Qualified mortgage begins to take shape

The Consumer Financial Protection Bureau’s definition of a qualified mortgage is beginning to give the lending industry some idea of what loans will be considered safe in the new lending environment.

When asked if the rule will erase certain mortgages from the marketplace, Richard Andreano, a partner at Ballard Spahr that has been following the QM rule, said, “It is likely that available loans will be limited to loans that are qualified mortgages and have an annual percentage rate that is less than 1.5 percentage points above the applicable average prime offer rate.”

Andreano collected his thoughts on the QM rule after attending a special CFPB hearing held Thursday to discuss the ability-to-repay guidelines and QM.

He added, “[T]o be a qualified mortgage loan, among other factors, the loan could not have points and fees above 3.0% (for most loans), could not have a term of more than 30 years, could not have an interest-only feature, negative amortization feature or, subject to a limited exception, balloon payment feature.”

Andreano suggests loans that are available will most likely be limited to standard, lower-priced loans and added “consumers that are not eligible for such loans likely will not be able to obtain a mortgage loan.”

As for the qualified mortgages that still face a rebuttable presumption – or a narrow opening for the possibility of litigation – Andreano says these are qualified mortgages seen as subprime based given the established rate, which is an annual percentage rate that exceeds 1.5 percentage points or more above the applicable average prime offer rate.

As for the rule itself, Andreano is remaining cautiously optimistic.

“The safe harbor and temporary qualified mortgage treatment for loans eligible for sale to Fannie or Freddie or eligible for insurance or guarantee by FHA, VA or RHS are viewed as positive aspects of the final rule,” he said. “But the devil will be in the details and the industry wants to analyze the rule further before passing judgment.”

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