On April 19th the Consumer Financial Protection Bureau (CFPB) proposed changes to the Qualified Mortgage (QM) and Servicing Rules. The proposal addresses five topics:
Under the Ability to Repay rule, a lender may make a qualified mortgage (QM), a loan for which certain features are prohibited and fees that can be charged are limited. The rule provides for different types of QMs, the main type requiring that a consumer’s debt-to-income ratio (DTI) show that the consumer’s monthly debt payments, including the mortgage, will not be more than 43% of the consumer’s monthly income. Today’s proposal would provide clearer rules for determining DTI. It would amend language pertaining to a consumer’s employment record and income, obtaining business credit reports and other issues relating to self-employed consumers, and the treatment of Social Security and rental income.
Contract Variances and the Temporary QM Provision
A second type of QM that a lender can make under the ability-to-repay rule requires the loan to be eligible either for purchase or guarantee by the government-sponsored enterprises Fannie Mae or Freddie Mac (the GSEs), or for guarantee or insurance by a federal agency such as the Federal Housing Administration or the Veterans Administration. The provision that allows this type of QM is temporary and will expire after seven years or earlier. Today’s proposal would confirm that loans meeting eligibility requirements provided in a separate agreement between a creditor and a GSE or federal agency can be qualified mortgages, not just those that follow the general GSE or agency guidelines.
Purchase, Guarantee or Insurability Status and the Temporary QM
Some GSE or agency requirements, such as loan delivery requirements, are not relevant to QM status. The proposal would clarify that the temporary QM provision’s requirement that mortgages be “eligible” for purchase, insurance, or guarantee does not exclude loans that do not satisfy those procedural and technical requirements. In addition, the fact that a GSE or agency demands repurchase or indemnification of a loan would not determine whether or not the loan is a QM. The specific facts and circumstances of each loan would determine that.
No State Preemption under Regulation X
Regulation X implements the Real Estate Settlement Procedures Act (RESPA). The preamble to the 2013 Mortgage Servicing Final Rules issued in January made clear that Regulation X does not preempt the field of possible mortgage servicing regulation by states, and the CFPB is proposing the addition of a comment to Regulation X to emphasize this.
Small Servicer Exemption
The servicing rules for RESPA and the Truth in Lending Act (TILA) that we issued in January included an exemption for institutions with small servicing operations from some requirements. The proposed changes would clarify which mortgage loans to consider in determining whether a servicer qualifies as small. Loans serviced on a charitable basis will not be included. The changes would also provide several additional examples to illustrate application of the exemption to relationships between servicer and affiliate and between master servicer and subservicer, among others.
The proposed rule has a 30-day comment period.
The proposed rule is available here.