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CFPB Releases Summary of Final ‘Qualified Mortgage' Standard

Posted on 1/10/2013

The Consumer Financial Protection Bureau (CFPB) is scheduled later today to issue the final ability-to-repay rule, along with its "qualified mortgage" (QM) standard and related safe harbor provisions. In advance of that release, this morning the Bureau issued a fact sheet and summary of the final rule, showing the QM definition will be broad enough to encompass almost all current types of mortgages.

Loans that will not be considered qualified mortgages under the rule are those with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years, or so-called "no-doc" loans.

The summary explains that qualified mortgages generally will include those to people with debt-to-income ratios less than or equal to 43 percent. For a temporary period loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards - such as those that are eligible for purchase by Fannie Mae or Freddie Mac - will be considered QMs.

The final rule also will implement a Dodd-Frank Act provision that treats certain balloon-payment loans as qualified mortgages if they are originated and held in portfolio by small banks in predominantly rural or underserved areas.

The summary also notes that safe harbor legal protections would be given to lower-priced qualified mortgages, which are typically made to borrowers who pose fewer risks. Higher-priced qualified mortgages would be treated with a different legal standard - a rebuttable presumption.

The ability-to-repay final rule will take effect in January 2014.

To view the fact sheet visit: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf

To read the rule summary visit: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf



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