[30] 22, 2020), https://www.consumerfinance.gov/about-us/newsroom/agencies-provide-additional-information-encourage-financial-institutions-work-borrowers-affected-covid-19/;;; see also 85 FR 39055 (June 30, 2020) (the Bureau's June 2020 interim final rule amending Regulation X to allow mortgage servicers to finalize loss mitigation options without collecting a complete application). This PDF is Section 101 of the EGRRCPA also provides that the safe harbor is not available in the event of legal transfer except for transfers (1) to another person by reason of bankruptcy or failure of a covered institution; (2) to a covered institution that retains the loan in portfolio; (3) in the event of a merger or acquisition as long as the loan is still retained in portfolio by the person to whom the loan is sold, assigned or transferred; or (4) to a wholly owned subsidiary of a covered institution, provided that, after the sale, assignment, or transfer, the loan is considered to be an asset of the covered institution for regulatory accounting purposes. Proposed 1026.43(e)(7)(iv)(A)(1) through (5) would address additional, specific aspects of the definition of delinquency, which are discussed in turn in the section-by-section analyses that follow. Absent an exclusion from the seasoning period for these types of loans, loans that do not meet the proposed performance requirements in proposed 1026.43(e)(7)(ii) due to a disaster or pandemic-related national emergency would lose their seasoning eligibility even if a temporary payment accommodation could have assisted in resolving the loan's delinquency. 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. As explained in the section-by-section analysis of proposed 1026.43(e)(7)(iv)(C) above, the Bureau is proposing a seasoning period of 36 months beginning on the date on which the first periodic payment is due after consummation, unless one of two exceptions applies. Table 8 shows that under Baseline 2, non-QM and rebuttable presumption QM loans that would achieve safe harbor status through the proposal or alternatives with a seasoning period of at least three years have a 0.13 percentage point higher foreclosure rate than open loans that were safe harbor QM loans at consummation. The Ability-to-Repay Rule provides that general qualified mortgages, among other requirements may not 125. (D) Satisfies the requirements in paragraph (e)(7)(iii) of this section. The exceptions contained in 1026.43(e)(7)(iii)(B) (1) and (2) apply not only to an initial sale, assignment, or other transfer by the originating creditor but to subsequent sales, assignments, and other transfers as well. 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. Apr. In the General QM Proposal, the Bureau proposed that the effective date of a final rule relating to the General QM Proposal would be six months after publication in the Federal Register. 137. and members of Congress, the Bureau issued requests for information (RFIs) in 2017 and 2018 and in July 2019 issued an advance notice of proposed rulemaking regarding the ATR/QM Rule (ANPR). ("ANPR") to revise the definition of a "Qualified Mortgage" ("QM") under the Dodd-Frank Act's "ability to repay requirements," all of the single -family housing finance advocates went into high gear. 85. Comments will not be edited to remove any identifying or contact information. informational resource until the Administrative Committee of the Federal The Bureau believes that a Seasoned QM definition could complement existing QM definitions and help ensure access to responsible, affordable mortgage credit upon the expiration of one of the existing QM definitions. The Bureau noted that it is not possible to define by a bright-line rule a class of mortgages for which each consumer will have the ability to repay.[115]. Thus, the number of loans that would have disqualifying events would be overstated compared to those in a typical business cycle. (4) The servicer waives all existing late charges, penalties, stop payment fees, or similar charges promptly upon the consumer's acceptance of the agreement. Temporary payment accommodation in connection with a disaster or pandemic-related national emergency. 72. Therefore, the Bureau proposes to exclude from the seasoning period temporary payment accommodations only for disasters and pandemic-related national emergencies meeting the definition in proposed 1026.43(e)(7)(iv)(D). data, as well as data obtained from industry, other regulatory agencies, and other publicly available sources. Comment 43(c)(1)-1.ii.A. This is because, once a loan is sold in the secondary markets, the creditor does not have the same financial stake in the cost of subsequent default. The same caveat with respect to EGRRCPA section 101 discussed for Baseline 1 applies here as well. 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. Further, the Bureau is concerned that, absent proposed 1026.43(e)(7)(iv)(A)(3), creditors might find it very unlikely that many of their loans would fully meet the requirements to be a Seasoned QM, undermining the rule's objectives. Revise 43(e)(1) Safe harbor and presumption of compliance; b. The loan term does not exceed 30 years; and. Notwithstanding paragraph (e)(2) of this section, and except as provided in paragraph (e)(7)(iv) of this section, a qualified mortgage is a first-lien covered transaction that: (A) Is a fixed-rate mortgage as defined in 1026.18(s)(7)(iii) with fully amortizing payments as defined in paragraph (b)(2) of this section; (B) Satisfies the requirements in paragraphs (e)(5)(i)(A) and (e)(5)(i)(B) of this section; (C) Has met the requirements in paragraph (e)(7)(ii) of this section at the end of the seasoning period as defined in paragraph (e)(7)(iv)(C) of this section; and. The Bureau tentatively concludes that such risk, as well as the potential benefits that a Seasoned QM might offer in terms of fostering access to responsible, affordable mortgage credit, would tend to vary depending on the loan characteristics. This determination is consistent with the ATR/QM Rule's distinction between failure to repay due to a consumer's inability to repay at the loan's consummation, versus a consumer's subsequent inability to repay due to a change in the consumer's circumstances. Instead, as stated in part I above, the revised regulations would apply to covered transactions for which creditors receive an application on or after the effective date. (2) The covered transaction may be sold, assigned, or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor. The Bureau solicits comment on its proposal to define the seasoning period generally as a period of 36 months beginning on the date on which the first periodic payment is due after consummation. By comparison, for loans that were still open after three years and originated as safe harbor under Baseline 1, only 0.1 percent of loans enter foreclosure after year three. The proposal defines a qualifying change as an agreement entered into during or after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency that ends any preexisting delinquency and meets certain other conditions to ensure the loan remains affordable. TILA section 129C(b)(2)(A)(vi) provides the Bureau with authority to establish guidelines or regulations relating to ratios of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt, taking into account the income levels of the borrower and such other factors as the Bureau may determine relevant and consistent with the purposes described in TILA section 129C(b)(3)(B)(i). The lack of uniformity is likely due in part to the difficulties associated with measuring and quantifying the litigation and compliance risk associated with originating non-QM loans. 52. [127] One QM category is the General QM category. See, e.g., 85 FR 41716, 41717 (July 10, 2020). 141. 857 (1996). Assessment Report, supra note 49, at 117. 15 U.S.C. Except as provided in paragraph (e)(4), (5), (6), (7), or (f) of this section, a qualified mortgage is a covered transaction: (7) Qualified mortgage definedseasoned loans. Generally, the statute of limitations for a private action for damages for a violation of the ATR requirement is three years after the date on which the violation occurs. 149. Qualified mortgages The CFPB Ability-to-Repay Rule established three categories of QM: (i) general qualified mortgages, (ii) balloon payment qualified mortgages made by certain lenders, and (iii) transitional qualified mortgages. As a result, the analysis of impacts of the proposal on creditor costs from reduced uncertainty related to legal liability relies on simplifying assumptions and qualitative information as well as the limited data that are available. Comments on the General QM Proposal should be filed on the docket for that proposal, which closes on September 8, 2020, including comments on the specific subject of whether anything in this proposal affects how the Bureau should finalize the General QM Proposal. Similarly, the Bureau also recognizes that the ability of a consumer to stay current on mortgage payments during the seasoning period would not be reliable as an indicator that at Start Printed Page 53583consummation a consumer had the ability to meet balloon payment obligations beyond the seasoning period. In response to the Assessment RFI, the Bureau received approximately 480 comments from creditors, industry groups, consumer advocacy groups, and individuals. If creditors adhere to the GSEs' guidelines, they gain access to a robust, highly liquid secondary market. Information about this document as published in the Federal Register. [32], The Bureau created the Small Creditor QM category based on its determination that the characteristics of a small creditorits small size, community-based focus, and commitment to relationship lendingand the inherent incentives associated with portfolio lending together justify extending QM status to loans that do not meet all of the ordinary QM criteria. Prot., Agencies Provide Additional Information to Encourage Financial Institutions to Work with Borrowers Affected by COVID-19 (Mar. One effect might be that the proposal would cause the share of loan applications that lead to originations of non-QM loans under the baseline (90 percent) to match the overall share (97 percent for loan applications for which Bureau data include the rate spread). The Bureau proposes that a final rule relating to this proposal would take effect on the same date as a final rule amending the General QM definition. On the other hand, based on application-level data obtained from nine large creditors, the Assessment Report found that the Rule eliminated between 63 and 70 percent of high-DTI home purchase loans that were not Temporary GSE QM loans. or a presidentially declared pandemic-related national emergency under the National Emergencies Act (50 U.S.C. and only 21 percent of new origination PLS issuances in 2017 were non-QM issuances. 1503 & 1507. The Bureau preliminarily concludes that it is appropriate to presume compliance with the ability-to-repay (ATR) requirements when such loans season in the manner set forth in the proposal. Each of the alternatives permits no 60-day delinquencies. 84. For the reasons set forth above, the Bureau proposes to amend Regulation Z, 12 CFR part 1026, as set forth below: 1. [80] Commenters supporting a seasoning approach offered differing views on the appropriate length of the seasoning period, varying from as brief as 12 months following consummation to as long as five years following consummation. These proposed definitions are discussed below. 73. As such, the Bureau anticipates that the proposal would not curtail the ability of consumers to bring affirmative claims seeking damages for alleged violations of the ATR requirements. 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.[91] Doing so ensures that they are incentivized to minimize deficient ATR determinations, whereas a shorter portfolio requirement could shield them from the consequences of some deficient ATR determinations and therefore weaken the intended incentive. Further, the Bureau preliminarily concludes that the consider and verify requirements included in the Small Creditor QM definition are suitable for purposes of the Seasoned QM definition. The Bureau is not proposing to require creditors that seek to use the Seasoned QM definition to continue to hold loans in portfolio after the seasoning period ends because, as explained in part V above, it appears more likely that a failure to repay that occurs more than three years after consummation would be attributable to causes other than the consumer's ability to repay at loan consummation, such as a subsequent job loss. The total points and fees generally do not exceed 3 percent of the loan amount; 5. The Bureau is aware that the GSEs have specific requirements to address these types of concerns in their representation and warranty frameworks. A Qualified Mortgage is a category of loans that have certain, less risky features that help make it more likely that you'll be able to afford your loan. For example, the amortization . Those agencies are the Board, the OCC, the FDIC, the Securities and Exchange Commission, the FHFA, and HUD (collectively, the QRM agencies). For a covered transaction to become a qualified mortgage under 1026.43(e)(7), a creditor generally must hold the transaction in portfolio until the end of the seasoning period, subject to two exceptions set forth in 1026.43(e)(7)(iii)(B)(1) and (2). These included: Amending the small creditor definition to increase the number of loans a small creditor can originate each year to 2,000; exempting from the 2,000-loan limit any loans held in the creditor's portfolio; and revising the small creditor definition's asset threshold to include the assets of any of the creditor's affiliates. 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 comment explains further that the longer a consumer successfully makes timely payments after consummation or recast, the less likely it is that the creditor's determination of ability to repay was unreasonable or not in good faith. The Assessment Report and the June 2020 General QM Proposal measure early distress as whether a consumer was ever 60 days or more past due within the first two years after origination. For General QMs, the ratio of the consumer's total monthly debt to total monthly income (DTI or DTI ratio) must not exceed 43 percent. The Ability-to-Repay/Qualified Mortgage Rule, C. Economic Growth, Regulatory Relief, and Consumer Protection Act, E. Presumption of Compliance for Existing Categories of QM Loans Under the Rule, F. The Bureau's Assessment of the Ability-to-Repay/Qualified Mortgage Rule, G. Effects of the COVID-19 Pandemic on Access to Mortgage Credit, B. [85] Using data from an even earlier cycle of expansion and contraction might be more informative about average benefits and costs over the long term, but older data would also reflect the features of the housing and mortgage markets of an earlier time. The Bureau tentatively finds that these provisions would be necessary and proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner that is consistent with the purposes of TILA section 129C and are necessary and appropriate to effectuate the purposes of TILA section 129C, which includes assuring that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loan. 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 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. 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. FHA vs. Conventional Loan: Which Mortgage Is Right for You? - realtor.com The Assessment Report first highlighted commenters' concerns with the perceived lack of clarity in appendix Q and found that such concerns may have contributed to investors'and at least derivatively, creditors'preference for Temporary GSE QM loans instead of originating loans under the General QM loan definition. As such, the Bureau believes it may be appropriate to treat periods of temporary payment accommodation for reasons other than disasters or pandemic-related emergencies as part of the seasoning period. Section 1026.43(e)(1)(i) and (ii) provide a safe harbor and presumption of compliance, respectively, with the repayment ability requirements of 1026.43(c) for creditors and assignees of covered transactions that satisfy the requirements of a qualified mortgage under 1026.43(e)(2), (4), (5), (6), (7), or (f). The Bureau has solicited and received substantial public and stakeholder input on issues related to the ATR/QM Rule generally and seasoning of loans specifically in connection with that rule. Answer: The CFPB's Ability-to-Repay/Qualified Mortgage's (QM) rule contains a cap or limit on points and fees to qualify as a QM loan. In January 2019, the Bureau published its ATR/QM Rule Assessment Report (Assessment Report). 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. The Bureau noted that by retaining mortgage loans in portfolio, creditors retain the risk of delinquency or default on those loans, and as such the presence of portfolio lending within the small creditor market is an important influence on such creditors' underwriting practices.[35]. [103] 5. Click the card to flip . The Bureau expects that each of these features of the mortgage market that concentrate lending within the Temporary GSE QM loan definition will largely persist through the current January 10, 2021 sunset date. while the National Mortgage Settlement generally required acceptance of at least two periodic payments that were short by $50 or less. . These loans would benefit from the proposal by obtaining safe harbor QM status if they meet the performance and portfolio requirements of the seasoning period, and not otherwise. Commenters supporting seasoning generally acknowledged that delinquencies during the seasoning period should disqualify a loan from seasoning into a QM, but most did not offer specific suggestions regarding what it means for a loan to be performing. Practice test 08/08/16 Flashcards | Quizlet Only covered transactions that 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 could become Seasoned QMs. 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. Qualified Mortgage Definition Under the Truth in Lending Act The Temporary GSE QM loan categoryalso known as the GSE Patchis scheduled to expire with respect to each GSE when that GSE exits conservatorship or on January 10, 2021, whichever comes first. Accordingly, the Bureau preliminarily concludes that allowing an alternative pathway to a QM safe harbor may encourage creditors to lend to consumers with less traditional credit profiles and income sources at an affordable price based on an individualized determination of a consumer's ability to repay. released simultaneously with the Extension Proposal, the Bureau proposed the amendments to the General QM loan definition that are referenced in the Extension Proposal. The Bureau considers the benefits, costs, and impacts of the proposal against two baselines. The first group is all fixed-rate higher-priced covered transactions that meet the proposed General QM definition but are not Small Creditor QM loans or loans entitled to a presumption of compliance under the EGRRCPA QM definition. Section 1026.43(e)(1) provides that a creditor that makes a QM loan receives either a conclusive or rebuttable presumption of compliance with the repayment ability requirements of 1026.43(c), depending on whether the loan is a higher-priced covered transaction. 101. 118. 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. 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] A second, temporary category of QM loans defined by the Rule, Temporary GSE QM loans, consists of mortgages that (1) comply with the Rule's prohibitions on certain loan features and its limitations on points and fees;[23] The QM definition is related to the definition of Qualified Residential Mortgage (QRM). 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.

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