By Melanie Feliciano
On Dec. 11, 2013, the U.S. Department of Housing & Urban Development (HUD) issued its final rule on qualified mortgages (QM) for single-family residential loans. The Dodd-Frank Act required HUD and three other federal agencies to prescribe regulations for QMs that they will insure, guarantee or administer. This final rule replaces the Consumer Financial Protection Bureau’s (CFPB's) temporary QM definition for FHA loans. Until VA and USDA issue their own QM definitions, the CFPB's temporary QM definition will apply.
The HUD QM rule provides that for a single-family mortgage to be insured under Title II of the National Housing Act, a QM may not exceed the total points and fees threshold established under the CFPB’s QM limit in 12 CFR 1026.43(e)(3) as of Jan. 10, 2014. In addition, the HUD rule also establishes its own definition of a rebuttable presumption QM and safe harbor QM. A loan transaction is a rebuttable presumption QM if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable mortgage, as of the date the interest rate is set, by more than the combined annual mortgage insurance (MI) premium and 1.15 percent for a first-lien mortgage. A loan transaction is a safe harbor QM if the APR does not exceed the above APOR threshold.
Title I (Property Improvement and Manufactured Home Loans), Section 184 (Indian Housing Loans), Section 184A (Native Hawaiian Housing Loans), Title II (Manufactured Housing Loans) insured mortgages and guaranteed loans are deemed safe harbor QMs that meet the ability-to-repay (ATR) requirements under 15 USC 1639c(a). Home Equity Conversion Mortgages (HECMs) under Section 255 of the National Housing Act and mortgage transactions exempted by the CFPB under 12 CFR 1026.43(a)(3) as of Jan. 10, 2014, are exempt from coverage of HUD’s QM rule.
The final rule becomes effective for case numbers assigned on or after Jan. 10, 2014.