Final QM Rule Will Keep the GSE Loan Market Going for Years

Mortgage & Real Estate

The Consumer Financial Protection Bureau wants to keep credit flowing by allowing lenders to rely on Fannie Mae, Freddie Mac and Federal Housing Administration automated underwriting systems to meet the underwriting standards of the new qualified mortgage rule that was issued early Thursday morning.

During a seven-year transition period, loans approved by the GSE and FHA AU systems can exceed the 43% debt-to-income ratio and still be considered QM loans that enjoy a safe harbor from litigation.

The final QM rule goes into effect January 10, 2014, which will give lenders a year to adjust to the new underwriting standards mandated by the Dodd-Frank Act of 2010.   

CFPB officials told reporters Wednesday afternoon that interest-only and negative amortization loans cannot qualify for QM status. That could curtail the origination of private-label jumbo mortgages with interest-only payments.

The consumer bureau exempted HARP refinancings and other government programs to modify loans and prevent foreclosures from the scope of the QM rule.  

While the CFPB wanted to prevent a contraction of credit, it also wants to provide the “greatest consumer protections ever devised,” CFPB director Richard Cordray said.

To that end, the consumer bureau took a hard line on affiliated transactions and mortgage brokerage firms under the 3% points and fee cap mandated by Dodd-Frank.  

The final rule counts all compensation a mortgage brokerage firm receives from the wholesaler toward the 3% cap. Currently, wholesalers are paying 225 to 250 basis points to brokers, which does not leave a lot of room to cover other fees. It also places the brokerage firm at a pricing disadvantage to retail lenders. Under the rule, a bank only has to count the fee its pays a loan officer toward the 3% cap. A bank LO may only receive 75 bps for each loan.

This could be a big setback for the mortgage broker community. But the CFPB is seeking comment on “technical issues” on how to calculate loan origination compensation under the points and fees cap.

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