The CFPB has just come out and added a 4th type of QM which is the Small Creditor Portfolio QM.
Within this we can have the “presumption of compliance” if the APR doesn’t exceed the APOR by more than 3.5 for both first and subordinate liens. (Assuming all other conditions of a regular QM are met and the creditor is an actual small creditor).
Does this mean that if their rate spread is below 3.49 they’re still considered an HPML within the already stated escrow requirements? And are able to get the presumption of compliance (assuming all other requirements of a QM are met.)??
Or are they going to consider these small creditor loans to be HPML’s if the rate spread exceeds 3.5?
What I really need to know is, when is escrow necessary to be established for a small creditor loan? After the rate spread exceeds 1.5 or 3.5?
The final rule will extend the QM safe harbor to small creditors with first lien qualified mortgages under 1026.43(e)(5) even if the APR is between 1.5 – 3.5 percentage points higher than the APOR. It is raising this threshold to ensure small creditors still make loans that consumers need – since smaller creditors have a higher cost of funds their rates may be higher and therefore they should be given greater tolerance. The CFPB feared that if small creditors can’t make these loans within the safe harbor parameters then they may not be made at all which would leave a segment of consumers underserved.
Unfortunately, The escrow trigger is not changing, so if you make an HPML under 12 CFR 1026.35 you’ll still have to comply with the escrow requirements unless you meet one of the exemptions in 1026.35(b)(2).