QM rules under reconsideration

Just as bankers are planning how to proceed with the current General and Seasoned QM rules, the CFPB announces it's thinking about reconsidering one or both of those rules.

CFPB reconsidering QM rules

Here is my summary - please let me know if you have any comments.

The mandatory compliance date for the Revised General QM may be delayed but remains effective March 1. That means that there may be a longer period of time (i.e., March 1, 2021 to some future date) when a lender can either use the existing rules or the new rules.

The new Seasoned QM may be revoked or amended prior to March 1 or there after.

What I have failed to see much discussion on is the new quasi Agency QM requirements that will impact FHA, VA and USDA loans also beginning March 1.

That's how I understand it, Randy.

What concerns me is whether or not we will need to start expecting 11th (or ever 13th) hour changes every time there is an administration change in the CFPB?

It's not too often that the political pendulum swings quite so far as it did in 2017 and 2021. But yes, when there's a change in party, we do seem to get some last minute pushes by the outgoing folks and early attempts to walk them back by the incoming ones. The QM rule "re-think" is going to be a mess. March 1 is so close (and July 1 isn't far away).

And the CFPB isn't helping. I just receive it's email that says:

"In 2020, the CFPB issued new rules to help ensure borrowers can afford the mortgages they take on. To ensure consumers have the options they need, the CFPB will extend the mandatory compliance deadline for the Qualified Mortgage rules until July 1, 2021."

Am I reading this right? They don't mean until July 1, 2021? It will be extended to sometime beyond that date?

That comment is based on the final rule that was previously released and has nothing to do with this reconsideration. That was the mandatory compliance date of the new rules and when the old rules went away. Under that final rule, you could operate under the old rules or the new rules between March 1 and July 1.

The recipe for QMs is getting like chop suey.

What I don't understand is why the CFPB sent that email today - 2/24/21.

Well the answer to that is easy - the right and the left hand have a communications problem.

Thank you. That makes me feel much better!

The only thing clear about this is that lenders should consider a "wait and see" posture on the General and Seasoned QM rules.

From CFPB press release today (edited to just include the most relevant information for planning ahead).

The Consumer Financial Protection Bureau (CFPB) today released a notice of proposed rulemaking (NPRM) to delay the mandatory compliance date of the General Qualified Mortgage (QM) final rule from July 1, 2021 to October 1, 2022. The CFPB is proposing to extend the compliance date to ensure homeowners struggling with the financial impacts of the COVID-19 pandemic have the options they need.

If this NPRM is finalized as proposed, the old, DTI-based General QM definition; the new, price-based General QM definition; and the GSE Patch (unless the GSEs exit conservatorship prior to October 1, 2022) would all remain available as long as the lender received the consumer's application prior to October 1, 2022.

Comments on the NPRM must be received on or before April 5, 2021.

I guess what doesn't sit right with me is that this delay is described as being best for consumers who could lose their homes:

"The CFPB is proposing to extend the compliance date to ensure homeowners struggling with the financial impacts of the COVID-19 pandemic have the options they need.

“At a time when so many consumers are struggling and at risk of losing ground, particularly Black and Hispanic consumers, we need to do all we can to help people stay in their homes and to ensure the availability of responsible, affordable mortgages,” said Bureau Acting Director David Uejio. “In proposing to extend the date by which lenders must comply with the CFPB’s new General QM definition, we are working to provide needed options for both homeowners and lenders during a time of uncertainty and hardship.”"

So this is or is not a good rule or it's only bad right now? Or, is this a chance to change the QM rule to what the new director wants?

The CFPB is just putting a consumer spin on it. All this really does is give a longer transition period to the lenders - which is never really that bad of a plan in my book.

So where are we with the Seasoned QM rule? There was no change, correct? So does this mean that if we make a non-QM under either the old or the new General QM defintion, we can start the clock on the 36 month seasoning period? Do we get to pick and choose which General QM rule we want to follow loan by loan?

Yes and Yes

If they are asking for comments by the April date, when would we expect to know if the extension will be put into place? Just trying to gauge my approach.

It is a foregone conclusion in my mind. It just extends the overlap period.

How does this all play out with the latest from the GSE's and the agreement with the Treasury Dept to only purchase loans underwritten following the new General QM rule as of June 30th when the compliance date may be pushed out until 2022? This is confusing me......

Good questions. The GSEs are feeling their way around here, and have said they will be coming out with more information. And the Bureau is getting a lot of flak about its proposal to delay the QM rules. So we really don't know what will happen.

he latest from the GSE's and the agreement with the Treasury Dept to only purchase loans underwritten following the new General QM rule as of June 30th

Can someone please elaborate on this? I must have missed the announcement/article.

https://www.bankersonline.com/topstory/167575

I also included it in our Compliance Briefing this morning, Dan. The Top Story article has links out to the Fannie/Freddie advisories.

Thank you John. I did miss the 4/8/2021 Freddie bulletin.

The GSE's in essence just gutted the proposed delay by the CFPB it appears.

Exactly!

So, can you re-summarize what the [censored] is going on with the QM rules the CFPB has been spitting out lately? The GSE's seem to be on track to only accept QMs in which the DTIs do not exceed 43% is that correct?

Not sure what you mean. From a QM standpoint, there is no more 43% and Appendix Q.

I found my answer. Thanks.

From today's press release:

Today the Consumer Financial Protection Bureau (CFPB) formally delayed the mandatory compliance date of the General Qualified Mortgage (QM) final rule from July 1, 2021 to October 1, 2022. The CFPB is taking this action to help ensure access to responsible, affordable mortgage credit, and preserve flexibility for consumers affected by the COVID-19 pandemic and its economic effects.

[...]

Delaying the final rule's compliance date would also give lenders more time to use the Government-Sponsored Enterprise (GSE) Patch, which provides QM status to loans that are eligible for sale to Fannie Mae or Freddie Mac. The availability of the GSE Patch after July 1, 2021 may be limited by recent revisions to the Preferred Stock Purchase Agreements entered into by the Department of the Treasury and the Federal Housing Finance Agency.

So what does this mean for Freddie & Fannie only accepting applications after 7/1/21 that follow the new rule?

Fannie & Freddie are affected by agreements created by other parties (not the bureau). So, nothing has changed.

Fannie and Freddie might be allowed to alter their plans, but they are under pressure to move on, so the odds on their changing are unknown. If they don't alter their plans, the GSE Patch may be allowed under the QM rules, but the GSEs won't be buying any GSE Patch loans, making the Bureau's amendment an empty gesture.

That is the way I pretty much read it also.

My head is spinning over the date changes and the conflicting information between what the CFPB says and what Freddie is saying. I'm interpreting it as even though the CFBP says the patch date is now Oct 2022, Freddie is saying they won't buy a loan that exceeds 43% so even though we may get an Accept with a DIR over 43%, if the app date is on or after July 1st they won't buy the loan when we try to sell it. Please correct me if I'm not interpreting this correctly.

That is not correct. The GSE's will require that applications comply with the new general QM rules under 1026.43(e)(2) rather than 1026.43(e)(4) starting with applications after July 1st, which is the current transition rules that CFPB extended.

The new general QM rules under 1026.43(e)(2) eliminates both Appendix Q and the 43% DTI requirement. It is replaced by a general ATR requirement and APOR/APR tests.

So, the extension by the CFPB of (e)(4) is sort of meaningless.

HERE is an interesting article on the QM mess.

Folks, how does this change anything, other than the 1st lien spread, essentially is a QM/HPML loan.

If a bank is a QM bank only with no HPMLs, how do these new rules help small banks with origination services only that sells its loans in the secondary market? Thanks.

I do not understand your question? Selling into the secondary market and being a small bank doing portfolio loans is really two different things.

Let's try this, the new definition of the Gen'l QM seems to mix sections of Reg. Z and somehow you get a type of QM that may also be a
HPML or HPCT and places the burden on the creditor to determine the ATR by cutting out pieces of the ATR rules you must follow. Later you
get a safe harbor for compliance with specified external standards such as following the Selling Guides of the GSE per chapters described.

After all this posturing, the big take away is that the loan pricing is the only real thing that changes. The whole QM rule need a "reset" as the bureau seems to continue to try to put the square peg in a round hole!

Sorry for the rambling, but its simply frustrating to continue to try and unravel this mess of Reg. Z the bureau has managed to twist into knots.

As of July 1st for secondary market loans, you need to comply with the new General QM, which you are correct that it has specific APR/APOR thresholds and eliminates specific compliance with Appendix Q.

Even though the Temporary QM for loans eligible for purchase by the GSEs has been extended, the GSE's are requiring that you comply with the new General QM rules for all applications received July 1st or later. So regardless of what CFPB did with the Temporary QM, the GSE's essentially killed any extension.

The Temporary QM was always going to go away. That was a foregone conclusion from the get go - hence its name.

Thank you, rl. I've been working on this today trying to prepare the mortgage dept. origination for the coming change. Investors are working on
changing all their software in preparation for the new Gen'l QM. Thanks again.

Late to the game here but want to make sure I have this right....

Sold Loans must meet the new General QM rule based on APR to APOR spread (this will be calculated by software and proof kept in the loan file....this spread is not reported anywhere under any regulation)

Retained Loans do not have to meet the General QM rule (we do not have to change any of our practices for non-QM loans)....these loans can now become Seasoned QMs based on those rules...

All loans still must meet ATR requirements (there is no 43% DTI or Appendix Q)

If you are a HMDA reporter, I believe you report the spread (difference between a covered loan's APR and the APOR for a comparable transaction for covered loans and for applications that are approved but not accepted that are covered by Reg Z, except for assumptions, purchased loans and reverse mortgages. (1003.4(a)(12))

Thank you for clarifying that John.... I wasn't sure if those figures were one in the same....

We are HMDA....so we've been doing this all along....lol....I feel so lost sometimes...

So really we don't need to do anything different and now can have our retained loans become seasoned QMs....

Am I oversimplifying this??



















I

I am confused because I thought the calculations were different for the HMDA rate spread and the QM spread...

The commentary on the definition of the APOR in Reg Z comment 35(a)(2)-3 says the APOR has the same meaning in 1026.35 as in Regulation C section 1003.4(a)(12)(ii). So I don't see where there's a difference.

Well, the APOR is the same. The APR may not be the APR on the final CD like for the HMDA rate spread calculation however. If you have an adjustable rate loan that adjusts in five years or less (i.e., a 3/1 or 5/1 ARM), then the APR is based on the maximum interest rate that can apply in the first five years as if it was applied for the life of the loan..

Thanks, Randy, for that explanation. I understand Compliance504's question now.

Yes, Randy....I was looking at Encompass updates and noted that the APR is calculated differently for ARMs....it's called it a DTI-APR....

Also, in the Encompass information it shows a QM APR and a regular APR.....so I assumed that there was a different calculation...

So for HMDA we will use the APR from the CD.....but for determining QM status we will use the Encompass calculation...

Does this really only affect ARM loans?

If I review the HMDA LAR spreads I should be able to identify any that aren't QMs....unless they are ARMs....then I'd have to look for the Encompass QM information....

Also...our consumer loans are non-QM because we set a higher DTI for them...but they will now be QMs if they meet the pricing threshold....correct?

Yes - the different is only on ARMs that adjust in five years or less.

And under the new General QM category, there is only the rate spread threshold and no specific DTI threshold and no Appendix Q. The DTI just has to be reasonable.

Thanks....that helps me a bunch!!!!

I don't know what I would do without BOL!!!

https://home.treasury.gov/system/files/136/Freddie-Mac-Letter-Agreement-20210913.pdf

According to the letter to the GSEs the requirements in Sections 5.12(c), 5.13, 5.14(a) & (b) of the Agreement are the ones being suspended. I haven’t been able to find a copy of the actual agreement (which may not be a public document) so I’m not sure what is in those sections.

Can anyone help clarify what these suspensions may entail and will they have a possible impact on allowing the "Patch" to be reinstated for loans sold to the GSEs until October 2022?

Not sure what impact that has if any. That agreement covers the dividend policy and liquidation of the GSEs and it has been amended at least three times and subject to at least one other letter agreement. The original agreement did not even include those Section numbers and I cannot locate the amended agreement in current form either.

Our President came up with the following;

https://www.fhfa.gov/Conservatorship/Pages/Senior-Preferred-Stock-Purchase-Agreements.aspx

As he said appears to be quite lengthy so it might be best to just wait to see if any guidance is put out by the agencies or banking organizations.

Agreed - if you go through the original agreement, amendments and letter amendments, I still do not see Sections 5. 12(c), 5. 13, 5. 14(a), and 5. 14(b) of the Agreement, so I have no idea what that letter is referring too.

Sold loans aside.....have most of you adopted using the new pricing based General QM rule over the old DTI General QM rule?

Do you think the CFPB is still considering making changes to the new pricing rule?

I'm not sure for retained loans whether or not to move forward with the new price based rules if they are going to change prior to Oct. 2022...

The way I understand the rules are now, we will not be able to determine if any loan is a Seasoned QM until March 1, 2024....and this could still change too.....but there is more time for that one.....

What have most of you been doing?

Reviving this thread, has there been any updates from the bureau on the GSEs?

Need clarification again on the new QM rule: the rule is based on the spread of 2.25% or less to qualify as a QM all things aside. My
question is that based upon this spread, can a mortgage loan still be a QM but also be a HPML (first mortgage loan) as it exceeds the
1.50% APOR. Can someone clarify? Are you counting on the safe harbor to protect the bank and cover the risk?

Thanks.

Can a mortgage loan still be a QM but also be a HPML?

Yes it can. I am not sure what there is to clarify. A QM is determined by 1026.43 and a HPML is determined by 1026.35. They are two separate tests.

I am not sure what this question means within this context: Are you counting on the safe harbor to protect the bank and cover the risk?