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A legal safe harbor designed to protect lenders that make "qualified mortgage" loans from consumer lawsuits is likely to expose institutions to potentially even greater liability, according to several banking experts.
September 5 -
The qualified mortgage rule issued by the Consumer Financial Protection Bureau could be disruptive to the FHA single-family program, so the Department of Housing and Urban Development is starting the process of issuing its own QM rule.
March 1
The Department of Housing and Urban Development on Monday issued its own proposed rule defining what constitutes a "qualified mortgage," that has two exceptions to the existing QM rule finalized earlier this year by the Consumer Financial Protection Bureau.
To receive QM status, a loan must require periodic payments, have terms that do not exceed 30 years, and limit upfront points and fees to no more than 3%. Those requirements are "consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac," HUD said in a press release.
HUD oversees the Federal Housing Administration. Because the FHA serves low-income and first-time homebuyers, HUD will not require that borrowers have a debt-to-income ratio of 43% or less, which is a requirement of the CFPB's QM rule. HUD already requires that lenders assess a borrower's ability to repay their mortgage, and borrowers with DTI ratios above 43% must be manually underwritten to qualify for FHA insurance.
Like the CFPB, HUD has established two different categories, a safe harbor and a rebuttable presumption, offering different protections for consumers and legal consequences for lenders.
A safe harbor will be given for loans with annual percentage rates equal to or less than the average prime offer rate plus 1.15 percentage points and ongoing mortgage insurance premiums.
FHA lenders had been concerned that recent increases to FHA's premiums and upfront fees would put a majority of loans over the 3% point-and-fee cap. On a standard FHA loan, new borrowers pay a 135-basis point annual premium and a 175-basis point upfront fee.
That brings the limit to 2.5 percentage points for FHA loans, so the majority of FHA loans are expected to qualify for a safe harbor. The final CFPB's rule for safe harbor QM loans is 1.5 percentage points.
A rebuttable presumption will have an APR greater than the average prime offer rate plus 1.15 percentage points and on-going mortgage insurance premiums.
HUD is seeking comment on the proposed rule by Oct. 30.
