While Qualified Mortgage (QM) compliance has been in effect since January 2014, most banks took a late-night infomercial, “set-it and forget-it,” approach to compliance. Since the original effective date, your updated underwriting procedures have likely helped to ensure compliance with the QM/ability to repay rules. Until now.
Having an effective date of March 1, 2021, with optional compliance between March 1, 2021 and July 1, 2021, and current mandatory compliance on July 1, 2021, below, we cover the “need to know” changes to QM compliance. Please note: We are expecting a proposed rule which would delay the July 1, 2021 mandatory compliance date.
Compliance and lending staff should review these changes and determine if/how your institutions QM compliance is impacted.
Temporary (GSE) Qualified Mortgage (EXTENDED)
From inception, loans to be sold in the secondary market were considered Qualified Mortgages if underwritten via an acceptable automated underwriting system (AUS). These were referred to as “Temporary QMs” as this subset of QM was set to expire on January 1, 2021. Luckily, we have been issued a reprieve, and this expiration date has been extended to July 1, 2021. A new expected proposed rule would further extend this expiration date.
Standard Qualified Mortgage (REVISED)
Of the various options to comply with QM rules, the Standard QM held the most strenuous underwriting criteria. So much so, it had its own Appendix in the rule to cover these underwriting guidelines needed to meet Standard QM status. This was known as compliance with Appendix Q. The Standard QM qualification criteria have been revised to:
- Omit Appendix Q,
- Cut the 43% Debt-to-Income threshold, and
- Add a new pricing requirement: rate and fees.
Seasoned Qualified Mortgage (NEW)
Lastly, a new type of QM was added to benefit those mortgage loans held in portfolio, the “Seasoned QM.” For a loan to qualify for seasoned QM status, it must:
- Be a 1st lien covered transaction,
- Generally held in portfolio for at least three years,
- Have a fixed rate with fully amortizing payments,
- Be underwritten to the standards of 1026.43(e)(2) (i-v),
- Have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days,
- Not be subject (at consummation) to a commitment to be acquired,
- Not be sold, assigned, or transferred (some exceptions apply), and
- Not be a high-cost mortgage.
A new expected proposed rule is set to revisit these initial Seasoned QM qualification criteria. More changes may be ahead.
How might these changes to QM compliance effect your mortgage operations and underwriting processes?
What changes are needed to loan and compliance policies, as well as, underwriting procedures.
Sentry Advisors, LLC would love to help you navigate the changing QM rules.
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