On December 11, 2013 the Department of Housing and Urban Development (HUD) published a final rule to establish a definition of “qualified mortgage” (QM) for the single family residential loans that HUD insures, guarantees, or administers that aligns with the statutory ability-to-repay criteria of the Truth-in-Lending Act (TILA) and the regulatory criteria of the definition of QM promulgated by the Consumer Financial Protection Bureau (CFPB).
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) establishes minimum standards for considering a consumer’s repayment ability for creditors originating certain closed-end, dwelling-secured mortgages, and generally prohibits a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good-faith determination of a consumer’s ability to repay the loan according to its terms. The Dodd-Frank Act also charges HUD and three other Federal agencies with prescribing regulations defining the types of loans that these Federal agencies insure, guarantee, or administer, as may be applicable, that are qualified mortgages.
In developing its definition of “qualified mortgage”, HUD determined that all of the single family residential mortgage and loan products offered under HUD programs should be defined as “qualified mortgages”; that is, they exclude risky features and are designed so that the borrower can repay the loan.
- The final rule designates Title I (property improvement loans and manufactured home loans), Section 184(Indian housing loans), and Section 184A (Native Hawaiian housing loans) insured mortgages and guaranteed loans covered by this rule as safe harbor qualified mortgages and no changes to the current underwriting requirements of these mortgage and loan products are made by the final rule. To this list, FHA adds manufactured housing insured under Title II of the National Housing Act (Title II) and clarifies that the Title I Manufactured Home Loan program is included in the Title I exemption.
- For mortgage products insured under Title II of the National Housing Act, with certain exceptions, HUD retains the two categories of qualified mortgages similar to the two categories created in the CFPB final rule—a safe harbor qualified mortgage and a rebuttable presumption qualified mortgage.
- The final rule defines safe harbor qualified mortgage as a mortgage insured under Title II of the National Housing Act that meets the points and fees limit adopted by the CFPB in its regulation at 12 CFR 1026.43(e)(3), and that has an annual percentage rate for a first-lien mortgage relative to the average prime offer rate that is no more than the sum of the annual mortgage insurance premium and 1.15 percentage points.
- The final rule defines a rebuttable presumption qualified mortgage as a single family mortgage insured under Title II of the National Housing Act that meets the points and fees limit adopted by the CFPB, but has an annual percentage rate that exceeds the average prime offer rate for a comparable mortgage, by more than the sum of the annual mortgage insurance premium and 1.15 percentage points for a first-lien mortgage.
- HUD exempts from the “qualified mortgage” definition reverse mortgages insured under section 255 of Title II and Title II insured mortgages made by housing finance agencies and certain other governmental or nonprofit organizations providing home financing under programs designed for low- and moderate-income individuals and families.
The final rule is effective on January 10, 2104, the same date on which the CFPB’s Ability-to-Repay rule goes into effect.
A copy of the final rule is available here.