On August 18, 2020, the Consumer Financial Protection Bureau (“CFPB”) released a Notice of Proposed Rulemaking (“NPRM”) that would create a new category of seasoned qualified mortgage loans (“Seasoned QMs”). These loans would only be eligible for QM status after they have closed and proved their performance during servicing for a certain period of time, which would establish the borrower’s ability to repay.
Covered loans would receive a safe harbor under the Ability-to-Pay/Qualified Mortgage Rule. The new Seasoned QM category would be available for loans held in portfolio by lenders that have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of a 36-month seasoning period which begins with the first periodic payment due date. Time spent in a temporary accommodation due to a disaster or pandemic-related national emergency would not disqualify a loan, but that time would not count towards the 36-month seasoning period.
Additionally, to meet required product restrictions, a loan would need to be secured by a first lien, have a fixed-rate with fully amortizing payments and no balloon payment; have a loan term that does not exceed 30 years; and have total points and fees within specified limits.
Creditors would also be required to consider a consumer’s debt-to-income ratio or residual income and consider the consumer’s debt and income at origination. Similar to the Small Creditor QM definition, the proposal does not specify a debt-to-income limit, nor require creditors to use Appendix Q to Regulation Z to calculate and verify debt and income.
The proposal provides that the final rule for this proposal would take effect on the same date as the separate final rule proposed for the General QM definition, which is also available for public comment.
The proposal notes receiving past comments that recommend a mortgage originated as a non-QM or rebuttable presumption QM should be eligible to season into a QM safe harbor loan based on performance during a seasoning period as it would be reasonable to conclude that later default was not caused by a creditor’s failure to determine a consumer’s ability to repay at origination.
Comments on the proposal will be due 30 days after publication in the Federal Register.
DocMagic will continue to provide updates on this proposal and the General QM proposal, as they become available.
