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Tuesday, January 7, 2014

CFPB Issues Fact vs. Fiction Guide on QM and Ability-to-Repay Rule

The CFPB's Ability-to-Repay Rule goes into effect on January 10, 2014 and yesterday the CFPB released a Fact vs. Fiction guide "to help dispel some of the most common misconceptions about what this new rule actually means for consumers." 

From the Guide:
Certain types of mortgages are more likely to become a debt trap for the borrower, so the new rule lays out basic guidelines that lenders can follow. Loans within these guidelines are called “Qualified Mortgages,” and they give lenders greater certainty that they are meeting the Ability-to-Repay requirement. If lenders choose not the follow these guidelines, they can still make a loan based on their reasonable, good-faith determination that the borrower has the ability to repay it.
To be a Qualified Mortgage, the loan:

  • Cannot have excessive upfront points and fees;
  • Cannot be longer than 30 years;
  • Cannot have certain risky features, such as paying only interest and not principal, or paying less than the full amount of interest so that the total debt grows each month; and
  • Must be in one of three categories:
    • The monthly loan payment, plus the borrower’s other debt payments, does not exceed 43 percent of the borrower’s monthly income; or
    • The loan qualifies for purchase or guarantee by a government sponsored enterprise (Fannie Mae or Freddie Mac), or is insured or guaranteed by a federal housing agency; or
    • The loan is made by a small lender that keeps the loan in portfolio.

Read the Fact vs. Fiction Guide

CFPB Blog.