The Bureau is considering whether to propose revisions to Regulation Z's general qualified mortgage definition in light of that planned expiration and is issuing this ANPR to request information about possible revisions. Three industry groups, two creditors, and a consumer advocacy group also argued for making the Temporary GSE QM loan provision permanent. b. [9] The CFPB recently issued a final rule amending Regulation Z ability to repay rule/qualified mortgage (QM) requirements to replace the strict 43% debt-to-income (DTI) ratio basis for the general QM with an annual percentage rate (APR) limit, while still requiring the consideration of the DTI ratio or residual income. If lenders adhere to the GSEs' guidelines, they gain access to a robust, highly liquid secondary market. 1700 G Street NW, Washington, DC 20552 . 2 EXECUTIVE SUMMARY OF THE APRIL 2021 AMENDMENTS TO T HE ATR/QM RULE which include restrictions on GSE purchases that rely on the Temporary GSE QM . A) Total monthly debt B) Residual income C) Total monthly income D) Debt-to-income ratio B) Residual income The QM Rule extends a conclusive presumption of compliance to qualified mortgages that are: A) Higher-priced mortgage loans B) Prime loans that are not higher-priced mortgage loans or subprime loans 2 12 CFR 1026.43(c). The Bureau requests that commenters provide data and analysis to support their views. Current employment status (if the employment income was relied . [88] [17], A second, temporary category of QM loans defined by the Rule consists of mortgages that: (1) Comply with the Rule's prohibitions on certain loan features, its underwriting requirements, and its limitations on points and fees;[18] For complete information about, and access to, our official publications informational resource until the Administrative Committee of the Federal The Bureau also suggested that a higher DTI threshold might require a corresponding weakening of the strength of the presumption of compliance, which would largely defeat the point of adopting a higher DTI threshold. Several industry groups, a creditor, and a consumer advocacy group stated that Appendix Q should be eliminated altogether. Based on extensive public feedback and its own experience, the Bureau recognizes that Appendix Q's methods for documenting debt and income can be rigid, that its provisions for determining what debt and income can be included in DTI calculations can be difficult to apply, and that it does not provide the level of compliance certainty that the Bureau anticipated. Several industry groups and creditors stated that calculating and verifying debt and income in accordance with Appendix Q is particularly burdensome for applications from consumers who receive income from self- or part-time employment, have irregular income, or wish to use asset depletion as income. [20], In the January 2013 Final Rule, the Bureau explained why it created the Temporary GSE QM loan category. General Qualified Mortgage - With HPML Kicker (below) - < than. . [77] Based on supplemental data provided by the FHFA, the Bureau estimates that the GSEs purchased or guaranteed 52 percentroughly 3.12 millionof those loans. In addition, Section 101 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-174, 101, 132 Stat. The loan does not have negative-amortization, interest-only, or balloon-payment features, a term that exceeds 30 years, or points and fees that exceed specified limits; The creditor underwrites the loan based on a fully amortizing schedule using the maximum rate permitted during the first five years; The creditor considers and verifies the consumer's income and debt obligations in accordance with Appendix Q of the Rule; The ratio of the consumer's total monthly debt to total monthly income (DTI ratio) is no more than 43 percent, determined in accordance with Appendix Q of the Rule. [10] To assist the Bureau in developing any such proposals, the Bureau requests public comment on the questions below. Prot., Sources and Uses of Data at the Bureau of Consumer Financial Protection, at 55-56 (Sept. 2018), https://www.consumerfinance.gov/documents/6850/bcfp_sources-uses-of-data.pdf. For purposes of this paragraph (e)(2)(vi), the ratio of the consumer's total monthly debt to total monthly income is d etermined: Because the Temporary GSE QM loan provision generally affects only loans that conform to the GSEs' guidelines, the Assessment Report's discussion of the Temporary GSE QM loan provision focused on the conforming segment of the market, not on non-conforming (e.g., jumbo) loans. has no substantive legal effect. Public Law 111-203, sec. Other stakeholders have suggested combining a higher DTI ratio with a requirement that creditors also consider residual income. -Total monthly Income: verified current and expected income plus income from verified assets such as verified salary, verified bonuses, or verified seasonal employment . An additional, smaller number of Temporary GSE QM loans purchased by the GSEs may not fall within the General QM loan definition because of documentation or other underwriting differences. 1296 (2018), amended TILA to add a safe-harbor for small-creditor portfolio loans. These factors are the consumer's credit history, current and expected income, current obligations, debt-to-income ratio or residual income after paying non-mortgage debt and mortgage-related obligations, employment status, and other financial resources other than equity in the dwelling or real property that secures repayment of the loan. 45. [69] The Bureau also is concerned about presuming indefinitely that loans eligible to be purchased or guaranteed by the GSEswhether or not the GSEs are under conservatorshiphave been originated with appropriate consideration of consumers' ability to repay. The Bureau requests comment on the advantages and disadvantages of such standards relative to standards that directly measure a consumer's personal finances, including DTI ratio and residual income. If the Bureau retains Appendix Q, how should it be changed or supplemented? and (2) are eligible to be purchased or guaranteed by either Fannie Mae or Freddie Mac (collectively, the GSEs) while under the conservatorship of the Federal Housing Finance Agency (FHFA) (Temporary GSE QM loans). daily Federal Register on FederalRegister.gov will remain an unofficial Document Drafting Handbook -Is the ytd income consistent with monthly income, if not obtain explanation Two industry groups and two individual commenters stated that the Bureau should approve alternatives to Appendix Q, such as the standards used by the GSEs, FHA, the U.S. Department of Veterans Affairs, and the Rural Housing Service. The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Eligibility Matrix . To conduct an orderly rulemaking process and to smooth the transition to any new General QM loan definition, the Bureau requests comment, with supporting data, on how much time industry would need to change its practices following the issuance of a final rule with such a new definition. In identifying these possible market responses, the Bureau makes several assumptions about the future behavior of market participants. In addition, income and debt for such loans, and DTI ratios, generally are verified and calculated using GSE standards, rather than Appendix Q. Appendix Q, unlike other standards for calculating and verifying debt and income, has not been revised since the January 2013 Final Rule. Should the Bureau increase or decrease the DTI limit to some other percentage? The Bureau therefore seeks comment on the topics and questions listed below in light of the Bureau's intent not to make the GSE Patch permanent. Respondents also observed that the General QM loan DTI limit of 43 percent may help constrain such house price growth, but such effects likely have been diluted by the Temporary GSE QM loan provision's allowance of DTIs above 43 percent. Several industry groups, a creditor, and individual commenters stated that the DTI limit should be eliminated because it has disadvantaged consumers who have income that is difficult to document, and because other measurements, such as cash flow, better indicate a consumer's ability to repay a loan. 75. [54] Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. See Bureau of Consumer Fin. Register (ACFR) issues a regulation granting it official legal status. The January 2013 Final Rule became effective on January 14, 2014, and the Bureau amended it several times through 2016. The Bureau currently plans to allow the Temporary GSE QM loan category to expire in January 2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition away from the Temporary GSE QM loan category. [FR Doc. See U.S. Dep't of Hous. 07/30/2019 at 8:45 am. TILA section 129C also exempts certain residential mortgage loans from the ability-to-repay requirements. A coalition of consumer advocacy groups stated that the documentation standards for self-employment income can discourage creditors and borrowers from pursuing loans when such income is present. These markup elements allow the user to see how the document follows the Some stakeholders have suggested that the Bureau rely on the statutory QM loan restrictions only (i.e., prohibitions on certain loan features, requirements for underwriting, and a limitation on points and fees) to define a General QM loan. Updated Ability-To-Repay and Qualified Mortgage Requirements - NCUA The Bureau requests that commenters provide data and analysis to support their views about the use of DTI, residual income, or any suggested alternatives that directly measure a consumer's personal finances. Fully Indexed Rate (Balloons use balloon term, not payment) Required on HPML 1.) Qualified Mortgage Guidelines 3/1/2021. The concerns raised in these comments were similar to those raised in response to the Assessment RFI, discussed above. Main ATR/QM rule provisions and official interpretations can be found in: 1026.43 (a), Scope 1026.43 (b), Definitions 1026.43 (c), Ability to repay 1026.43 (d), Refinancing of non-standard mortgages 1026.43 (e), Qualified mortgage 1026.43 (f), Balloon-payment qualified mortgages made by certain creditors 1602(dd)(5). The Report also found that, for high-DTI borrowersi.e., borrowers with DTI ratios above 43 percentwho qualify for loans eligible for purchase or guarantee by the GSEs, the Rule has not decreased access to credit. Learn more here. [46] The Bureau requests that commenters provide data and analysis to support their views. 17, 2018). Given these assumptions, it seems likely, first, that many borrowers who would have obtained High-DTI GSE loans will instead obtain FHA-guaranteed loans since FHA currently guarantees loans with DTI ratios up to 57 percent. b. Section 1026.43(e)(2)(vi)(A) requires the creditor to calculate the ratio of the consumer's total monthly debt payments to total monthly income . The Bureau expects that High-DTI GSE loans will continue to comprise a significant proportion of mortgage originations through January 2021, when the Temporary GSE QM loan definition is scheduled to expire. obligations listed above as a ratio of gross monthly income, or residual income, calculated using the consumer's . This must happen before the lender creates a residential mortgage. Mortgage News Digest: The New QM - Ability to Repay Requires verifying and documenting ability to repay is quite detailed and requires a creditor to consider eight underwriting criteria.3 1 Public Law 111-203, 124 Stat. Only official editions of the Id. Thus, the Bureau estimates that, as a result of the General QM loan definition's 43 percent DTI limit, approximately 957,000 loans16 percent of all closed-end first-lien residential mortgage originations in 2018fell within the Temporary GSE QM loan definition but not the General QM loan definition. [30], Section 1022(d) of the Dodd-Frank Act requires the Bureau to assess each of its significant rules and orders and to publish a report of each assessment within five years of the effective date of the rule or order. ATR - The Ability to Repay Rule . See, e.g., id. 85. [48] See, e.g., 15 U.S.C. 2. [42] Finally, the Bureau recognized that there would be many instances in which individual consumers could afford a higher DTI ratio based on their particular circumstances, but stated that the general ATR framework, rather than the QM framework, would be better suited for such cases. Points and fees greater than three percent of your loan amount (for loan amounts less than $100,000, higher percentage thresholds are allowed). Under the Rule, a creditor that makes a QM loan is protected from liability presumptively or conclusively, depending on whether the loan is higher priced.[11]. [52], The Assessment Report found that a third possible reason for the persistence of Temporary GSE QM loans is the structure of the secondary market. The eight ATR underwriting factors include: 1) current or reasonably expected income or assets; 2) employment status; 3) monthly In addition, the Bureau estimates that the share of these loans with DTI ratios over 45 percent has varied over time due to changes in market conditions and GSE underwriting standards, rising from 47 percent in 2016 to 56 percent in 2017, and further to 69 percent in 2018. The Bureau believed, however, that, as DTI ratios increase, the general ability-to-repay procedures, rather than the qualified mortgage framework, is better suited for consideration of all relevant factors that go to a consumer's ability to repay a mortgage loan and that [o]ver the long term . 34. & Urban Dev., FHA Mortgage Limits, https://entp.hud.gov/idapp/html/hicostlook.cfm (last visited July 24, 2019). This stakeholder states that mortgage rates reflect credit risk more holistically than DTI ratios and that a rate-spread approach would encourage innovation in the high-DTI loan market. the consumer's total monthly debt obligations from the consumer's total monthly income; and 8. Finally, two industry groups and an individual commenter argued that the Temporary GSE QM loan provision should be eliminated and the Bureau should rely only on TILA's statutory requirements to define a qualified mortgage. 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. PDF Pub-14, Withholding Tax Guide