So, 'most' portfolio loans in a 'small' bank will just automatically be a QM? How does THAT work?

 "Provides qualified mortgage designation for most mortgages held in portfolio for banks with less than $10 billion in assets"

Only the CFPB will make that determination when they issue the revised regulations. There is no mandatory effective date in that section of the bill. (cc) is the three percent fee limitation.

“(ii) SAFE HARBOR.—In this section—

“(I) the term ‘qualified mortgage’ includes any residential mortgage loan—

“(aa) that is originated and retained in portfolio by a covered institution;

“(bb) that is in compliance with the limitations with respect to prepayment penalties described in subsections (c)(1) and (c)(3);

“(cc) that is in compliance with the requirements of clause (vii) of subparagraph (A);

“(dd) that does not have negative amortization or interest-only features; and

“(ee) for which the covered institution considers and documents the debt, income, and financial resources of the consumer in accordance with clause (iv); and

“(II) a residential mortgage loan described in subclause (I) shall be deemed to meet the requirements of subsection (a).

I work for a non-depository financial institution. Would the QM/ATR/Escrows $10 billion asset limits apply to us as well, in your opinion?

Probably not, especially, as I am assuming you would not be holding loans in a portfolio. If you sell everything on the secondary market, then this doesn't have to do with you.

We do hold all of our loans in our portfolio.

the term ‘covered institution’ means an insured depository institution or an insured credit union that, together with its affiliates, has less than $10,000,000,000 in total consolidated assets;

thanks. I thought so but wondered if I had missed something.

For curiosity sake - how do you hold loans in a portfolio if you don't have any deposits? What funds do you use to make the loans and then be able to hold them for long periods of time?

They get the money from investors or they borrow money.

Back to the Safe Harbor section.....under (ee) below, "accordance with clause (iv)" points to Appendix Q and not having to comply with the exact requirements. It's unclear. Hope the regulations are specific.

“(ee) for which the covered institution considers and documents the debt, income, and financial resources of the consumer in accordance with clause (iv); and

I can understand that for the funding the loans part, but such borrowings are usually paid back by selling the loan. Same thing with an investor providing the funds. They would usually want to be paid back quickly. I haven't heard of a set up where they would just be content with getting paid back over a potentially 30-yer mortgage term.

Not exactly sure of the question...but just want to make sure that if you qualify for this "relief", you know you STILL have to follow the ATR standards according to your loan's terms (see 1026.43(c)).
You still have to CONSIDER AND DOCUMENT DEBT, INCOME, AND FINANCIAL RESOURCES of the consumer...you just don't have to follow strict Appendix Q and strict DTI, etc.
1026.43(c)(2) lists the items you still have to consider (income/assets, employment status if employment income is used, monthly payment CALCULATED IN ACCORDANCE WITH (c)(5), monthly payment on any simultaneous loan, monthly payment for mortgage-related obligations, current debt obligations, DTI ratio (although you're not limited to a 43% DTI...you STILL have to calculate the DTI and apply it to your bank's underwriting standards), consumer's credit history.
You still have to verify using 3rd party records (1026.43(c)(3)), etc.
All of this you still have to CONSIDER and DOCUMENT.
So you/we still have a LOT of work to do, in my opinion. ATR determination is a lot of work.

The ABA's webinar yesterday (recording available at ABA's site) discussed how this "relief" gives a break from a specific Appendix Q requirements like its DTI ratio of 43%, its strictness in stability of customer's income, etc.


Also here is a link to the thread I posted a little while back (before it was signed into law) - with my thoughts on it and the similarities to the Small Creditor Portfolio QM that we (our bank, and many other smaller banks) already have in place:
https://www.bankersonline.com/forum/ubbt...nks#Post2166978

Sounds to me like nothing changed other than increasing the asset size to meet this designation from < $2B to <$10B. Which is substantial, really...but not affecting the small community banks in any significant way I wouldn't think.

I agree RR Joker. As a small creditor we aren't seeing any real change as far as QM. We already get to make balloons, we don't have to escrow, we don't have to follow whatever the appendix is that specifies ATR requirements......Maybe I'm missing something!

FWIW, we loosely follow Appdx Q and have a strict DTI that is very close to the regulatory limit.

I know for us as a $550 million lender, there have been a number of loans that we've done as non-QM loans that this will help reduce our risk exposure on and make management breathe a little easier when making those calls.

I'm curious as to what type of documentation those that qualify for the under $10 billion portfolio QM classification are requiring for self-employed applicants? Still requiring third-party prepared year-to-date P&L statement and balance sheet? Thank you.

I think it would depend on the borrower and how well we do [or don't] know their operation. But I can imagine it loosening, and it doesn't give me warm fuzzies really. I put little stock in what 'daddy' says 'junior' makes around here.

You will still have to meet the standard ATR requirements - regardless of how well you "know them".

I don't see what I said as deviating from that really. You have underwriting guidelines. Small, rural banks, often don't have very descriptive or hard/fast guidelines. I really don't see a bank typically requiring 3rd party tax docs on small business ops. It's cost prohibitive to the borrower and most rural bank's don't like to make their customers go to extraordinary expenses to obtain a loan if they feel other documentation is reliable/acceptable.

And from my standpoint, I don't always 'like' it and don't have to like it. That doesn't, however, mean I can change it.

Right now, we use Appdx Q as a guideline and adhere pretty darn closely to it....I won't have that leg to stand on pretty soon and I can imagine they will want to deviate from it's standards.

"I agree RR Joker. As a small creditor we aren't seeing any real change as far as QM. We already get to make balloons, we don't have to escrow, we don't have to follow whatever the appendix is that specifies ATR requirements......Maybe I'm missing something!"

How does this mesh with the flood requirements to escrow flood for institutions with assets >$1MM?