It's my understanding that GSE loans fall under the Temporary QMs. But I don’t quite understand what qualifies as a GSE. Do the loans have to be sold/guaranteed by the GSE such as FNMA and HUD/GNMA or do we just have to have GSE underwriting standards in place? The issue is, for a QM the DTI must be no more than 43%, and if loans not sold to FNMA are not GSEs, then they may not be QMs if the DTI is greater than 43%. Same thing for FHA loans not sold to GNMA. Can anyone clarify this?

The loans have to be ELIGIBLE to be sold to the GFE in question, which means following all the underwriting guidelines of that GFE. You don't have to actually sell the loan, but if you run it through DU or FHA's underwriting platform and you get an "approve", then you have a QM under the Transitional rule: 1026.43(e)(4)

This is from the CFPB Guide:

Loans falling under the Temporary QM definition must meet the same requirements as General QM loans regarding prohibitions on risky features (negative-amortization, interest-only, and balloon-payment features), a maximum loan term of 30 years, and points-and-fees restrictions.
They must also meet at least one of these additional requirements:
 Eligible for purchase or guarantee by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) while operating under federal conservatorship or receivership
 Eligible for Federal Housing Administration (FHA) insurance Implementation Tip: When appendix Q does not resolve how a specific type of debt or income should be treated, creditors may rely on guidelines of the GSEs or certain federal agencies (listed below under “Temporary QM definition”) to resolve the issue. However, a creditor may not rely on GSE or agency guidelines where such guidelines are in conflict with appendix Q standards.
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 Eligible to be guaranteed by the U.S. Department of Veterans Affairs (VA)
 Eligible to be guaranteed by the U.S. Department of Agriculture (USDA)
 Eligible to be insured by the Rural Housing Service
Eligibility for purchase or guarantee by a GSE or insurance or guarantee by an agency can be established based on the following methods:
 Valid recommendation from a GSE Automated Underwriting System (AUS) or an AUS that relies on an agency underwriting tool
 GSE or agency guidelines contained in official manuals
 Written agreements between a GSE or agency and the creditor (or a direct sponsor or aggregator of the creditor)
 Individual loan waivers from a GSE or agency
To meet the Temporary QM definition, loans must be underwritten using the required guidelines of the entities above, including any relevant DTI guidelines. They do not have to meet the 43 percent debt-to-income ratio threshold that applies to General QM loans.
The creditor does not have to satisfy GSE or agency standards which are wholly unrelated to the credit risk or underwriting of the loan or any standards which apply after the consummation of the loan.

Hope this helps.

Do not mix up the different QM categories. The 43% DTI applies to QMs qualified under (e)(2). If the QM is eligible (not necessarily sold but eligible) under fannie, freddie, etc. rules and meets their DTI standard (which it would by being eligible) it is a QM under (e)(4), the transition rules.

Thank You.

If we have a loan that is eligible to be sold and we decide to keep it in-house (and follow the required guidelines, etc., etc.) do we have to keep it as a FIXED product for 30 years? Can we have a loan that is GSE eligible and keep it in-house as an ARM?

I don't understand your question. You mean if you qualify the borrower for the fixed rate loan under the GSE guidelines and then make them an ARM???

Yes. As I understand it, if we are seeking a fixed rate loan for a customer and submit to a GSE and it is eligle for purchase then it is a temporary QM. Normally, we would follow through with the sale BUT if something should make us decide to hold it in-house do we have to stick with a 30 year fixed rate loan or can we do an adjustable rate mortgage?

The underwriting and disclosure requirements are different for ARMs than those for fixed rate loans. You can't underwrite/disclose the file as a fixed rate loan but then close it as an ARM.

Understand. Thank you both!

I am not a Board Guru but have some guidance.

Agree with prior respondents that obviously you have to disclose and have different payment calculations.

If you switch to an GSE Agency ARM and rerun it through the AUS and receive the appropriate eligible response, document to the AUS results, you should be okay. This helps with DTI ratios greater than 43%.

If you do not have a GSE ARM, and do not use the AUS submission, you will need to underwrite to Appendix Q, and be subject to the 43% DTI cap.

Just my opinion.

The temporary QM status only extends to the AUS approval/accept of the loan properties submitted. So if you submit a fixed rate loan in DU/LP and receive an eligible response, it is only good for a fixed rate loan. IMHO, the eligibility would not transfer to a ARM loan, unless re-submitted as an ARM product.

I have another question relating to this. If a loan is approve/eligible but because of an high LLPA it fails the points and fees test, would it qualify as a temporary QM based on the approve/eligible?

If it fails the 3% points and fees test it is not a QM. Be careful not to treat the AUS approve/eligible as a QM validation. The temporary agency exception only relates to the DTI. If you get an approve/eligible response from your AUS and do not meet the other QM requirements and the loan is called for review, you could face a repurchase.