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Lending

HUD publishes its final definition of a qualified mortgage

Rule limits upfront points and fees, with a few exceptions

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The U.S. Department of Housing and Urban Development launched its official internal definition of a qualified mortgage – or a loan that can be insured, guaranteed or administered by the department.

The standard goes into play alongside the ability-to-repay rule, which takes effect on Jan. 10, 2014.

Any party dealing with HUD loans must fully understand the requirements before that date.          

From a very broad perspective, the HUD QM definition says loans in the system must require periodic payments without risky features. In addition, they cannot have terms exceeding 30 years, must be insured by FHA or HUD and have to limit upfront points and fees to no more than 3% with some exceptions for certain types of loans.

For instance, loans tied to Title 1 manufactured housing and property improvement loans are giving a safe harbor under the qualified mortgage definition. Other loans exempt from extra scrutiny include those tied to the Indian Home Loan Guarantee Program and the Native Hawaiian Housing Loan Guarantee Program.

"The rule designates loans insured under these programs as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio so as not to interfere with current lending practices until appropriate parameters can be determined," HUD pointed out.  

 HUD also is accepting the CFPB’s list of transactions that are currently exempt from the ability-to-repay rule.

Those include reverse mortgages, bridge loans of 12 months or less, construction-to-permanent loans for 12 months or less for a construction phase and credit extensions from the Housing Finance Agency, the Community Development Financial Institutions and credit tied to parts of the Emergency Economic Stabilization Act of 2008 among others.

Click here to read more about the rule, the QM definition and any existing exceptions.

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