Qualifying Mortgages: Present and Future – Finance and Banking


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When explaining a long and complex rulemaking process, it is tempting to look into the past and start at the beginning. However, for credit unions who just want to understand the current limits on qualifying mortgages (QMs), we should focus on the present.

In short, there are now several types of MQs that credit unions can choose from, each with their own settings and requirements. Going forward, however, all bets are off.


The first QM is the one we all know]-[theratio/income(DTI)of43%QMAwhentheConsumerFinancialProtectionBureau(CFPB)previouslyplannedtograduallyremovethe“old”QMthenewmanagementoftheagencychangeditsopinion[leratiodette/revenu(DTI)de43 %QMAlorsqueleConsumerFinancialProtectionBureau(CFPB)envisageaitauparavantdesupprimerprogressivementl’«ancien»QMlanouvelledirectiondel’agenceachangéd’avis

Thus, a closed residential mortgage loan will always constitute an MQ when it has: A DTI that does not exceed 43%.

Subscription in accordance with Annex Q of the regulations.

Points and fees that do not exceed the threshold (usually 3%). No lump sum payment or other non-standard payment terms.

If the Annual Percentage Rate (APR) does not exceed the Average Prime Rate (APOR) for a comparable transaction by 1.5 percentage points, then the QM enjoys a “safe harbor” of compliance with the Federal Rule of Law. repayment capacity. If the loan’s APR exceeds this threshold, the loan benefits from a rebuttable presumption of compliance with this rule.

Unless something changes, the old QM is available until October 1, 2022.


A new QM category is also now available. For applications received on or after March 1, 2021, credit unions and other mortgage lenders can perform QMs without a 43% DTI cap and without following Schedule Q, provided the APR does not exceed 2.25 points percentage over the PPA (for most first senior loans).

As above, if the RPA does not exceed the RPA by 1.5 percentage points, the QM benefits from a safe harbor for compliance with the rule; otherwise, the loan benefits from a rebuttable presumption of conformity.

Under this new QM, the loan must still meet the “old” QM restrictions against non-standard payment features and point and charge limits. The lender must always take into account the DTI (or residual income), but the regulations do not impose a cap. The lender should also take into account the consumer’s current or reasonably expected income or assets, debts, alimony and child support.

While this “consideration” requirement sounds familiar, the regulations specify that for new MQs, a lender must develop underwriting standards and maintain written policies and procedures on how it takes into account the required factors.

The lender must also, for each loan, keep documentation, such as a spreadsheet

or an automated underwriting system certification, showing how the lender considered the factors and applied their policies and procedures. The lender’s policies and procedures should describe all available exceptions to underwriting standards, and the lender should maintain loan-level documentation of all exceptions upon which it relies.

The lender should also verify these amounts using reasonably reliable third party documents. The lender is no longer stuck with the documentation requirements of Schedule Q and can use reasonable verification methods and criteria instead. While some lenders may welcome this flexibility, lenders may also rely on auditing standards specified by Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the US. Department of Agriculture.

As a result, as long as loans remain below the 2.25 APR threshold, the new QM provides significant flexibility for credit unions to provide mortgages to their members. However, some work is required upstream to ensure that product parameters, compensating factors, and allowable exceptions are documented, and that loan-level documentation processes are in place.


Credit unions can still do agency MQs as well. Regulations continue to allow the FHA,

VA and USDA to establish their own rules for what constitutes a QM under their respective programs, and the requirements of these agencies for this purpose have not changed.

However, Fannie Mae and Freddie Mac (the GSEs) have changed their requirements. The GSEs (under the orders of their regulator) have announced that from July 1, 2021, they will only purchase non-exempt mortgages if they meet the new QM requirements based on the APR. In the past, especially for some loans with a DTI above 43%, many lenders have achieved QM status based on GSE eligibility. Going forward, GSEs will only purchase these loans if they also meet the 2.25 APR threshold and other new quality management requirements. (ESGs may also purchase loans that meet the Small Creditors Portfolio Quality Management criteria, described below.)


A “small creditor” can continue to perform MQs regardless of some old or new MQ requirements, as long as the creditor keeps the loans in its portfolio.

A “small creditor” is, in somewhat simplified terms, a creditor who, together with its affiliates, has not issued more than 2,000 residential first mortgage loans in the preceding calendar year that have been sold, assigned or otherwise transferred to, or intended to be acquired by, another person. In addition, the creditor and all lending subsidiaries must have total assets below a certain threshold. (For calendar year 2021, the asset threshold is $ 2.23 billion.)

While small portfolio creditors should continue to consider a consumer’s current or reasonably expected income or assets, current debts, alimony, child support, and DTI or residual income, creditors are not. not required to meet the 43% DTI cap or Annex Q. Likewise, as of March 1, 2021, they can perform QMs without meeting the 2.25 percentage point APR cap.

However, if the creditor sells, assigns

“Or otherwise transfer the loan within three years, the loan will generally lose its quality management status.” In addition, these small wallets For applications, creditors who lend in a rural area or under-received on a served area can continue to make balor after loon QMs payments under the special regulation of March 1, 2021, of the cooperatives of credit and regulatory provisions, without complying with the old DTI or the new APR caps. other mortgage QMs IN THE FUTURE that lenders may do While the CFPB (under previous leadership-

QMs without ership) wanted to remove the old cap of 43% DTI and QM (43% DTI / Schedule Q) by July without following Schedule Q, so 2021, the agency now thinks could exacerbate the effects economic aspects of the Covid-19 pandemic. As long as the APR makes the old QM available until October 2022, along with the new 2.25% QM, the CFPB hopes lenders will have points on APOR (mostly senior loans). “Credit unions can also still do” have more tools to provide responsible and affordable mortgage credit as the economy recovers. Of course, these additional 15 months also give CFPB new leadership time to reconsider all agency MQs. the QM options described … However, above. The agency specifically said it may revisit the old and new QM definitions of Fannie Mae and Freddie, as well as Mac’s ability (the ability of some loans to ‘season’ GSEs) to turn them into QM status after three years of timely payments. With these potential requirements. looming changes, credit unions may want to focus on “the present and worry about the future later!” Kris Kully is a partner attorney in Mayer Brown’s Washington, DC office. She focuses her practice on federal and state regulatory compliance issues affecting providers of financial products and services to consumers. Kully is a former lawyer with the Department of Housing and Urban Development, where she provided legal advice on overseeing the mission of Fannie Mae and Freddie Mac, interpreting the RESPA, and implementing aid programs. housing and community development.

Originally published by Pipeline Magazine.

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This article by Mayer Brown provides information and commentary on legal issues and developments of interest. The foregoing does not constitute a full treatment of the subject matter and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action on the matters discussed in this document.

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