On August 18, 2020, the Consumer Financial Protection Bureau (CFPB) published a notice of proposed rulemaking (NPRM) that creates a new category of Qualified Mortgage (QM), a seasoned QM (Seasoned QM), 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.
- The CFPB’s primary objective with this proposal is to ensure access to responsible, affordable mortgage credit by adding a Seasoned QM definition to the existing QM definitions.
- The comment period for the NPRM expires 30 days after the date of publication in the federal register, which is expected soon.
Safe Harbor – Under the proposal, a covered transaction would receive a safe harbor from ability to repay (ATR) liability at the end of a 36-month seasoning period if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and it meets performance and portfolio requirements during the seasoning period.
Product Restrictions – A covered transaction would have to meet the following product restrictions to be eligible to become a Seasoned QM:
- The loan is secured by a first lien;
- The loan has a fixed rate, with fully amortizing payments and no balloon payment;
- The loan term does not exceed 30 years; and
- The total points and fees do not exceed specified limits.
Underwriting – For a loan to be eligible to become a Seasoned QM, the creditor must:
- Consider the consumer’s DTI ratio or residual income. The proposal would not specify a DTI limit.
- Verify the consumer’s debt obligations and income. The proposal would not require the creditor to use appendix Q to Regulation Z in calculating and verifying debt and income.
Portfolio Loan – A loan generally would only be eligible to season if the creditor holds it in portfolio until the end of the seasoning period.
Performance Requirements – In order to become Seasoned QMs, loans would have to meet certain performance requirements at the end of the seasoning period.
- Seasoning would be available only for 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.
- Funds taken from escrow in connection with the covered transaction and funds paid on behalf of the consumer by the creditor, servicer, or assignee of the covered transaction (or any other person acting on their behalf) would not be considered in assessing whether a periodic payment has been made or is delinquent for purposes of the proposal.
- Creditors could, however, generally accept deficient payments within a payment tolerance of $50 on up to three occasions during the seasoning period without triggering a delinquency for purposes of the proposal.
- The proposal generally defines the seasoning period as a period of 36 months beginning on the date on which the first periodic payment is due after consummation.
- Failure to make full contractual payments would not disqualify a loan from eligibility to become a Seasoned QM if the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, as long as certain conditions are met. However, time spent in such a temporary accommodation would not count towards the 36-month seasoning period, and the seasoning period could only resume after the temporary accommodation if any delinquency is cured either pursuant to the loan’s original terms or through a qualifying change as defined in the proposal.
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.