The Department of Housing and Urban Development on Wednesday released its final rule defining a “qualified mortgage” that is guaranteed or administered by HUD, effective Jan. 10, 2014.
The rule will apply to all mortgages with case number assignments on or after that date.
HUD proposed a QM definition aligned with the Ability-to-Repay criteria contained in the Truth-in-Lending Act as required by the Dodd-Frank Act and the agency’s mission to promote affordable mortgage financing options for underserved borrowers. The rule builds off of an existing QM rule that the Consumer Financial Protection Bureau finalized earlier this year.
Under HUD’s QM definition, mortgage loans must require periodic payments without risky features; have terms that don’t exceed 30 years; be insured or guaranteed by FHA/HUD; and limit upfront points and fees to no more than 3% with adjustments to facilitate smaller loans, with certain exceptions.
Loans are classified as either Rebuttable Presumption Qualified Mortgages or Safe Harbor Qualified Mortgages depending on the relation of the loan’s annual percentage rate (APR) to the average prime offer rate (APOR) under HUD’s QM rule.
The QM definition also covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages, and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages.
Loans insured under these programs are designated as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio to avoid interfering with current lending practices until appropriate parameters can be determined, says HUD.
“The new limit on upfront points and fees for all Title II non-manufactured housing FHA-insured single family mortgages 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,” the agency said.
HUD’s rule also adopts the CFPB’s list of transactions that are exempt from the ability-to-repay requirements, including reverse mortgages.
Written by Alyssa Gerace