Under the new administration, the CFPB has announced several updates to rules that are yet to be adopted, and the largest one may be the QM General Rule change. How can lenders keep up on the constant delays, updates, etc., while ensuring they remain in compliance?
To a layperson - as many potential customers are - the mortgage loan industry can be a convoluted and risky landscape. What certain loan terms can turn a ‘safe’ loan into a hazardous venture? Can a lender couch its language in a loan application in such a way that borrowers are suddenly expected to pay more than expected once the dotted line is signed? Thankfully, borrowers are protected from these disingenuous tricks thanks to the CFPB’s Qualified Mortgage (QM) Rule. The QM Rule states that mortgages may only earn the ‘QM’ designation if they fit a list of criteria: that the lender has made a good faith effort to prove that the borrower has the ability to pay the mortgage, that the principal cannot increase after payments are made (negative amortization), and that the loan contains no hidden fees or payments, among other criteria.
Whether a loan is eligible as a QM is massively important, as many banks and government sponsored enterprises (GSEs) will generally not purchase non-QM loans, as they are inherently riskier. On the surface, the QM Rule appears to be a fairly cut-and-dry set of regulations for lenders to follow, but the reality is anything but. In December 2020, the CFPB revised the criteria, by making changes to the debt-to-income ratio (DTI), along with other underwriting requirements and point & fee limits. While lenders scrambled to determine how this would affect their qualifying determinations, the CFPB then proposed a ‘patch’ rule to extend the old QM rules to July 1, 2021. After further consideration, the CFPB then announced a ‘delay’ rule, which would further revise the date that lenders were required to adhere to the new QM criteria from July 1, 2021 to October 1, 2022.
This series of proposals have created a stir in the lending industry, as lenders who were poised to comply with the new DTI QM policy are now torn between completing the switch to the new DTI rule or following the CFPB’s proposed delay. In early April of 2021, Fannie Mae and Freddie Mac both released lender letters advising the industry that they would not be observing the CFPB’s delay rule and will not buy QMs under the ‘old’ criteria after July 1, 2021.
In this precarious environment, it is crucial that lenders stay abreast of QM changes and announcements as they happen and monitor what information loan officers are relaying to consumers. Loans that appear to be QMs as they are in process may actually become non-QMs with the onset of changes or delays in criteria. A lender unaware of the contents of their portfolio invites unnecessary and dangerous risk to their bottom line. Although the CFPB’s patches and delays may seem frustrating and hard to follow, an informed and prepared lender can remain in compliance and avoid the pitfalls of unwanted non-QM loans on their books.
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