CFPB Finalizes Changes to the ATR/QM Rule

michaelchristians • December 21, 2020

On December 10th, the Consumer Financial Protection Bureau (CFPB) issued two final rules that make significant changes to Regulation Z’s ability to repay requirements. These changes include:

  • Amendments to the general definition of a Qualified Mortgage (QM); and
  • Creation of a new category of QM’s, the Seasoned QM.

General Definition of a Qualified Mortgage

Beginning on the final rule’s effective date (July 1, 2021), a QM must meet the following four-part test:

  • Pricing Test
    • Generally speaking, the APR charged in connection with a QM may not exceed the current value of the APOR by 2.25%. Alternative thresholds are available for lower loan amounts and subordinate lien loans
  • Product Test
    • The loan contract must call for regular, periodic payments and a term that does not exceed 30 years
  • Points and Fees Test
    • The points and fees charged in connection with the transaction may not exceed the thresholds identified in Section 1026.43(e)(3)
  • Underwriting Test
    • The creditor must consider the borrower’s income, assets, and debt obligations. However, the creditor need not follow the prescriptive underwriting requirements found in Appendix Q

Seasoned QM

The CFPB’s seasoned QM final rule will take effect 60 days following its publication in the Federal Register. For a loan to be considered a seasoned QM, it must meet the following three-part test:

  • Product Limitations
    • The loan must be secured by a first lien, have a fixed interest rate, and call for fully amortizing periodic payments over a term not to exceed 30 years
    • The points and fees charged in connection with the transaction may not exceed the thresholds identified in Section 1026.43(e)(3)
  • Underwriting Requirements
    • The creditor must consider and verify the borrower’s DTI ratio or residual income and/or debts
  • Performance Requirements
    • During the 36-month period following consummation, the loan may not have more than two 30-day delinquencies and no 60-day delinquencies

Please contact Michael Christians Consulting, LLC at michael@mchristiansconsulting.com if your institution needs assistance with implementing these changes.

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