The Consumer Finance Protection Bureau has created a Qualified Mortgage Rule (QM) which goes hand-in-hand with Ability-to-Repay rules (ATR).
In a nutshell, here’s a simplified explanation of what QM is all about and how it will affect you and your borrowers when applying for a mortgage loan starting January 10, 2014.
The Mandatory Product Features for all Qualified Mortgages (QMs) are as follows:
- Points and fees are not supposed to exceed 3% of the loan amount based on the following:
- The 3% limit is for loans that are $100,000 or higher
- $3,000 for a loan amount between $60,000 and $99,999
- 5 percent of the total loan amount between $20,000 and $59,999
- $1,000 for a loan amount between $12,500 and $19,999
- 8 percent of the total loan amount for loans less than $12,500
- No risky features are allowed, such as negative amortization, interest-only, or balloon loans
- Maximum loan term must be 30 years or less.
The three main categories of a QM loan are as follows:
- General Definition of QM Loans – any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less
- Types of QM loans – FHA, VA, Conventional (Fannie & Freddie) and USDA
- Small Creditor Category of QM loans – If a mortgage company, small community bank or credit union that has less than $2 billion in assets originates 500 or fewer first mortgages per year AND holds the loan in their portfolio, the 43% does not apply, but they must still verify the borrower’s ability to repay the loan.
What does this mean to you and your clients?
- Underwriting will be more strict
- More documentation will be required
- Pre-approvals become MORE important than ever before
- Re-verification of income, credit and assets will be required before closing
Some lenders will be offering Non-Qualifying Mortgage loans, but you can be assured that the lender will make sure that all Ability-To-Repay requirements are met. An example of a Non-QM loan would be a Jumbo Mortgage with Interest Only payments.
What would you like to know about Qualified Mortgages or the Ability-to-Repay rules?