The Federal Housing Finance Agency announced yesterday that Fannie Mae and Freddie Mac will limit purchases of mortgages to “qualified mortgages” under the Consumer Financial Protection Bureau’s ability-to-repay rule.
Qualified mortgages meet certain conditions that protect the lender from liability under the ability-to-repay rule. Among these conditions, which the housing GSEs will apply to mortgages with applications dated from January 10, 2014, are full amortization, loan terms of no more than 30 years, and points and fees amounting to less than 3 percent of the loan total.
Banks that sell insurance face difficulties with the points-and-fees test. As the rule is written currently, insurance products sold by a bank in conjunction with a mortgage will be included in this test, even though products sold by external companies would not be included. ABIA has a working group actively seeking changes in this area. To get involved, contact the ABIA.
"Effectively, this means Fannie Mae and Freddie Mac will not purchase interest-only loans, loans with 40-year terms, or those with points and fees exceeding the thresholds established by the rule," the FHFA said. The points-and-fees test is considered the most influential criteria for the QM and the GSEs' adoption of it therefore is expected to have a significant impact.
Read the FHFA's release.
Get involved in ABIA's QM working group.