The Department of Veterans Affairs has employed a residual income test with its home loan guarantee program for years. It ensures borrowers have enough free cash after making their mortgage payment to pay for other ordinary expenses.
It seems CFPB is working on its own version of a residual income test, according to Consumer Mortgage Coalition executive director Anne Canfield.
If we had a well-defined residual income test, it would provide the certainty we need to do more rebuttable presumption QM loans and possibly non-QM loans, Canfield told NMN.
The VA residual income test is one of the reasons the VA loan guarantee program has low delinquency rates. In the second quarter, the serious delinquency rate on VA loans was 3.9%, compared to 3.5% on prime loans, according to the Mortgage Bankers Association.
Nearly 90% of VA borrowers put no money down when they purchase a home.