December 11, 2020

CFPB finalizes general, seasoned QM definitions

CFPBAs indicated by its fall rulemaking agenda that final rules would be released in December, the CFPB Thursday issued final rules to amend the general definition of a qualified mortgage (QM) and create a new category of seasoned QMs.

The final general QM definition replaces the debt-to-income (DTI) method with a limit on the loan's pricing. The final rule:

  • defines a general QM as a loan with an annual percentage rate (APR) that is no more than 2.25 percent (or 225 basis points) above the average prime offer rate (APOR);
  • maintains the distinction between a safe harbor – now set at 1.5 percent, as was originally proposed – and rebuttable presumption QM – set at 2.25 percent, an increase from the proposal;
  • provides higher thresholds for loans with smaller loan amounts;
  • finalizes an additional higher-pricing threshold for smaller loans secured by a manufactured home. For first-lien covered transactions secured by a manufacture home with loan amounts less than $110,260, the APR cannot exceed APOR by more than 6.5 percent – a win for credit unions that provide loans for manufactured housing;
  • requires lenders to still consider DTI;
  • retains the product-feature restrictions and existing points and fees limitations; and
  • removes Appendix Q as proposed.

In response to the CFPB's proposed general definition of a QM, NAFCU urged the bureau to adopt a definition that would include a modified DTI  threshold and allow for compensating factors. The association also recommended increasing the safe harbor threshold to 200 basis points and increasing the smaller loan pricing threshold for manufactured housing. NAFCU continuously highlighted credit unions' concerns about having to hold non-QM loans on their balance sheets, and the adverse impacts a pricing threshold may have on first-time home buyers and low- and moderate-income borrowers.

Last month, the CFPB issued a final rule extending the government-sponsored enterprise (GSE) patch – for which NAFCU had advocated – until the mandatory compliance date of the new general QM definition, or the GSE's exit from conservatorship. The general definition QM rule is set to take effect 60 days after publishing in the Federal Register, with a mandatory compliance date of July 1, 2021, ending the GSE patch sooner than NAFCU had sought.

The seasoned QM definition rule allows a non-QM to gain QM status after a 36-month seasoning period – as was proposed – and given certain portfolio and performance requirements are met, which were slightly changed in the final rule. The final rule also provides restrictive performance criteria, including no more than two 30-day delinquencies and no 60-day delinquencies, unless a qualifying change occurred.

NAFCU offered its support for the seasoned QM proposal, but urged the CFPB to adopt an alternative pathway to QM with the same legal protections at consummation of the loan. Additionally, NAFCU advocated for an expansion of the performance criteria, as the data revealed very little difference in the delinquency numbers; however, no changes were made in the final rule.

NAFCU will provide member credit unions with a detailed analysis of the final rules' impact in Final Regulation Alerts.