WTF is happening with QM?
Mortgage Acuity
Mortgage Acuity
Published on April 14, 2021

WTF is happening with QM?

What is QM?

Verify my mortgage eligibility (Oct 17th, 2021)

In the aftermath of the global financial crisis, many new regulations were implemented designed to ensure that mortgage lenders made a reasonable good faith assessment at or before the closing of a loan that the borrower would have sufficient income to pay it back over time. Mortgages that complied were called qualified mortgages (QM).

What is the QM Patch?

The CFPB changed the debt to income rule if it can be bought by Fannie Mae, and Freddie Mac. This allowed mortgage with a higher than 43% debt to income ratio to be considered qualified mortgages if eligible for purchase by Fannie or Freddie.

Verify my mortgage eligibility (Oct 17th, 2021)

The QM Patch has helped Fannie and Freddie grow much bigger over the last decade or so.

What's going on now?

A bit of confusion. The CFPB has said the mortgage market has until 10/1/2022 to comply with the revised QM rules. Fannie and Freddie are saying they will not buy mortgages that don't comply with the revised QM rules past the date of 6/30/2021 - basically setting the rule for the housing market. Starting on 7/1/2021, effectively the ATR rule for QM compliance will be pricing based under the revision.

Verify my mortgage eligibility (Oct 17th, 2021)

What's the revised rule?

You ready for this? Under the revised rule for first lien transactions (your main mortgage, not a home equity line or loan) has a presumption of compliance if the APR does not exceed the average prime offer rate (APOR) by 1.5 percentage points or more when the rate is set. If the APOR is between 1.5 and 2.25 percentage points above the APOR, it receives a rebuttable presumption the consumer has the ability to repay. There are higher thresholds for smaller loan amounts and manufactured housing loans. Also VA, FHA and USDA are not affected by any of this as they are considered QM if they meet the guidelines set by the respective government agency.

WTF?

It remains to be seen whether other players will come into the mortgage market to buy loans from lenders with the revised QM rule. In the short term, it means that just in time for the summer homebuying season, there will be confusion for lenders and mortgage originators on how to underwrite mortgages to comply.

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