The Consumer Financial Protection Bureau (CFPB) released its qualified mortgage (QM) rule in early January, 2013. The rule was created by the Dodd-Frank Reform Act and although NAR achieved significant victory in shaping the rule which broadly defines the qualifications necessary to achieve a mortgage. Preliminary proposals made by the CFPB included a rule that would have required a mandatory 20 percent down payment, which would bump many homebuyers from the market and force others to wait years to qualify for a home. However, due to strong opposition by Realtors and other housing groups, no such rule was ever included in the proposals, nor in the final rule just announced. NAR will continue to work with CPFB, Congress, and industry partners to address several key issues that are critical to consumers, our industry, and the real estate market before the rule’s effective date of January 10, 2014.
Specifically, NAR will address the definition of fees and points as the rule considers many items in determining purposes of meeting the cap of 3%; and clarification is needed on fees as sometimes all fees are included, then in other circumstances only part of appraisal fees are used, and private mortgage insurance is included but not other insurance fees. They question the affect on quality of service and credit access to double-counting of loan originator compensation and want to ensure seller financing is not implicated on other Dodd Frank rules yet to be released.
Also, the biggest area of NAR’s concern with regard to the underwriting standards for QM will be jumbo loans with Debt to Income in excess of 43%. Although loans with these characteristics represent a relatively small percentage of the market, the new QM rule could effect lending in some high cost areas. For updates and a summary of NAR Issues Brief Qualified Rule Summary visit realtor.org.
Qualified Mortgage Defined
The new rule says that lenders must verify borrowers’ financial information; that borrowers must have enough income and assets to repay the loan and that this ability to repay must be considered over the life of the loan, not just during an introductory period when the interest rate may be lower.
Beginning in January 2014, lenders will be required to judge borrowers on at least eight underwriting factors that will determine their ability to repay the loan. The new definition also says that consumer-paid points and fees cannot exceed three percent of the loan amount. Debt-to-income ratios cannot exceed 43% under the new rule, which is actually higher than the typical current maximum ratio of 41%.
The QM definition eliminates loans with:
• No documentation
• Negative amortization
• Interest-only payments
• Balloon payments
• Terms longer than 30 years
These rules represent little change compared to current lender expectations for borrowers and it is as yet unknown whether they will impact the availability of loans in 2014.