The U.S. Department of Housing and Urban Development (HUD) on Wednesday released its final rule defining a ‘qualified mortgage’ (QM) that is insured, guaranteed or administered by HUD.
As was expected, HUD's final rule aligns with the Consumer Financial Protection Bureau's (CFPB) new ability-to-repay/QM rules. Both go into effect Jan. 10, 2014.
As per a press release, in order to meet HUD's QM definition, mortgage loans must:
- Require periodic payments without risky features;
- Have terms not to exceed 30 years;
- Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans and others as detailed below); and
- Be insured or guaranteed by the Federal Housing Administration (FHA) or HUD.
Just as with the CFPB's new rules, HUD's rule defines a QM loan as either a rebuttable presumption qualified mortgage or a safe harbor qualified mortgage, depending on the relation of the loan's annual percentage rate (APR) to the average prime offer rate (APOR).
As per HUD's rule, a rebuttable presumption qualified mortgage will have an APR greater than APOR + 115 basis points + on-going mortgage insurance premium rate.
Legally, lenders that offer these loans are presumed to have determined that the borrower met the ability-to-repay standard. Consumers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses.
Safe harbor qualified mortgages will be loans with APRs equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the ability-to-repay standard, HUD's release states. However, consumers still have the right to legally challenge their lender if they believe the loan does not meet the definitions of a safe harbor qualified mortgage.
Also as with the CFPB's rules, HUD's rule designates Title II manufactured housing, Title I manufactured housing and property improvement loans, as well as Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages, as safe harbor qualified mortgages, regardless of upfront points/fees and APR to APOR ratio. This so as to not interfere with current lending practices until appropriate parameters can be determined.
HUD also is accepting the CFPB's list of transactions that are currently exempt from the ability-to-repay rule. Those include reverse mortgages, bridge loans of 12 months or less, construction-to-permanent loans for 12 months or less for a construction phase and credit extensions from the Housing Finance Agency, the Community Development Financial Institutions and credit tied to parts of the Emergency Economic Stabilization Act of 2008, among others.