Article from American Banker on CFPB rulings
ORIGINAL ARTICLE: http://www.americanbanker.com/issues/178_7/cheat-sheet-how-the-cfpb-s-qualified-mortgage-rule-will-impact-lenders-1055723-1.html
The basic premise of the rule will require lenders to ensure borrowers have the ability to repay a loan.
Arguably the most important part of the final rule, the regulation also defines a new category of loans, “qualified mortgages,” that are guaranteed to comply with the ability-to-repay requirements.
b) Fees and points cannot exceed 3% of the total loan amount, although certain “bona fide” fees on prime loans are excluded.
Of those requirements, the most important is arguably the new DTI standard.
“This kind of reckless lending was an endemic problem,” Cordray said. “I firmly believe that if the ability-to-repay rule we are announcing today had existed a decade ago, many people like Henry could have been spared the anguish of losing their homes and having their credit destroyed.”
One of the biggest questions industry watchers had was whether QM status gives lenders a legal safe harbor ensuring they could not be sued for violating the ability-to-repay loan, or whether it was just a “rebuttable presumption” of compliance.
In its summary, the CFPB acknowledged one of the industry’s greatest fears about the QM rule: no one is going to make loans that fall outside of those criteria. As a result, it said it would allow temporary flexibility for DTI requirements for seven years or until Congress passes housing finance reform, whichever happens first (Given lawmakers lack of appetite for this subject, seven years is a pretty safe bet.)
Loans with balloon payments are generally not considered QM loans, except for those made by smaller lenders in rural and underserved communities.