CSBS Issue Briefings - August 2020

Qualified Mortgage/Safe Harbor

CSBS Official Position

State regulators continue to support the principles that drive the Qualified Mortgage (QM) Ability-to- Repay (ATR) rule but have made several recommendations that would better tailor the rule commensurately to the community bank business model. CSBS supports a Safe Harbor for all mortgage loans held in portfolio by community banks.

Summary

A qualified mortgage refers to a mortgage that fulfills the ATR requirements as set out by the Consumer Financial Protection Bureau’s rule. As of January 2014, banks were granted protection from consumer litigation if their loan fulfilled the QM requirements.

All QM loans must have the following mandatory feature requirements:

• Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed) • No risky features like negative amortization, interest-only or balloon loans • Maximum loan term is less than or equal to 30 years.

In total, there are currently three main QM categories:

• General QM Loan – any loan that meets, in full, the QM mandatory feature requirements specified above with greater than or equal to 43% DTI ratio. • GSE Eligible – under the GSE patch, any loan that meets the QM feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA or USDA is a QM, regardless of whether it is above the 43% DTI ratio threshold1. • Small Creditor – Mortgage originations held in portfolio by federally insured banks and credit unions under $10 billion dollars in assets.2 • Removal of DTI – The CFPBhas released a notice of proposed rulemaking regarding major changes to the general QM definition which removes DTI and instead designates a loan QM if it the APR exceeds APOR3 for a comparable transaction by less than two percentage points as of the date the interest rate is set. The proposal would retain the existing product-feature and underwriting requirements and limits on points and fees. The proposal would also mark the end of the GSE eligible definition. • Seasoned QMs – The CFPB also released a proposal to add a new category - referred to as “seasoned QMs.” A seasoned QM would be 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.

Proposed Changes by CFPB:

Why it Matters to State Regulators

FOR STATE REGULATOR USE ONLY