Ability to Repay & QM Regulations

Transcription

1 Ability to Repay & QM Regulations 2013 Rushmore Loan Management Services LLC. All Rights Reserved. This is intended as educational material only. It does not provide legal advice. Revised December

2 CFPB Ability to Repay/QM Regulations Introduction The Consumer Financial Protection Bureau (CFPB) enacted Regulations that are effective beginning with new applications received on or after January 10, 2014 The Regulations require a lender to document that the Borrower has the Ability to Repay the mortgage loan The Lender must consider the following 8 underwriting factors under Ability to Repay Test: Current or reasonably expected income and assets Current employment status Monthly mortgage payment (using fully indexed rate and fully amortizing payments) Monthly payment on other loans for the same property Payment for taxes, insurance, HOA dues, and ground rent as applicable Debts, alimony and child support obligations Debt-to-Income Ratio (DTI) Credit History (items from credit report) ALL mortgage loans that are not Qualified Mortgages (QM) MUST satisfy the Ability to Repay Test Rushmore Home Loans will ONLY originate mortgages that meet QM guidelines 2

3 Qualified Mortgage What is a Qualified Mortgage? Loans that meet the definition of a Qualified Mortgage (QM) are deemed to have met the Ability to Repay Standard To be a general QM, loan must satisfy the following general criteria: No negative amortization or interest-only periods No balloon payments No loan term of longer than 30 years Points and Fees may not exceed the Fee Cap [3% of total loan amount (amount financed) for most loans] Borrower must qualify at max rate for 1 st five years with full amortization DTI may not exceed 43% In addition, Agency (Fannie Mae, Freddie Mac) eligible and Government (FHA, VA and USDA) eligible loans are QMs under the temporary definition, if the loan satisfies the following criteria: Loan meets current Agency or Government guidelines Loan satisfies ALL general QM criteria other than 43% DTI criteria Special Agency/ Government QM status expires in 2021 (or in the case of an Agency loan, the date the Agency no longer exists) 3

4 Safe Harbor vs. Presumption of Compliance Qualified Mortgages and Safe Harbor Loans that meet the definition of a general or temporary QM, and are NOT higher-priced mortgages, will have a SAFE HARBOR Loan is deemed to meet the Ability to Repay Standard A borrower may not challenge the determination Loans that meet the definition of a QM and ARE higher-priced mortgages will have a rebuttable presumption of compliance A borrower could challenge, on a limited basis, that the lender documented the Ability to Repay prior to funding the loan Safe Harbor: Loan satisfies QM criteria and APR is less than: First liens: APOR + 1.5% Second liens: APOR + 3.5% Rebuttable presumption: Loan satisfies QM criteria and APR equals or exceeds: First liens: APOR + 1.5% Second liens: APOR + 3.5% Rebuttal presumption limited to ONLY insufficient residual monthly income Rushmore will update higher-priced standards for FHA loans based on final rule from HUD issued on 12/11/

5 Fee Cap What is the Fee Cap to be a QM? For loans of $100,000 or more, points/fees must be limited to no more than 3% of the total loan amount (amount financed) For loans between $60,000 and $99,999, points/fees must be no more than $3,000 For loans between $20,000 and $59,999, points/fees must be no more than 5% of the total loan amount What is included in the Fee Cap? Lender Fees (origination, processing, underwriting, application, etc.) ALL compensation paid directly or indirectly to a broker Non-Bona Fide Discount Points (defined below) Any 3 rd party fees where either the lender or broker retains a portion of the fee, or where the fees are paid to an affiliate of the lender or broker Maximum prepayment penalty that could be imposed What is not included in the Fee Cap? Bona Fide Discount Points: Exclude up to 2 bona fide discount points if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 1 percentage point; Exclude up to 1 bona fide discount point if the interest rate before the discount does not exceed the APOR for a comparable transaction by more than 2 percentage points All third party fees paid to non-affiliates, where the lender and broker do not retain a portion of the fee Compensation paid directly by a borrower to the broker is included in the 3% test, but it is not included again as borrower paid compensation to avoid double-counting. 5

6 What do these Regulations Mean for You? What do the QM Regulations and the Fee Cap mean to you? Under a Lender-Paid Broker Compensation Model, compensation paid by Rushmore to the broker is included in the 3% cap on points/fees Rushmore will keep current compensation ranging from 1-3% for brokers, and subtract $895 for each loan, to reflect underwriting fee Brokers have an opportunity to switch to Borrower-Paid Broker Compensation Model Fees paid by borrower to broker are included in the Fee Cap, but not double-counted as borrower paid compensation Borrowers would pay fees up front to obtain the loan However, the interest rate would be lower, which would potentially save the borrower tens of thousands over the life of the loan Brokers could become Correspondents or Mini-Correspondents Broker could become a correspondent lender Broker would be required to fund loans in own name as lender Broker would need a funding source, such as through a warehouse line Broker would need to have/obtain lending licenses to be a correspondent Licensing generally requires higher Financial/Net Worth than a broker license. Licensing could take several months or longer to obtain There will be a limited secondary market for non-qm loans, at least for the near future 6