As previously announced here, the CFPB recently published a revised General Qualified Mortgage (“QM”) definition. The new definition is effective 60 days from the date it is published in the Federal Register, which was done on December 29, 2020. Accordingly, the new definition is effective March 1, 2021, although mandatory compliance is not required until July 1, 2021.
Note: President Biden’s Chief of Staff issued a memorandum to “freeze” certain new rules until a review is completed by the new administration. However, as discussed here, it was unclear if there would be any impact on effectiveness of the new definition, and no particular action has been taken to suspend the effectiveness of the new general QM definition to date.
New General QM Audit
DocMagic is adding a new audit to reflect the change in the revised General QM definition. Since the revision to the definition is to replace the prior Debt-to-Income based rule with a new “price-based limit”, the new audit will eventually replace the existing QM audits that check the borrower’s Debt-to-Income Ratio (above or below 43%). No additional data points are required for the new priced-based audit.
Beginning in March, users will begin receiving the new price-based audit in addition to the existing Debt-to-Income audit. The Debt-to-Income audit will be phased out after July 1, 2021, the mandatory compliance date for the new definition.
The New Audit will include a check based on the following limits:
|
Loan Amount |
Price Limitation |
||
|
First-Lien Non-MH |
First-Lien MH |
Subordinate Lien |
|
|
Greater than $110,260 |
2.25% + APOR |
2.25% + APOR |
3.5% + APOR |
|
Less than $110,260 but greater than or equal to $66,156 |
3.5% + APOR |
6.5% + APOR |
|
|
Less than $66,156 |
6.5% + APOR |
6.5% + APOR |
|
The audit will return a message of: “Qualified Mortgage: Loan’s APR of [x.xxx%] [Exceeds/Does Not Exceed] the Threshold APOR of [x.xxx%].”
APR Used in Determination
For fixed-rate loans, the loan’s actual APR will be used in the comparison for the audit as described above.
For variable-rate loans, the APR used in the audit may be either the loan’s actual APR or an APR calculated based on the worst-case rate achieved in the first five years. If the rate may change in the loan’s first five years, the APR will be recalculated using the highest rate achieved in that five years. The final rule describes this as, “the creditor must determine the APR for a loan for which the interest rate may or will change within the first five years after the date on which the first regular periodic payment will be due by treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan.” For all other variable-rate loans, the loan’s actual APR will be used in the comparison.
Average Prime Offer Rate
The Average Prime Offer Rate used in the comparison is the rate for a comparable term as of the date the interest rate is set. DocMagic will continue to rely on the “Rate Determination Date” as the primary indicator of when the interest rate is set. If the Rate Determination Date is not available, DocMagic will rely on the Rate Lock Date, or the Application Date.
For a fixed rate loan, the rate for a comparable term will be the average prime offer rate for the same term as that of the loan. For a variable-rate loan, the comparable term will be for the term of the initial fixed-period, e.g., for a 5/1 ARM the comparable rate is for a term of 5 years.
Applicability
The new audit will apply to all loans indicating a QM Type: General. As of July 1, the QM Type: TemporaryAgency/GSE will no longer be valid, and any new loan using such type will automatically be considered as QM Type: General.
***UPDATE***
February 23, 2021: The CFPB released a statement regarding the General QM Final Rule and Seasoned QM Final Rule mandatory compliance dates.
The General QM Final Rule and the Seasoned QM Final rule are both effective on March 1, 2021, with the General QM Final Rule having a mandatory compliance date of July 1, 2021. The CFPB statement confirms that a proposed rule will likely be issued to delay the mandatory compliance date for the General QM Final Rule. This will extend the time that a creditor is allowed to follow either the current General QM loan definition or the new General QM loan definition. DocMagic will provide additional notification if and when such a rule is published.
The statement indicates that the CFPB is considering what changes, if any, to make regarding the new Seasoned QM Final Rule and how that would affect applications received after the March 1, 2021 effective date.
The CFPB also updated the small entity compliance guide to include references to the GSE Patch Extension Final Rule, the General QM Final Rule and the Seasoned QM Final Rule. This includes sections outlining the new price-based General QM definition, and creditor requirements regarding ability-to-repay determinations.
April 27, 2021: The CFPB announced that the mandatory effective date for the General QM Final Rule has been extended to October 01, 2022.
