HUD releases final qualified mortgage rule
Dec. 13, 2013 – The Department of Housing and Urban Development released its final qualified mortgage rule on Wednesday, which aligns with the ability-to-repay criteria in the Truth-in-Lending Act.
The rule goes into effect Jan. 10 and builds off CFPB’s qualified mortgage rule.
HUD’s qualified mortgage rule entails:
- periodic payments without risky features;
- terms not to exceed 30 years;
- upfront points and fees to no more than 3 percent with adjustments to facilitate smaller loans; and
- the loan be insured or guaranteed by FHA or HUD.
HUD’s rule has two types of qualified mortgages, both which offer various protective elements for consumers and legal consequences for lenders. One, HUD classifies as a rebuttable presumption qualified mortgages and the other a safe harbor qualified mortgage. The differences, HUD defines in its press statement, have to do with the relationships between the loan’s annual percentage rate and the average prime offer rate – the rate for an average borrower receiving a conventional mortgage.
“The final rule aims to ensure the continuity of access to mortgage financing to creditworthy, yet underserved borrowers while further strengthening protections for FHA borrowers and taxpayers, alike,” HUD wrote in its statement.