The U.S. Department of Housing and Urban Development (HUD) today proposed a rule to define a “Qualified Mortgage” (QM) insured, guaranteed or administered by HUD.
The Consumer Financial Protection Bureau (CFPB) created an expected QM rule earlier this year, but HUD announced its own version of the QM rule today as it applies to single-family forward mortgages insured by the Federal Housing Administration (FHA).
The rule is proposed for now. HUD’s complete proposed rule is available online. HUD will accept public comment about the proposal until Oct. 30, 2013.
The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) that goes along with HUD’s mission to promote affordable mortgage financing options for qualified lower-income borrowers.
HUD’s proposed definition builds off of the existing QM rule finalized by the CFPB earlier this year.
In order to meet HUD’s QM definition, mortgage loans must:
• Require periodic payments
• 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, Section 184 and Section 184A loans)
• Be insured or guaranteed by FHA or HUD
HUD says a new limit on upfront points and fees for all Title II FHA-insured single-family mortgages is consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac.
Two categories of FHA QMs
The relation of the Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR) determines the proposed QM category. The two categories of Qualified Mortgages are:
• A Rebuttable Presumption Qualified Mortgage will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP). It’s legally assumed that lenders offering these loans have determined that a borrower met the Ability-to-Repay standard. Consumers can challenge that presumption, however, by proving that they did not.
• Safe Harbor Qualified Mortgages will be loans with APRs equal to or less than APOR + 115bps + on-going MIP. To a lender, these mortgages offer the greatest legal certainty that they’re complying with the Ability-to-Repay standard. However, consumers can still legally challenge their lender if they believe the loan does not meet the definition of a Safe Harbor Qualified Mortgage.
HUD proposes that Title I insured mortgages (manufactured housing and home improvement loans), Section 184 mortgages (Indian Home Loan Guarantee Program), and Section 184A mortgages (Native Hawaiian Housing Loan Guarantee Program) be covered by the Safe Harbor QM rule.
© 2013 Florida Realtors®
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