Bulletin 14-03 originally issued January 9, 2014 has been revised. Refer to the red text below.
The Consumer Financial Protection Bureau (CFPB) has published regulations implementing various provisions of the Dodd-Frank Act (XIV). This includes the Ability to Repay (ATR) and Qualified Mortgage (QM) rules.
QM and ATR Effective Date
- Conventional, VA, and USDA Loans: QM and ATR rules apply to loan applications dated on or after January 10, 2014.
– Application date is defined as the earlier of:
– The broker original 1003 interview date, or
– The date the borrower signed the 1003.
- Broker application is dated November 20, 2013 and the file is submitted to REMN Wholesale on January 14, 2014 – QM/ATR rules do not apply.
- Broker application is dated January 10, 2014 and the file is submitted to REMN Wholesale on February 20, 2014 – QM/ATR rules do apply.
- FHA Loans: QM and ATR rules apply to case numbers assigned on or after January 10, 2014. If a case number is re-issued, the date of the most recently issued case number will apply.
- Broker application is dated November 20, 2013 with a case number issued December 1, 2013 and file is submitted to REMN Wholesale on January 10, 2014 -QM/ATR rules do not apply.
- Broker application is dated January 1, 2014 with a case number issued January 10, 2014 and file is submitted to REMN Wholesale on January 11, 2014 – QM/ATR rules do apply.
Transactions Covered by QM and ATR Rules
QM and ATR rules apply to the following:
- Purchase and refinance transactions secured by owner-occupied and second homes.
QM and ATR rules do not apply to the following:
- Investment property*
NOTE: Investment properties that are for business purposes are exempt from QM rules.
If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to QM and ATR rules.
Additionally, there can be no evidence that the borrower purchased/refinanced the investment property for personal rather than business reasons (e.g. property purchased for a family member).
- Construction loans (during the construction phase)
* REMN Wholesale will provide additional information regarding a form the borrower will be required to sign to certify the loan is for a “business purpose” when the transaction involves an investment property.
Overview of Ability to Repay and Qualified Mortgage
The Ability to Repay rule requires lenders to determine that the borrower has a reasonable ability to repay the loan. This requirement is satisfied with an AUS approval or when a government loan is manually underwritten to the applicable Agency and REMN Wholesale guidelines.
A Qualified Mortgage is a loan that meets the standards set forth by the CFPB. A QM loan may be identified as a “Safe Harbor” QM or a “Rebuttable Presumption” QM depending upon the loan’s APR and if it is considered a Higher Priced Mortgage Loan (HPML).
Safe Harbor (loan is not an HPML) provides certain legal protection to lenders in the event a borrower defaults on the loan. Rebuttable Presumption (loan is an HPML) also provides certain legal protection as well however borrowers may challenge the lender regarding their ability to repay at the time the loan closed.
Temporary Qualified Mortgage and HUD QM
Temporary QM loans are loans that are originated and closed in compliance with Fannie Mae, FHA, VA and USDA (i.e. Agency) guidelines.
As is our current policy, conventional and government loans with an “Approve/Eligible” or “Accept” AUS Finding, DTI is subject to AUS Findings and manually underwritten government loans the maximum DTI is subject to Agency and REMN Wholesale guidelines.
General Qualified Mortgage
General QM loans are not eligible for sale to the Agencies (Fannie Mae, FHA, VA and USDA). The REMN Wholesale Jumbo program is currently the only program offered by REMN Wholesale that falls under General QM. REMN Wholesale will continue to offer the Jumbo program with no change to current guidelines. As a reminder, per current policy, REMN Wholesale does not offer Jumbo HPML loans.
QM Impact to REMN Wholesale Offerings
The following details changes brokers can expect with applications dated or FHA case numbers assigned on or after January 10, 2014.
- No change to current credit/underwriting guidelines.
- A points and fees test will be required on all loans to ensure QM compliance (refer to Points and Fees topic below).
- Changes to FHA HPML calculations (refer to the HPML topic below).
- HOEPA requirement that borrowers are aware they may obtain homeownership counseling (refer to HOEPA Counseling Disclosure topic on page 4)
- ECOA valuation requirement that all borrowers must receive a copy of the appraisal(s)/valuation(s) used to determine the value of the property securing the loan. The borrower(s) must receive the copy of the appraisal and valuation(s) upon completion or no later than three (3) business days prior to loan closing (refer to ECOA Valuations Rule topic on page 5)
Higher Priced Mortgage Loans (HPML)
REMN Wholesale’s current policy regarding higher priced mortgage loans has not changed.
Under QM, FHA defines a higher priced mortgage loan as a loan where the APR exceeds the APOR by 1.15% plus the annual MIP rate.
Points and Fees
The points and fees for a QM loan are subject to the following:
- Loan amounts ≥ $100,000 are limited to 3% of the total loan amount*
- Loans from $60,000 to 99,999 are limited to a $3,000 flat fee
- Loans from $20,000 to $59,999 (exception basis only) are limited to 5% of the Note amount
*NOTE: The total loan amount is defined in the regulation. The total loan amount is not the Note amount.
REMN Wholesale will provide additional guidance on the total loan amount calculation in the near future.
Points and Fees (cont.)
The following is a basic list of what is included and what is excluded from the points and fees test.
Points and Fees Test
|Broker compensation (Borrower or Lender paid)||Prepaid interest|
|Loan origination fees||Upfront and monthly FHA MIP|
|Commitment/underwriting fee||VA funding fee|
|Lock fees||USDA guarantee fee|
|Upfront conventional MI paid by the borrower||Fees normally not considered APR fees under Truth-in-Lending/Reg Z|
|Excess discount points (greater than 2% bona fide) ORAny non-bona fide discount points||Bona fide discount points – maximum 2%*|
|Fees normally considered APR fees under Truth-in-Lending/Reg Z||Escrows for taxes and insurance|
|3rd party processing fees if broker affiliate||Non-affiliated 3rd party processing fees|
|Fees paid to and retained by any broker affiliate (broker owned escrow, etc.)|
|CA Funding Fee (if applicable)|
*A bona fide discount point is an amount paid to the lender by the consumer that reduces the interest rate applicable to the transaction. Up to 2 discount points can be excluded if the interest rate, without the discount, does not exceed the APOR by more than 1%. Only 1 discount point can be excluded if the interest rate exceeds the APOR by more than 1% but less than 2%.
To ensure compliance with the points and fees test REMN Wholesale will review all points and fees prior to the release of the loan documents REMN Wholesale will provide additional guidance regarding prepaid finance charges and impact on total loan amount calculations as well as examples in the near future.
REMN Wholesale will begin offering borrower paid single premium and split premium mortgage insurance products effective immediately (these products were temporarily suspended). REMN Wholesale will offer both refundable and non-refundable options. Refer to REMN Wholesale Bulletin 14-10 for specific details regarding borrower paid single premium and split premium mortgage insurance.
HOEPA Counseling Disclosure
REMN Wholesale will generate a Homeownership Counseling Disclosure with the initial lender disclosure package effective with loan applications dated on or after January 10, 2014. This is a new CFPB requirement under the Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act. The Disclosure notifies borrowers that homeownership counseling is available.
ECOA Valuations Rule
The ECOA Valuations Rule requires lenders to provide a copy of the appraisal(s) and/or any other written valuation of the property (i.e. AVM, field review, desk review, second appraisal). A copy of the appraisal(s)/valuation(s) must be provided, by the lender, whether the loan is approved, denied or withdrawn.
The borrower must be advised of their right to receive the appraisal/valuation at the time of loan application. REMN Wholesale will generate a Right to Receive an Appraisal disclosure with the initial lender disclosure package effective with loan applications dated on or after January 10, 2014.
The borrower must receive the documentation no later than three (3) business days prior to loan closing. The three (3) business days period begins the day the appraisal(s)/valuation(s) were either emailed or mailed to the borrower.
Non-Higher Priced Mortgage Loans
The borrower may waive their right to receive the appraisal/valuation 3 days prior to close, however they are still required to receive a copy at closing. Waivers will be considered on a case-by-case exception basis only.
Higher Priced Mortgage Loans
The borrower cannot waive the appraisal delivery requirement; they must receive the appraisal/valuation 3 days prior to loan closing, no exceptions.
The ECOA Valuations Rule is effective with applications dated on or after January 18, 2014 however REMN Wholesale will begin providing the appraisal on all transactions with applications dated on or after January 10, 2014.
REMN Wholesale will update the Submission Form to include a field for the borrower’s email address. If a borrower does not have an email address REMN Wholesale will mail the appraisal(s)/valuation(s).
If you have any questions, please contact your Account Executive.