The Qualified Mortgage, or QM as it is known, is likely to shape the future of housing finance for years to come. The QM comes from the "ability to repay" anti-predatory lending provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The QM is a loan that on its face would meet the ability to repay standards and have certain features associated with "safe" lending. Thus the QM rule is designed to protect consumers from risky loans whereas its sister rule, the Qualified Residential Mortgage (QRM) is a rule designed to protect investors in mortgage backed securities (MBS) by setting standards and requiring financial risk is retained by issuers of MBS.The original QM rule proposal was issued by the Federal Reserve in the summer of 2011. However, responsibility for the rule transferred to the Consumer Financial Protection Bureau (CFPB) whose final rule was issued in January of 2013 and became effective in January of 2014.
Regulatory Contact(s):Ken Fears
What is the fundamental issue?
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, no creditor may make a mortgage loan without making a reasonable and good faith determination that the borrower has the "ability to repay" (ATR). The principal way lenders are expected to comply with this standard is by making a "Qualified Mortgage" or QM as it has become known. The rule implementing the statute went in to effect on January 2014. The QM rule includes the Ability to Repay (ATR) elements and a few other items deemed to make the loan "safer" for consumers and is designed to capture most of the loans made in recent years. Nevertheless, concerns remain regarding the treatment of some lenders and also some of the standards in the rule itself.
I am a real estate professional. What does this mean for my business?
If the QM rule tightens credit further, it will negatively affect the ability of borrowers to access affordable mortgage credit. It will also affect consumers’ ability to choose which lender they want as some lenders are treated differently than others under the rules 3% cap on fees and points. Lenders who are affiliated with real estate, title, and insurance companies have to count more towards the cap than lenders who are not affiliated.
NAR supports a definition of QM and fees and points that promotes mortgage liquidity and availability. The QM should be broad based and cover a wide range of traditionally safe products and reliable underwriting criteria and should not discriminate against lenders with affiliates. NAR supports adjustments to the QM rule should its implementation result in significantly reduced access to credit or increased costs to consumers.
A definition of QM that only includes fees and points charged directly to the consumer will promote liquidity and consumer choice. Also, CFPB should be flexible and make adjustments to such things as 43% DTI cap if it is shown that access to credit has been reduced or has become unduly costly.
The final rule to implement the ability-to-repay requirements was published by the Consumer Financial Protection Bureau (CFPB) in January 2013. The final rule went into effect in January 2014. NAR issued comments and advocated for significant changes in the definition of fees and points to ensure consumer access and greater choice amongst mortgage providers. NAR is also seeking legislative changes to reduce discrimination against affiliates.
Conventional Financing and Policy Committee