and industry groups. on NARA's archives.gov. Proposed 1026.43(e)(7)(i)(A) would have applied the definition of fixed-rate mortgage set out in 1026.18(s)(7)(iii). 143. In the proposal, the Bureau noted that half of manufactured housing originations are rebuttable presumption QM loans, and that large banks tend to originate only safe harbor QM loans that are held in portfolio. As noted in the discussion of comments received on the proposed portfolio requirement, two industry commenters suggested the Bureau permit a one-time sale of the covered transaction to another purchaser as long as the owner or purchaser holds the covered transaction in its portfolio for the requisite 36-month seasoning period and does not securitize the covered transaction. Inside Mortg. The same is true for another QM definition that permits certain creditors operating in rural or underserved areas to originate QMs with a balloon payment provided that the loans meet certain other criteria (Balloon Payment QM loans). Lastly, the consumer advocate groups challenged the Bureau's authority to amend the definition of QM to provide seasoning as a pathway to QM status, asserting that seasoning would facilitate, Start Printed Page 86409not prevent, circumvention or evasion of the statute's ATR requirements. Qualifying change. In evaluating how to treat periods of temporary payment accommodation for purposes of the seasoning period, the Bureau also considered how market participants address temporary payment accommodations with respect to penalties and other remedies for deficiencies in underwriting practices. The Bureau analyzed HMDA data mirroring the description of the baselines in part VIII.A.2, continuing to assume that loans continue to be originated under each baseline with the same characteristics. 151. TILA section 129C(b)(2) and (3) grant the Bureau broad authority to revise, add to, or subtract from the criteria defining a QM for purposes of presuming compliance with TILA section 129C(a). The Bureau declines to adopt a final rule without any portfolio requirement, as a number of industry commenters urged the Bureau to do. In determining how to define a qualifying change, the Bureau seeks to establish standards that will reasonably ensure that any changes in the terms of a loan re-entering the seasoning period after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency will not significantly change the affordability of the loan as compared to the loan terms at consummation. As with the analysis of this final rule's benefits and costs overall, the Bureau can generally not predict how much or how little this final rule will cause the market in rural areas to expand under either Baseline 1 or Baseline 2. while the National Mortgage Settlement generally required acceptance of at least two periodic payments that were short by $50 or less. Differences in total market size estimates between NMDB data and HMDA data are attributable to differences in coverage and data construction methodology. 155. A purpose of TILA is to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.[87] 78o-11(c)(1)(C)(iii), (4)(A) and (B). Each of the alternatives permits no 60-day delinquencies. Fannie Mae limits the usage of the payment tolerance to three monthly payments during a 12-month period,[160] [37] 137. The Bureau is finalizing 1026.43(e)(7)(iv)(A)(4) with one modification as explained below and minor technical changes. Proposed 1026.43(e)(7)(iv)(A)(4) required delinquency to be calculated based on the first payment due date established by the terms and payment schedule of the loan obligation at consummation. A research center commenter suggested that a competitive guarantor market such as the one the U.S. Department of the Treasury envisions in the long term would serve as a check on gaming by creditors. The General QM Final Rule provides higher thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions. Section 1026.43(e)(1)(i) currently provides that a creditor that makes a QM loan that is not a higher-priced covered transaction is entitled to a safe harbor from liability under the ATR provisions. Agency, Credit Risk Transfer, https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Credit-Risk-Transfer.aspx (last visited Nov. 30, 2020). Section 15G of the Securities Exchange Act of 1934, added by section 941(b) of the Dodd-Frank Act, generally requires the securitizer of asset-backed securities (ABS) to retain not less than 5 percent of the credit risk of the assets collateralizing the ABS. [179], Consider next all of the rebuttable presumption QM loans under Baseline 1 that would meet all of the requirements at consummation for a Seasoned QM and would benefit if they met the performance and portfolio requirements of the seasoning period. Proposed 1026.43(e)(7)(ii) set forth the following proposed performance criteria that a covered transaction must meet to be a Seasoned QM under proposed 1026.43(e)(7): the covered transaction must have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. The Bureau proposed as initial criteria under 1026.43(e)(7)(i) that Seasoned QM status would be available for first-lien covered transactions that meet certain additional requirements. Some of these loans very likely will meet those performance and portfolio requirements, and some very likely will not. The Bureau believes that a whole loan purchaser's incentive remains regardless of whether there is a mandatory commitment between the seller and purchaser to deliver a mortgage loan at a predetermined price by a specified date. [188] [100] [130] In contrast to industry commenters who argued that allowing loans to season into QMs would promote access to credit and improve market liquidity, consumer advocate groups suggested that providing a QM seasoning definition would not benefit market liquidity and could hurt underserved communities. The Bureau received 85 comments on the ANPR from businesses in the mortgage industry (including creditors and their trade associations), consumer advocate groups, elected officials, individuals, and research centers. Two commenters asserted that the Bureau could require consumers to use their own funds to make monthly payments but did not provide any suggestions on how to determine whether the funds used are the consumer's funds rather than the funds of another. NMDB data do not permit one to ascertain the number of times ownership of privately held loans that were not securitized was transferred between institutions. Several commenters noted that the impacts on access to credit are uncertain or unproven given these loans would be consummated without a conclusive presumption of compliance, and that therefore uncertainty and legal risk will persist with respect to these loans. Section 1026.18(s)(7)(iii) defines fixed-rate mortgage as a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage. A creditor has an independent obligation to comply with the Equal Credit Opportunity Act[119] Regulation Z 1026.43(e)(2) codifies these criteria in the Bureau's definition of a General QM. [30] As a result, a lower share of loans remained active beyond three years, and so the potential effects of this final rule would be smaller. Table 2 reports the share of loans under Baseline 1 that entered foreclosure between origination and the first quarter of 2020 among all loans consummated between 2012 and 2013, those that were still open and had not entered foreclosure three years after origination, and those that met the performance criteria of this final rule. In addition to soliciting comment on the Bureau's proposed price-based approach, the Bureau requested comment on certain alternative approaches that would retain a DTI limit but would raise it above the current limit of 43 percent and provide a more flexible set of standards for verifying debt and income in place of appendix Q.

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