If the CFPB adopts the 4th category of QM for certain loans originated by small creditors that have less than 2 billion in assets and originated 500 or fewer first-lien covered transactions during the previous calendar year, would this mean that we would be able to still do balloon loans and we would have the safe harbor as well if the balloon loans are at least 61 months?

This was covered in the lending triage on the first day and I just wanted to make sure I am understanding this particular part of the proposal.

Thanks

Can anybody weigh in on this please??

Thanks!

It is my understanding that you would also have to meet the rural/underserved qualifaction to be able to make the 61 month balloon.

But, I am no expert by far. I have tried to read the reg, read up on BOL threads and attended a seminar through my state association. There is so much to learn on all these new regs, that keeping up is difficult.

ga-girl - there's a proposal out right now that would add a "small creditor" exemption to the QM rules. Basically it would extend the same protection as the rural/underserved exemption to any bank under $2 billion who originates less than 500 covered transactions per year AND holds them in portfolio.

If you have anything to say to the Bureau about the proposal, the deadline is Monday, 2/25 (March 1 for comments on their Paperwork Reduction Act analysis, if you're really free enough to even read that section of the Federal Register document).

John, do you think there would be any value at all in simply sending in a short comment voicing our support for that section of the proposal?

In reading the concurrent proposal it appears it only removes the 43% D/I requirement.

From pages 8 & 9:
"To prevent evasion, a loan in the proposed new category would
lose its status as a qualified mortgage if it is held in portfolio for less than three years after
consummation, with certain exceptions.
The loan also would have to conform to all of the requirements under the general
definition of a qualified mortgage except the 43 percent limit on monthly debt-to-income ratio.
In other words, the loan could not have:
• Negative-amortization, interest-only, or balloon-payment features;
• A term longer than 30 years; and
• Points and fees greater than 3 percent of the total loan amount (or, for smaller loans,
the amount specified in the regulation)."

Additionally "A qualified mortgage in the proposed new category would be conclusively presumed to comply if the annual percentage rate is equal to or less than the average prime offer rate plus 3.5 percentage points for both
first-lien and subordinate-lien loans."

I stand corrected. Apparently I was just reading what I wanted to see.

Can someone direct me to the proposal you are discussing in this thread so I can read it? Thank you.

I can't link my pdf of it in this thread, but what you're looking for can be found on the CFPB's website....under some heading like "regulations" or "compliance". You're looking for the "concurrent" ATR proposal.

Okay. Thank you.

You'll also find it listed and linked in the table at the bottom of the BOL Read a Reg copy of Regulation Z.

2 main parts to this, right? 1) Would move the metric from 1.5 to 3.5 for first liens, insofar as gaining the QM safe harbor (for loans made by small creditors, as that is defined in the proposal) and 2) Would allow those same "small" creditors the ability to make 61-month balloon payments, the same as "rural or underserved" banks can under Sec. 43.

Just wanting to make sure i'm grasping what i need to grasp here.

ETA: One more thing...so if a bank already meets the "rural or underserved" exemption, the main effect of the concurrent proposal, if passed, would be gaining the safe harbor for loans that otherwise would have only had the rebuttable presumption, correct? If the proposal passes, it wouldn't have any effect on how HPMLs are defined in Sec. 35, would it?

Scratch 2). I realize now it doesn't give small creditors the ability to make QM balloons--that's still only for the rural/underserved ones.

My main areas of concern: if the concurrent proposal passes, QM balloons (along with non-balloons originated by "small" banks) with a rate spread of less than 3.5 would get the presumption of compliance, not just a rebuttable presumption? And: A spread of 1.5 would still be an HPML for Sec. 35 purposes, but for Sec. 43 purposes, it would be a QM...correct?

if less than 3.5%, it would have conclusive, rather than rebuttable safe harbor.

Thanks Joker....i understand that part. I didn't word that very well. Basically just trying to confirm that Sec. 43's definition of "higher-priced" doesn't carry over to Sec. 35, but i see nothing that would make it carry over.

The definition of HPML didn't change. All they are attempting is to give more safety to an HPML that is a QM if it's under the higher threshold.

Does that make sense?

Yes. Thanks.