The Bureau anticipates that many borrowers who have the ability to repay, such as those with non-traditional credit profiles or income sources, may fall outside existing QM definitions. 108. As discussed in part VI, the Bureau is therefore proposing to limit the Seasoned QM definition to first-lien, fixed-rate covered transactions that are held in the originating creditor's portfolio, satisfy the existing product-feature requirements and limits on points and fees under the General QM definition, and meet the underwriting requirements applicable to Small Creditor QMs. [39] However, the overall relative differences under Baseline 2 are modest (34 percent vs. 35 percent). Loans that meet the Rule's requirements for qualified mortgages (QMs) obtain certain protections from liability. Analysis of HMDA data for Baseline 1 excludes loans where rate spread is not observed. While nearly all major non-QM creditors ceased making loans in March and April, beginning in May, issuers of non-agency MBS began to test the market with deals collateralized by non-QM loans largely originated prior to the crisis. Providing creditors with this proposed alternative pathway to a QM safe harbor for these types of loans seems likely to improve access to responsible and affordable mortgage credit by increasing creditors' willingness to make loans that are considered as non-QM at consummation, but for which consumers have demonstrated an ability to repay. These proposed definitions are discussed below. (C) Seasoning period means a period of 36 months beginning on the date on which the first periodic payment is due after consummation of the covered transaction, except that: (1) If there is a delinquency of 30 days or more at the end of the 36th month of the seasoning period, the seasoning period does not end until there is no delinquency; (2) The seasoning period does not include any period during which the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, provided that during or at the end of the temporary payment accommodation there is a qualifying change as defined in paragraph (e)(7)(iv)(B) of this section or the consumer cures the loan's delinquency under its original terms. To mitigate the uncertainty that may result from appendix Q's removal, the proposal would clarify the requirements to consider and verify a consumer's income, assets, debt obligations, alimony, and child support. 157. In January 2019, the Bureau published its ATR/QM Rule Assessment Report (Assessment Report). The proposed Seasoned QM definition is also similar to the Balloon Payment QM definition in this respect. The Bureau also recognizes that there could be legal issues related to the application of rules governing mortgage origination to loans existing prior to the effective date. The Bureau also noted that a safe harbor provides greater legal certainty for creditors and secondary market participants and may promote enhanced competition and expand access to credit. In light of these possible reliance interests, the Bureau has opted not to apply the proposal to loans in existence prior to the effective date. Stafford Act section 102(1) and (2), 88 Stat. Among the loans that satisfy the proposed Seasoned QM definition's performance requirements, foreclosure proceedings begin for 0.2 percent of loans that would be potentially seasonable at consummation under Baseline 2. Since the effective date of the ATR/QM Rule, creditors properly originating QMs have been able to rely on the loan's QM status in responding to a defense against foreclosure under TILA section 130(k). All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms. As illustrated in Figure 2 of part VII, nearly two-thirds (66 percent) of loans that experience a disqualifying event as explained in part VI (i.e., an event that would prevent a loan from becoming a Seasoned QM under the proposed criteria described in the section-by-section analyses of 1026.43(e)(7)) do so within 36 months, and the rate at which loans disqualify diminishes beyond 36 months. [68] Now consider Baseline 2. In defining the length of the proposed seasoning period, the Bureau seeks to balance two objectives. Only official editions of the The Bureau proposes to define delinquency in 1026.43(e)(7)(iv)(A) as the failure to make a periodic payment (in one full payment or in two or more partial payments) sufficient to cover principal, interest, and, if applicable, escrow by the date the periodic payment is due under the terms of the legal obligation. TILA also provides that if a creditor, an assignee, other holder or their agent initiates a foreclosure action, a consumer may assert a violation by the creditor of the ATR requirement as a matter of defense by recoupment or set off without regard for the time limit on a private action for damages. Three main QM categories. 1376 (2010). Those proposed amendments are discussed in part II.D above. rendition of the daily Federal Register on FederalRegister.gov does not In recent years, the share of non-QM securitizations comprised of loans with a DTI in excess of 43 percent has fallen, while alternative income documentation has grown to become the largest non-QM subsector, comprising approximately 50 percent of securitized pools in the first half of 2019. See, e.g., 85 FR 41716, 41717 (July 10, 2020). 28. Specifically, a covered transaction would have to meet the following product restrictions to be eligible to become a Seasoned QM: 2. The revision and additions read as follows: 1. For example, assume Creditor A originates a covered transaction that is not a qualified mortgage at origination. Each of the alternatives permits no 60-day delinquencies. The final rule aligns the QRM definition with the QM definition defined by the Bureau in the ATR/QM Rule, effectively exempting securities comprised of loans that meet the QM definition from the risk retention requirement. The data the Bureau relied upon provide detailed information on the number, characteristics, pricing, and performance of mortgage loans originated in recent years. As discussed above, the Bureau preliminarily concludes that meeting these criteriain particular, the fact that a consumer has made timely payments for the duration of the seasoning periodindicates that the consumer was offered and received a loan on terms that the creditor reasonably determined reflected the consumer's ability to repay the loan. 1639c(b)(2)(F)). The current ATR/QM Rule also distinguishes between a failure to repay that can be evidence that a consumer lacked the ability to repay at loan consummation, versus a failure to repay due to a subsequent change in the consumer's circumstances. 147. The Bureau anticipates that innovations in technology and diversification of the overall economy will lead to changes in the composition of the job market and labor force, and it intends for the Rule to remain sufficiently flexible to accommodate and encourage developments in mortgage underwriting to reflect these changes. The proposed Seasoned QM definition is consistent with the structure of that statutory regime. In another proposal (General QM Proposal)[2] determination of a consumer's ability to repay a residential mortgage loan and provides certain protections from liability for residential mortgage loans that meet the ATR/ QM Rule's requirements for "qualified mortgages" or "QMs." The ATR /QM Rule also establishes different categories of QMs. These can be useful One QM category is the General QM category. Qualified Mortgage Definition Under the Truth in Lending Act Both coalitions of consumer advocacy groups stated that non-QMs and QMs that only receive a rebuttable presumption of compliance with the ATR requirements at consummation should not be allowed to season into QM safe harbor loans because the right a consumer has to raise the lack of ability to repay as a defense to foreclosure is not subject to the three-year statute of limitations. II, 110 Stat. Bureau of Consumer Financial Protection: Qualified Mortgage Definition See, e.g., Landgraf v. USI Film Prods., 511 U.S. 244, 269 (1994) (holding that a rule is impermissibly retroactive when it takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past) (citation omitted); Bowen v. Georgetown Univ. Prot., Ability to Repay and Qualified Mortgage Assessment Report (Jan. 2019) (Assessment Report), https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf. Specifically, the Bureau is concerned that financial institutions may delay the provision of such payment accommodations until and unless affected loans are disqualified from seasoning into QM status due to accumulating two delinquencies of 30 or more days or one delinquency of 60 or more days. The requirements proposed for Seasoned QMs would be similar in several respects to the requirements established for Small Creditor QMs in 1026.43(e)(5). The Bureau is proposing to revise 1026.43(e)(1)(i) to add 1026.43(e)(1)(i)(B), identifying such seasoned loans as a separate category of QMs for which creditors receive a conclusive presumption of compliance with ATR requirements, regardless of whether the loan is a higher-priced covered transaction. The General QM Proposal contains an overview of these comments. [135] For example, a Seasoned QM might also have been eligible as a QM at consummation under the General QM, Small Creditor QM, or EGRRCPA QM definitions. 135. The Bureau requests comment on whether no more than two 30-day delinquencies and no 60-day delinquency is the appropriate standard for the number and duration of delinquencies that a covered transaction may have at the end of the seasoning period for purposes of proposed 1026.43(e)(7). Section 1026.43(e)(7)(iv)(C)(2) further explains that, under these circumstances, the seasoning period consists of the period from the date on which the first periodic payment was due after origination of the covered transaction to the beginning of the temporary payment accommodation and an additional period immediately after the temporary payment accommodation ends, which together must equal at least 36 months. The Bureau made several amendments to the Small Creditor QM Start Printed Page 53571provisions in 2015. which after a loan meets certain payment requirements provides the creditor relief from the enforcement of representations and warranties it must make to a GSE regarding its underwriting, as precedent for seasoning. The input from these RFIs and from the ANPR is briefly summarized in the General QM Proposal and Extension Proposal and below. In contrast, varying the seasoning period from 12 months to 60 months captures vastly different numbers of loans that would still be open. The consumer demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, for a significant period of time after consummation or, for an adjustable-rate, interest-only, or negative-amortization mortgage, for a significant period of time after recast . For guidance on determining whether a loan is a higher-priced covered transaction, see comment 43(b)(4)-1 through -3. The Bureau recognizes that the payment history conditions laid out in the GSEs' frameworks and the mortgage insurers' master policies reflect market experience. The loans also would have to meet certain performance requirements. While there is no doubt that the size and scale of the 2008 crisis impacted creditors' willingness to take on credit risk, creditors also imposed additional, more stringent borrowing requirements due to their concerns that they could be forced to repurchase loans as a result of subsequent assertions of non-compliance. This occurred even though creditors believed the loans complied with Federal Housing Administration (FHA) requirements for mortgage insurance and GSE standards for sale into the secondary markets without the more stringent borrowing requirements. [41] A Qualified Residential Mortgage (QRM) is exempt from the credit risk retention requirement. It is not an official legal edition of the Federal The same caveat with respect to EGRRCPA section 101 discussed for Baseline 1 applies here as well. 12 CFR 1026.43(e)(2)(i) through (iii). note 131, at 218-19. To the extent that private securitizations have occurred since the ATR/QM Rule took effect in 2014, the majority of new origination PLS issuances have consisted of prime jumbo loans made to consumers with strong credit characteristics, and these securities have a low share of non-QM loans. Qualified Mortgage Definition under the Truth in Lending Act [10] The proposal reduces the chance a consumer will assert or succeed when asserting violations of ATR requirements in a defense to foreclosure. 110. [14] Regulation Z 1026.43(e)(2) codifies these criteria in the Bureau's definition of a General QM. As discussed above, under proposed 1026.43(e)(7)(i) only first-lien covered transactions could qualify as Seasoned QMs. Although both the GSEs and mortgage insurers appear to count time spent in a disaster-related forbearance plan towards the 36-month time period, the Bureau believes that excluding temporary payment accommodations related to a disaster or pandemic-related national emergency from the seasoning period may best advance its goal of ensuring that the seasoning period allows enough time to assess whether the creditor made a reasonable assessment of the consumer's ability to repay at origination. However, if there is a delinquency of 30 days or more at the end of the final month of the seasoning period, the seasoning period would be extended until there is no delinquency. The Bureau welcomes comments on these determinations or any other aspect of the proposal for purposes of the PRA. Third, absent the exclusion of periods of such temporary payment accommodations from the seasoning period definition, financial institutions may be disincentivized from offering these types of accommodations to consumers in a prompt manner. 857 (1996). The available data suggest that such high-DTI lending has declined in the non-GSE market relative to the GSE market. 1. The Bureau of Consumer Financial Protection (Bureau) is issuing this proposal 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. Mandatory Qualifications Definition | Law Insider As discussed in the section-by-section analysis below, the Bureau is proposing to issue certain provisions of this proposed rule pursuant to its authority under TILA section 129C(b)(2)(A)(vi). Similarly, two industry commenters that supported a seasoning approach suggested the Bureau could require consumers to use their own funds to make monthly payments. The Bureau requests comment on whether it is appropriate to impose a portfolio requirement on creditors in light of the other proposed consumer protections in the proposal and the existing risk retention requirements for asset-backed securities. Comments will not be edited to remove any identifying or contact information. The Stafford Act was also invoked to declare an emergency due to the COVID-19 pandemic. [85] Most of these loans (92 percent) would be non-QM at consummation. Proposed 1026.43(e)(7)(iv)(A)(4) focuses on the principal and interest payment amounts established by the terms and payment schedule of the loan obligation at consummation because the performance requirements in proposed 1026.43(e)(7)(ii) are designed to assess whether the creditor made a reasonable and good faith determination of the consumer's ability to repay at the time of consummation. The Bureau estimates that there are 30,183 of these loans. In response to the call for evidence, the Bureau received comments on the ATR/QM Rule from stakeholders, including consumer advocacy groups and industry groups. Starting January 10, 2014, you must assess the borrower's ability to repay for virtually all closed-end residential mortgage loans. Suspension of seasoning period during certain temporary payment accommodations. Specifically, the Bureau is interested in whether it should include funds from subordinate-lien credit transactions made to the consumer by the creditor, servicer, or assignee of the covered transaction, or a person acting on such creditor, servicer, or assignee's behalf; the reasons for or against treating such funds in the same way as proposed 1026.43(e)(7)(iv)(A)(5) would treat funds paid on behalf of a consumer by such persons; and how such a provision could be structured so as not to impact negatively consumers' ability to access credit. The Assessment Report included findings about the effects of the ATR/QM Rule on the mortgage market generally, as well as specific findings about Temporary GSE QM loan originations. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)[5] Qualified Mortgage Definition under the Truth in Lending Act The definition of the seasoning period in proposed 1026.43(e)(7)(iv)(C)(2), would not include the period of time during which a consumer has been granted temporary payment relief due to a temporary payment accommodation made in connection with a disaster or a pandemic-related national emergency. HMDA was originally enacted by Congress in 1975 and is implemented by Regulation C. See Bureau of Consumer Fin. [30] Nonqualified plans do not meet all ERISA stipulations. 149. Additionally, commenters in support of seasoning suggested that seasoning could improve investor confidence by addressing the issue of assignee liability and litigation risk with non-QMs and rebuttable presumption QMs. The Bureau is therefore proposing to limit Seasoned QMs to first-lien covered transactions that satisfy the other requirements in proposed 1026.43(e)(7). CFPB-2020-0028 or RIN 3170-AA98, by any of the following methods: Instructions: The Bureau encourages the early submission of comments. For purposes of 1026.43(e)(7), the consumer is 60 days delinquent if the consumer then fails to make two payments (sufficient to cover the scheduled January 1, 2023 and February 1, 2023 periodic payments of principal, interest, and, if applicable, escrow) before March 1, 2023. The Stafford Act, which has been used for over 30 years to facilitate Federal disaster response, contains detailed definitions of what are considered to be emergencies or major disasters under that statute. (4) 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 are the principal and interest payment amounts established by the terms and payment schedule of the loan obligation at consummation. 36. Non-QM Loans: What They Are, Types, Pros And Cons | Banks.com Register documents. Table 1 reports the share of loans that enter foreclosure between origination and the first quarter of 2020 among all loans consummated between 2012 and 2013, those that were still open three years after origination, and those that met the performance criteria of the proposal. The Bureau is concerned, 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 proposal. Consistent with these comments, the Bureau considered the existing practices of the GSEs and mortgage insurers in developing the time period for successful payment history to include in this proposal. To count these loans, the Bureau has used 2018 HMDA data to identify two groups of loans. [63] What Is a Qualified Mortgage? - The Balance One QM category defined in the Rule is the General QM loan category. The Bureau preliminarily concludes that providing a safe harbor for seasoned loans is necessary and proper to facilitate compliance with and to effectuate the purposes of section 129C and TILA, including to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans. [49] [154] Until the ACFR grants it official status, the XML A. Dodd-Frank Act Amendments to the Truth in Lending Act, B. 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), though it could qualify under another definition of qualified mortgage.

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