CFPB Proposes New Category of Qualified Mortgages

On August 18, the CFPB issued a notice of proposed rulemaking (NPRM) to create a new category of seasoned qualified mortgages (Seasoned QMs). A Seasoned QM would be defined by the following characteristics: (1) fixed-rate covered transaction; (2) secured by a first-lien; (3) loan term of no more than 30 years; (4) fully amortizing payments; (5) no balloon payment; (6) total point and fees cannot exceed specified limits; (7) consideration and verification by the creditor at origination of the borrower’s debt-to-income ratio or residual income, with no DTI limit or requirement to use Regulation Z’s Appendix Q to calculate and verify debt and income; and (8) held in the originating creditor’s portfolio during the 36-month seasoning period, during which time the loan can have no more than two 30-day delinquencies and no delinquencies of 60 days or more. However, temporary payment accommodations made for a disaster or pandemic-related national emergency would not disqualify the loan from Seasoned QM status.

This NPRM follows two prior NPRMs issued by the CFPB in June, which propose to amend the General QM definition in Regulation Z to replace the DTI limit with a price-based approach and to extend the Government-Sponsored Enterprise Patch until the effective date of the final rule amending the General QM definition. This Seasoned QM rule would also take effect on that same date. The CFPB is seeking comments on these proposals, especially in regard to possible standards to help the CFPB identify verification safe harbors for inclusion in the final rules, due 30 days after publication of the NPRM in the Federal Register.