Posts tagged ‘QM mortgages’

CFBP Extends QM Compliance Deadline

The increasingly drawn out fate of regulations creating a new definition of what qualifies as a Qualified Mortgage took another turn this week when the CFPB announced that it was extending the deadline for compliance from July 1,, 2021 until October 1, 2022.  This is good news especially for those of you intending to sell mortgages to the secondary market.  As I explained in a recent blog, the GSE recently put its partners on notice that without a change to the deadline it would not accept for purchase mortgages which qualify under the existing QM patch with its higher debt-to-income parameters. 

The preamble to this announcement includes this graph demonstrating just how dependent the housing market remains on access to the GSEs even as private label securitization continues to recover.

Second Circuit Examines Standing In Data Breach Cases

I will be delving into this more extensively next week but I did not want this week to end without informing my faithful readers that the U.S. Court of Appeals for the Second Circuit has decided an important case in which it explains the circumstances under which individuals whose data has been exposed to theft by unauthorized third parties can bring lawsuits in New York federal courts.  The case is McMorris v. Carlos Lopez & Assocs., LLC .

On that note, enjoy your weekend.  Yours truly will be paying for his first haircut and shave in about 16 months.

April 30, 2021 at 9:58 am Leave a comment

CFPB Proposes New Category of QM Loans: Does it Really Matter?

With the election fast approaching, the Consumer Financial Protection Bureau (CFPB) earlier this week introduced its most dramatic proposal yet to change the regulatory framework put in place by Congress (and the CFPB) with the passage of Dodd-Frank.  Whether or not this proposal has any impact on your credit union’s operations will ultimately depend on who is President next January.

When a mortgage is characterized as a Qualified Mortgage it makes it easier to sell the mortgage to third parties and creates a “safe harbor” against lawsuits and foreclosure defenses alleging that a lender did not properly determine that the borrower had the ability to repay a mortgage loan.  Right now there are two categories of Qualified Mortgages.  One in which the mortgage loan complies with criteria established by the CFPB which includes a debt-to-income cap and a second category which includes any mortgage eligible for purchase by Fannie Mae or Freddie Mac.  This second category is known as the “GSE Patch” which expires on January 10, 2021.  The latest proposal introduced by the CFPB would create a category of seasoned loans.  Under this approach a mortgage which is retained by a lender in its own portfolio and meets certain other conditions would season into a Qualified Mortgage with all its advantages.

The proposal would apply to first home mortgages which meet certain fee and point restrictions.  A loan would be considered seasoned if on-time payments are made for 36-months, beginning on the date on which the first periodic payment is due. In a nod to the pandemic, a forbearance resulting from a pandemic related emergency would suspend the 36-month period.

Typically, a proposal like this would generate a storm of analysis and a boat-load of comment letters predicting everything from housing nirvana to Armageddon.  But why then is the comment period a mere 30 days?  I’m going to go out on a limb here and surmise that now that the Supreme Court has made the CFPB Director an at-will employee of the President, Kathleen Kraninger wants to get as many regulations finalized as she can before leaving office.  It’s a little game Washington plays because one of the first things a new administration will do is freeze the implementation of newly enacted regulations.

That being said, if this proposal ever takes effect, it will have a profound impact on the mortgage industry.  Under this approach lenders who are willing to portfolio loans for the first three years of a mortgage will find it much easier to foreclose on property which subsequently comes delinquent.  It may also increase the availability of houses by enticing more lenders to take a risk on borrowers who don’t meet more stringent underwriting standards.

That last point is what has critics of the proposal so upset.  They would argue that a loan which shouldn’t have been made in the first place doesn’t become a better loan simply because the homeowner was able to make payments for a few years.

August 21, 2020 at 8:36 am Leave a comment

Unemployment rate tumbles; CFPB tinkers with QM mortgages

I’ve been holding off on posting the blog this morning and I’m glad I did. The unemployment numbers just came out and the WSJ is reporting that:

“Americans gained jobs at the fastest pace in more than two years last month and the jobless rate plunged, a sign the economy has rebounded from a winter rut.

Nonfarm employment grew a seasonally adjusted 288,000 last month, the Labor Department said Friday. That marked the best month of job creation since January 2012 and the second-best month since the economy emerged from recession in mid-2009.”

In talking to credit unions this week all of them were hit hard by winter weather that literally put a freeze on lending as people stayed by their fireplaces and put off purchases like new cars. Hopefully these numbers indicate that the economy really is gaining steam and that employers are confident enough to start adding jobs. I’m still not convinced but time will tell.

Now back to my regularly scheduled blog….

The Bureau that never sleeps came out with a proposal earlier this week that makes a narrow but important change to QM mortgages. As any credit union providing mortgages  or  that reads this blog should know  one of the key requirements for a mortgage to qualify as a so-called “qualified mortgage” is that points and fees not exceed certain thresholds. This means that for mortgages of $100,000 or greater total points and fees cannot exceed 3% of the total loan amount. (Remember that the thresholds are different for smaller mortgages.)

So what happens when a lender realizes after a loan has been consummated that a miscalculation of points and fees was made and that a borrower was charged too much for a loan to qualify as a QM?

Under the existing regulation there is no remedy for this oversight, meaning that institutions dependent on selling mortgages to the secondary market might find themselves stuck with a mortgage they don’t want if only because their credit line is only so big. In addition the lender doesn’t get the legal protections that come with making a QM mortgage. According to the CFPB, some lenders are so determined to stay within the points and fees limitations that they have even put it in a buffer lower than required by the CFPB to ensure that their mortgages are qualified mortgages.

In response to this anecdotal evidence, as well as recognition that good faith mistakes can be made the Bureau proposed regulations earlier this week to create a good-faith exception for lenders who spot a miscalculation of points and fees within 120 days of consummation and reimburse a borrower for any excess charges. This good-faith exception would be applicable only where lenders have a policy and procedure in place for post-closing review of their mortgages so that mistakes can be quickly identified.

Now for those of you looking for a higher points and fee cap the proposal doesn’t go far enough but I personally think is the type of intelligent modification that makes it so hard to criticize the CFPB too much. For one thing, a policy of post- closing review is a phenomenal way of correcting errors and putting processes in place to make sure they don’t happen again. You should never make the same mistake twice, make new ones instead.

In addition, front-end analysis of consummated mortgages is the direction the industry is moving in. One of the real troubling consequences of the Great Recession has been that lenders often find themselves responsible for taking back loans that they made and sold several years ago because of a foreclosure. The contracts you enter into with the GSE’s and other secondary market purchasers are so one-sided that any mistake in the closing process can make you responsible for a foreclosed mortgage even if the errors had nothing to do with the mortgage going bad.

As it stands right now, the good-faith exception being proposed by the CFPB is extremely narrow. It would only apply to mistakes in calculating points and fees, so, for example, if you miscalculated someone’s debt- to- income ratio and it actually exceeds a 43 percent debt- to- income ratio cap you would still be out of luck unless Fannie or Freddie is willing to purchase the loan. But the CFPB indicated in the preamble to this proposal that it would consider expanding the good-faith exception if regulations can be designed to deter intentional mistakes and loans can be restructured to conform to QM requirements. Here is a link to the proposal. http://files.consumerfinance.gov/f/201404_cfpb_tila_proposed-amendments.pdf

 

For those of you still awake have a nice weekend.

May 2, 2014 at 9:01 am 1 comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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