At the beginning of this year, the Consumer Financial Protection Bureau issued a long-awaited “qualified mortgage” rule that required lenders in the broad single-family mortgage market to ensure borrowers had the ability to repay their loans. Today, the U.S. Department of Housing and Urban Development (HUD) released its own QM rule for the mortgages HUD insures, guarantees or administers, including those backed by the Federal Housing Administration.
HUD’s new rule is built off of the CFPB’s QM rule. In order to comply, mortgage loans must require periodic payments without risky features; cannot have terms that exceed 30 years; and must limit upfront points and fees to no more than 3 percent with adjustments to facilitate smaller loans (with some exceptions).
HUD said the first two elements of the rule are already part of its existing underwriting process, and that the limit on points and fees “is consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac to attain qualified mortgage status under CFPB’s final rule.”
HUD’s rule includes two types of qualified mortgages, each of which offers different protections for consumers and different liabilities for lenders. A “rebuttable presumption” QM assumes lenders have vetted the borrower’s ability to repay the loan, but that the borrower can challenge that presumption in court. A “safe harbor” QM allows borrowers to sue their lender only if they believe the loan does not meet the definition of a safe harbor qualified mortgage.
Both the CFPB’s and HUD’s QM rules are set to go into effect Jan. 10, 2014.