2 minute read | August.19.2020
On August 18, the CFPB released a Notice of Proposed Rulemaking (NPRM) to create a new category of Qualified Mortgages to be called “Seasoned QMs”. The CFPB concluded that if a loan has performed for a long enough period of time and meets certain underwriting conditions and product restrictions, it is warranted to conclusively presume that the creditor’s determination of a consumer’s ability to repay at consummation was reasonable. The new QM category would designate the loan as a safe harbor QM, even if the loan did not meet the criteria of any of the other QM definitions at consummation.
Under the NPRM, a loan originated as a rebuttable presumption QM or as a Non-QM loan will be granted a safe harbor presumption that it complies with the ATR requirements if it (1) meets certain product restrictions and (2) is held in portfolio during the seasoning period and meets specified performance criteria. The product restrictions require that (1) the loan is secured by a first lien; (2) the loan has a fixed rate, with fully amortizing payments and no balloon payment; (3) the loan term does not exceed 30 years; and (4) the total points and fees do not exceed specified limits.
The performance criteria during the seasoning period is that transactions have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of three years. Escrow payments are not considered and creditors could generally accept deficient payments within a payment tolerance of $50 on up to three occasions during the seasoning period without triggering a delinquency for purposes of the proposal. The NPRM also allows for payments to be missed without penalty if related to an accommodation due to disaster or pandemic-related national emergency.
The Bureau proposes that a final Seasoned QM rule would take effect on the same date as a final rule amending the General QM definition, six months after the General QM definition is published in the Federal Register. The new category of QM would apply to covered transactions for which creditors receive an application on or after the effective date of the revised rule, meaning that none of the existing non-QM loans will be eligible to become Seasoned QMs.
If you have any questions regarding Seasoned QMs, please contact an Orrick attorney with whom you have worked in the past.