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As such, for the Seasoned QM definition, the Bureau is proposing to include consider and verify requirements that allow some latitude in application. Most of these loans (92 percent) would be non-QM at consummation. (ii) Funds paid on behalf of the consumer by the creditor, servicer, assignee of the covered transaction, or any other person acting on behalf of such creditor, servicer, or assignee. Unlike other QM definitions that confer QM status upon consummation, the proposed Seasoned QM definition would confer safe harbor QM status only after the consumer makes on-time payments, with limited exceptions, for 36 months. As a result, the Bureau preliminarily concludes that providing a QM safe harbor to non-QM loans that have demonstrated sustained and timely mortgage payment histories could have a meaningful impact on improving access to credit for creditworthy consumers whose loans fall outside the other QM definitions. [74] Similarly, the Bureau recognizes that the definition of delinquency and performance requirements in proposed 1026.43(e)(7) differ in some respects from the measure of early distress used in the Assessment Report, but preliminarily concludes that the proposed definition and performance requirements are appropriate for the specific purposes of this proposal for the reasons explained in the section-by-section analyses of proposed 1026.43(e)(7)(ii) and (v)(A) below. One QM category is the General QM category. TILA section 129C(b)(3)(B)(i) authorizes the Bureau to prescribe regulations that revise, add to, or subtract from the criteria that define a QM upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C; or are necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections. 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. For purposes of 1026.43(e)(7), examples of temporary payment accommodations in connection with a disaster or pandemic-related national emergency include, but are not limited to: A trial loan modification plan, a temporary payment forbearance program, or a temporary repayment plan. The Bureau preliminarily concludes that a consumer's record of sustained, on-time payments that meet the proposed requirements, taken together with the loan's compliance with other proposed provisions, indicates that the creditor made a reasonable determination at consummation of the consumer's ability to repay the loan. 160. The Bureau considers the benefits, costs, and impacts of the proposal against two baselines. The Bureau neither has the data to estimate consumers' value of using such violations in foreclosure defense nor to estimate the proposal's potential decreases in price. Although the various QM categories may overlap, each QM category is based on a particular set of factors that support a presumption that the creditor at consummation complied with the ATR requirements. [12] If Creditor B sells the covered transaction before the end of the seasoning period, the covered transaction is not eligible to season into a qualified mortgage under 1026.43(e)(7) unless the sale falls within an exception set forth in 1026.43(e)(7)(iii)(B)(1) or (2) (i.e., the transfer is required by supervisory action or pursuant to a merger or acquisition). The Bureau estimates that there would be 24,039 loans in 2018 that would fall into this category. Altogether, the Bureau cannot reliably predict how many additional loans would be originated under the proposal's additional incentives and subsequently how much potential profits creditors would accrue relative to either baseline. at 10-11, 117, 131-47. These proposed performance requirements are discussed more fully in the section-by-section analysis of proposed 1026.43(e)(7)(ii) below. Proposed 1026.43(e)(7)(iv)(C)(2) addresses how the time during which a loan is subject to a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency[137] 43(e)(7)(iv)(A), 43(e)(7)(iv)(A) (2), 43(e)(7)(iv)(C) (2), and 43(e)(7)(iv)(D) after Paragraph 43(e)(5). The requirements for Qualified Mortgages act as safeguards to ensure borrower affordability, protecting both the borrower and the lender. As further discussed in the section-by-section analysis of 1026.43(e)(7)(iv)(C) above, the Bureau is proposing specific requirements for the type of qualifying change that can restart the seasoning period. For instance, cross-creditor differences in both the level and the change in approval rates of high DTI applications are much larger than, for example, differences in approval rates by FICO category. The Dodd-Frank Act defines the term consumer financial protection function to include all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.[88] Eight percent of analyzed loans would be non-QM loans or rebuttable presumption QM loans at consummation in Baseline 2 and potentially could gain safe harbor status via the proposed Seasoned QM performance criteria. Under one such approach, for example, a non-QM loan would first have to season into a rebuttable presumption QM loan and then either stay in that category or be allowed to season into a QM safe harbor loan if it meets certain conditions. Proposed 1026.43(e)(7)(i)(B) would require that Seasoned QMs comply with general restrictions on product features and points and fees and meet certain underwriting requirements. While not legally binding, the letter indicates the parent company's . The proposal would retain the existing product-feature and underwriting requirements and limits on points and fees. 84 FR 37155, 37155, 37160-62 (July 31, 2019). The proposal, like the Assessment Report and the June 2020 General QM Proposal, reflects a shared underlying rationale that early payment difficulties indicate higher likelihood that the consumer may have lacked ability to repay at origination, and that delinquencies occurring soon after consummation are more likely indicative of a consumer's lack of ability to repay than later-in-time delinquencies. First, the current ATR/QM Rule explains that loan performance can be a factor in evaluating a creditor's ATR determination. In addition, Small Creditor QM loans must be held in portfolio for three years (a requirement that does not apply to apply to General QM loans). Based on the data and analysis presented in part VII, the Bureau preliminarily concludes that the majority of eligible non-QM and rebuttable presumption mortgage loans would remain active and thus be eligible to benefit from the proposed seasoning period, across the economic cycle. Comments will not be edited to remove any identifying or contact information. 11. 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. Under proposed 1026.43(e)(7)(i)(C) and (ii), status as a Seasoned QM would depend on the extent to which a covered transaction has a delinquency. Finally, as discussed further below, the analysis of the impacts of the proposal requires the Bureau to use current data to predict the number of originations of certain types of non-QM loans and the performance of these loans. 12 CFR 1026.43(e)(5), (f); cf. Qualified Mortgage: What it Is, How it Works - Investopedia Thus, under Baseline 2, approximately 927,631 loans originated in 2018 would meet all of the requirements at consummation for Seasoned QM loans and would obtain QM status, a stronger presumption of compliance, or relief from portfolio retention requirements, if they subsequently meet the performance and portfolio requirements of the seasoning period. Consistent with the GSEs' representation and warranty framework and the master policies of mortgage insurers, the Bureau is proposing that more than two delinquencies of 30 days or more during the seasoning period or any delinquency of 60 days or more would disqualify a covered transaction from being a QM under proposed 1026.43(e)(7). Click the card to flip . 124. Some workers participate in the gig economy for their sole source of income, while others may do so to supplement their income from more traditional employment. 1. 146. The Bureau acknowledges that some meaningful percentage of non-QM loans may end up delinquent in later years. [76] QM status under EGRRCPA section 101 is available to both fixed and variable rate mortgages, as well as subordinate-lien loans, and section 101 also does not impose any requirements on post-consummation loan performance. compliance for a certain category of mortgages, called "qualified mortgages." These provisions are similar, but not identical to, the Board's 2008 rule and cover the entire mortgage market rather than simply higher-priced mortgages. The NMDB data do not enable the Bureau to ascertain whether loans were originated by lenders that meet the size criteria for originating QM loans under the Small Creditor QM or EGRRCPA QM definitions. Depository institutions and credit unions that are also creditors making covered loans (depository creditors) with $10 billion or less in total assets would be expected to benefit from the proposal. See, e.g., 85 FR 41716, 41717 (July 10, 2020). [65] Pre-Qualified vs Pre-Approved: What's the Difference? | Zillow The Bureau is especially interested in the potential impact of a portfolio requirement on access to credit, specifically whether the potential requirement would augment or diminish the potential of a Seasoned QM definition to expand access to credit by encouraging creditors to make affordable non-QMs in a responsible manner, which is a fundamental goal behind the proposal. The comments addressed a variety of topics, including the General QM loan definition and the 43 percent DTI limit; perceived problems with, and potential changes and alternatives to, appendix Q; and how the Bureau should address the expiration of the Temporary GSE QM loan definition. Under the Paperwork Reduction Act of 1995 (PRA),[164] The 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. To be a QM under proposed 1026.43(e)(7), the covered transaction must satisfy the following requirements. In addition, Balloon Payment QM loans may not have negative-amortization or interest-only features and must comply with the points and fees limits that apply to other QM loans. Apr. The input from these RFIs and from the ANPR is briefly summarized in the General QM Proposal and Extension Proposal and below. Public Law 94-200, tit. The Bureau has consulted with agencies including the FHFA, the Board of Governors of the Federal Reserve System, the Federal Housing Administration, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission, the National Credit Union Administration, and the U.S. Department of the Treasury. The Bureau does not believe that there is any reason to conclude that the inference to be drawn as to ability to repay is any different depending on whether the three-year successful payment history occurs before or after the effective date. 72. The Bureau preliminarily concludes that the proposal would not directly impose additional costs to mortgage creditors relative to the baseline. As discussed above, the Bureau's reason for proposing a portfolio requirement is to provide creditors an additional incentive to originate loans that are affordable for consumers and provide consumers with an additional layer of protection. 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. Regulation Z contains several categories of QMs, including the General QM category and a temporary category (Temporary GSE QM loans) of loans that are eligible for purchase or guarantee by government-sponsored enterprises (GSEs) while they are operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA). 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. 149. This document has been published in the Federal Register. The Bureau is proposing that the portfolio requirement would remain in place until the end of the seasoning period. 103. For example, assume Creditor A originates a covered transaction that is not a qualified mortgage at origination. Additionally, if a loan has performed for a long enough period of time and meets certain underwriting conditions and product restrictions, it appears warranted to conclusively presume that the creditor's determination of a consumer's ability to repay at consummation was reasonable and to designate the loan as a safe harbor QM, even if the loan did not necessarily meet the criteria of one of the other QM definitions at the time of consummation. Figure 1 in part VII below illustrates the percentage of loans that remain active 36 months after consummation, the length of the proposed seasoning period. Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof. Fully amortizing payments. Nonetheless, the Bureau preliminarily concludes that it may be important for the Seasoned QM definition to be limited to loans that are held in a creditor's portfolio. Although the General QM Proposal would remove the 43 percent DTI limit from the General QM loan definition, the proposal would require that the creditor consider and verify the consumer's income or assets, debt obligations, alimony, child support, and monthly DTI ratio or residual income. Allowing for different 30-day delinquencies has modest effects on the fraction of loans that would season. In 2019, the QRM agencies initiated a review of certain provisions of the risk retention rule, including the QRM definition, and have extended the review period until June 20, 2021. A creditor that makes a QM loan that is not higher priced is entitled to a conclusive presumption that it has complied with the Rulei.e., the creditor receives a safe harbor from liability. 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. Term. The Bureau consulted with appropriate prudential regulators and other Federal agencies regarding the consistency of the proposed 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 discussion below provides a more detailed overview of comment letters that supported a seasoning approach to QM status and those that opposed such an approach. (D) Satisfies the requirements in paragraph (e)(7)(iii) of this section. [104] Due date. For example, creditors may be more willing to maintain or expand access to credit to consumers with non-traditional income or a limited credit history, or to employ innovative methods of assessing financial information, as these loans could convert to safe harbor QMs with satisfactory performance. [86] The Bureau excluded later vintages because the analysis requires both a minimum three-year look-forward period to assess Seasoned QM's performance requirements plus some time to see whether foreclosures eventually emerge. 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). Nonqualified plans do not meet all ERISA stipulations. The loan has a fixed rate, with fully amortizing payments and no balloon payment; 3. The legal protection provided by a safe harbor general QM means that a borrower would not be able to assert that the originator (and any subsequent secondary-market purchaser) failed to comply with any of the required underwriting criteria. See 12 CFR 1026.43(f). The Bureau notes that the proposed length of the portfolio requirement under 1026.43(e)(7)(iii) aligns with the duration of the portfolio requirement in the Small Creditor QM, which is also designed to ensure that lenders retain litigation risk. As described in part V, each GSE generally provides creditors relief from its enforcement with respect to certain representations and Start Printed Page 53585warranties a creditor must make to the GSE regarding its underwriting of a loan. Section 1026.43(b)(4) also provides that a first-lien covered transaction that is a QM under 1026.43(e)(5), (e)(6), or (f) is higher priced if its APR is 3.5 percentage points or more above APOR. 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). This table of contents is a navigational tool, processed from the See, e.g., 24 CFR 203.19. Likewise, in its June 2020 General QM Proposal, the Bureau focused on an analysis of delinquency rates in the first few years to evaluate whether a loan's price, as measured by the spread of APR over APOR (herein referred to as the loan's rate spread), may be an appropriate measure of whether a loan should be presumed to comply with the ATR provisions. This would lead to an additional 1700 non-QM originations not accounted for above. 1. Brandon Ivey, Citadel, Verus Resume Originating Non-QMs (Aug. 7, 2020), https://www.insidemortgagefinance.com/articles/218819-citadel-verus-resume-originating-non-qms (on file). Additionally, a purpose of TILA sections 129B and 129C is to assure that consumers are offered and receive residential mortgage loans on terms that Start Printed Page 53576reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive. Combined, 0.8 percent of loans that met the performance requirements and were potentially seasonable at consummation would foreclose.

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