New QM Rule and Investment Properties

Posted By: CMSIngenue

New QM Rule and Investment Properties - 04/28/22 06:32 PM

The QM Small Entity Compliance Guide stares QM applies to all occupancy types. Yet Reg Z does not apply to investment properties. So does the new QM Pricing rule apply to investment properties?
Posted By: raitchjay

Re: New QM Rule and Investment Properties - 04/28/22 06:35 PM

What do you mean that Reg. Z does not apply to investment properties? The ATR/QM rules apply to ANY consumer purpose loan secured by a dwelling, so long as it isn't otherwise exempt (temp. financing, etc.). "Investment properties" is pretty much a meaningless term when it comes to Reg. Z. An "investment property" can be one that someone who has no other dealings in a real estate related business owns as a consumer investment (for example, a loan to buy out a relative on a family-inherited home). Or an "investment property" can be a loan to purchase a non-owner occupied rent home, which is indeed exempt from the entirety of Reg. Z (including ATR/QM).

Additionally, purpose not collateral drives Reg. Z coverage.....i can pledge my non-owner occupied rent home as collateral for a loan to fund my vacation to Hawaii.....totally covered by Reg. Z and ATR/QM rules. On the flip side, i can pledge my primary residence for a loan to purchase cattle for my ranch.....totally exempt from Reg. Z and ATR/QM rules

"Investment properties" as a phrase has its place i suppose, but it gets dangerous when used as some sort of blanket statement covering any home that isn't a primary residence. The only sort of blanket exemption in Reg. Z when it comes to occupancy of homes is the exemption for loans to acquire, improve, or maintain "non-owner occupied" rent homes. That's it. When people start lumping other things into that in some vague idea of "investment properties" and what is and isn't exempt...problems can follow.
Posted By: raitchjay

Re: New QM Rule and Investment Properties - 04/28/22 06:49 PM

Here's the citation, to be more technically correct (so HELOCs and timeshare plans are also exempt):

(a) Scope. This section applies to any consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than:

(1) A home equity line of credit subject to § 1026.40;

(2) A mortgage transaction secured by a consumer's interest in a timeshare plan, as defined in 11 U.S.C. 101(53(D)); or

(and (3) goes on to list other exemptions, like the temporary financing one i mentioned above....but i didn't want to copy and paste all of that, because i don't think it's particularly relevant to what you're asking. The main point is.....nowhere does it give any exemption for "investment properties".)