QM Rules Take Broad Approach

The Consumer Financial Protection Bureau (CFPB) released its long-awaited qualified mortgage (QM) rule and while NAR has some concerns, on the whole the rule is expected to help bring certainty to the market by providing clear mortgage standards.

The QM rule takes effect in one year and takes a broad approach to defining a qualified mortgage, which is a mortgage that’s been underwritten in such a way that the borrower has a reasonable expectation of paying it back. The rule is part of the sweeping Wall Street reform law enacted about three years ago to help prevent the kind of lending excesses that led to the mortgage crisis several years ago.

In general, a loan is considered qualifying if the borrower’s total debt to income (all debt against gross income) doesn’t exceed 43 percent and meets other criteria. If the loan meets these standards and the borrower defaults, the borrower faces a steep legal hurdle to sue because the standards give the lender a legal safe harbor against lawsuits. NAR supports that. If the loan meets all QM criteria with the exception of the 43 percent debt-to-income limit, a defaulting borrower that wants to sue faces an easier road, because the lender has to meet a less clear-cut legal standard, called a rebuttable presumption.

One matter on which NAR will be seeking more clarification is a 3 percent cap on fees and points to lenders. More about how this cap will be implemented is needed because it could make it difficult for real estate brokerages with mortgage affiliates, independent mortgage bankers, and mortgage brokers to serve all of their clients’ needs. NAR is prepared to seek a regulatory solution as well as work with members of Congress to seek a legislative solution if the limit remains a problem after CFPB provides clarification. For more info contact Ken Trepeta, 202/383-1294. Click here to access a summary.