Compliance Blog

I hope y’all had a very Mele Kalikimaka weekend! To round out the holiday season, this blog will discuss the Seasoned QM portion of the two final CFPB rules amending the ability to repay and qualified mortgage (ATR/QM) requirements. Our other blog, CFPB Amends Qualified Mortgage Rule, Part I: Shift from the Debt-to-Income Ratio, discusses the general QM final rule change which shifts the ATR determination from a DTI calculation to a price-based determination .

The bureau found that many loans are made to creditworthy members that do not fall within the existing QM loan definitions at consummation, so the bureau’s final rule created a new category of qualified mortgages, seasoned QMs, to “encourage safe and responsible innovation in the mortgage origination market.” If a loan meets the seasoned QM product restrictions, points-and-fees limits, underwriting requirements, and performance and portfolio requirements during the seasoning period, the loan is considered to meet the ATR standard.

Product Restrictions

For a transaction to be eligible to become a seasoned QM, the rule sets out specific product restrictions. These restrictions are:

1. The loan is secured by a first lien

2. The loan has a fixed-rate

3. The loan terms does not exceed 30 years

4. The loan is not a high-cost mortgage under 1026.32(a)

Subordinate-liens, ARM loans, and loans with balloon payments or negative amortization are not eligible to become a seasoned QM.

Points-and-Fees Limit

Seasoned QMs have the same restrictions on points and fees that exist under the general QM rule, the total points and fees may not exceed 3 percent of the loan amount.

Underwriting Requirements

For a loan to be eligible to become a seasoned QM, a credit union must comply with the consider and verify requirements established for general QMs. The credit union must consider the member’s income, assets, debt obligations, alimony, child support, and monthly DTI ratio or residual income in its ability-to-repay determination. The credit union must also verify the income or assets of the member in a manner that complies with the verification standards for general QMs.

Portfolio Requirements

The seasoned QM rule requires a loan to satisfy two portfolio requirements: the loan must not have been subject to a commitment to be acquired by another party at consummation and the loan must be held in the credit unions portfolio until the end of the seasoning period.

However, the Bureau adopted three exceptions to the second requirement:

1. The loan may transfer ownership due to certain supervisory sales,

2. The loan may transfer ownership due to mergers or acquisitions, and

3. The loan “may be sold, assigned, or otherwise transferred once before the end of the seasoning period, so long as the covered transaction is not securitized as part of the sale, assignment, or transfer.”

Performance Requirements

If a loan has met all of the above requirements, a loan may become a Seasoned QM after 36 months, if the loan has no more than two 30-day delinquencies and no 60 or more days delinquencies. The seasoning period of 36 months does not include any period during which the member is in a temporary payment accommodation. These requirements align with the GSEs’ representation and warranty relief and mortgage insurers’ master policies.

Qualifying Change

The final rule also addresses the eligibility of a loan to become a Seasoned QMs when there has been a “qualifying change.” The rule defines a qualifying change as an “agreement entered into during or after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency that ends any preexisting delinquency and meets certain other conditions to ensure the loan remains affordable.” The rule clarifies that a loan’s eligibility for seasoned QM is not affected when a qualifying change restructures a loan to include a balloon payment or lengthened term. Also, the rule notes that if a member is in a temporary payment accommodation, the seasoning period can only resume after the loan has undergone a qualifying change, or the consumer cured the delinquency under the loan’s original terms.