CFPB Issues New QM Rules

The Consumer Financial Protection Bureau issued final rules Thursday that revise its definition of “qualified mortgages,” or QM, which could impact a significant number of mortgage originations across the country. The federal government requires lenders to verify that a borrower has the financial means to repay a mortgage before issuing a loan to him or her. The borrower must meet legal standards for QM loans.

The CFPB’s two final rules aim to simplify the definition of “qualified mortgage” and provide alternatives to QM safe harbor status on certain mortgages. The move replaces the QM patch before it expires Jan. 10.

One of the CFPB’s final rules establishes a new general QM standard, adopting a pricing threshold to determine if loans can avoid liability under ability-to-repay requirements. The rule also replaces the current debt-to-income limit of 43% with a limit based on the loan’s pricing. CFPB officials noted that limiting QM status to a specific DTI limit could impair access to “responsible, affordable credit.” The second rule creates a new category called “seasoned” QMs. If a lender holds a loan for at least three years, and the loan meets certain underwriting requirements, it could be eligible for automatic “seasoned QM status.”

The National Association of REALTORS® commented on the CFPB’s replacement for the QM rule “and its onerous 43% debt-to-income requirement while working to balance the best interests of consumers, American real estate, and our nation’s economy,” NAR President Charlie Oppler said in a statement. He joined Immediate Past President Vince Malta on a phone call with CFPB Director Kathy Kraninger last week to express their appreciation for the agency’s efforts and stress the need to continue refining the rule to maximize consumer access and affordability under all economic conditions. “As underwriting remains critical to the American dream of homeownership, NAR believes this final rule must be flexible enough to serve all communities, including individuals with nontraditional income documentation,” Oppler said. “And with the pandemic straining the finances of so many, it’s even more critical for the rule to intentionally consider and address the ongoing impact on housing access and affordability.”

In a separate letter to Kraninger, NAR thanked the director for her service over the last year and asked for further assistance refining the rule. “REALTORS® hope that our concerns raised regarding potentially higher and inconsistent costs for consumers, discrimination, and a weakening of safety and soundness are addressed in final implementation,” the letter reads. We look forward to working with the CFPB to refine this rule to better support consumers and protect the market.”