CFPB proposes 'Seasoned QM' category

The CFPB on Tuesday proposed to create a new category of seasoned qualified mortgages (Seasoned QMs) in order to encourage innovation and help ensure access to responsible, affordable financing in the mortgage credit market.

Under the Bureau's proposed rule, Seasoned QMs would have to be first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period. Covered transactions would also have to be held in the creditor’s portfolio during the seasoning period, comply with general restrictions on product features (a fixed rate and full amortization in 30 years or less) and points and fees and meet certain underwriting requirements. For a loan to be eligible to become a Seasoned QM, the proposal would also require that the creditor consider and verify the consumer’s debt-to-income ratio (DTI) or residual income at origination.

Seasoned QM status would only be available for covered transactions that have no more than two 30-day delinquencies and no delinquencies of 60 or more days at the end of the seasoning period. However, should there be a disaster or pandemic-related national emergency and as long as certain conditions are met, the proposal would not disqualify a loan from becoming a Seasoned QM for the failure to make full contractual payments if the consumer receives a temporary payment accommodation.

This is the third CFPB-proposed rulemaking regarding qualified mortgages since June. The first proposal would amend the general QM definition in Regulation Z to replace the DTI limit with a price-based approach. CFPB Director Kraninger has emphasized the importance of receiving public comment from stakeholders in response to that proposal, especially on possible standards to help the Bureau identify verification safe harbors for inclusion in final rules. The second proposal would amend Regulation Z to extend a temporary QM definition known as the GSE Patch to expire upon the effective date of the final rule proposed in the first NPRM.

Comments on the proposal announced Tuesday will be accepted for 30 days following Federal Register publication.

PUBLICATION UPDATE: Scheduled for publication in the on 8/28/2020, with comments due by 9/28/2020.
COMMENT PERIOD EXTENDED: On 9/21/2020, the CFPB announced it would extend the comment period by three days to 10/1/2020, to accommodate the Yom Kippur Jewish holiday.