The Consumer Financial Protection Bureau (CFPB) is set to propose a new category of qualified mortgages, according to a release from the organization.
Dubbed “seasoned qualified mortgages,” the aim of the new category appears to be offering riskier loans a pathway to entering qualified mortgage status. As the category’s name suggests, it involves lenders keeping mortgages that don’t originally meet the QM standard within their portfolios for a “seasoning” period, while the loans meet specific performance requirements along the way.
That seasoning period would last 36 months, per a notice of proposed rulemaking issued Tuesday by the CFPB. To be eligible for seasoning, loans would have to be first-lien, fixed-rate transactions that meet certain underwriting requirements and comply with general restrictions on product features, points and fees, with the lender verifying the borrowers’ debt-to-income (DTI) ratio or residual income at origination.
If such a loan makes it through the three-year period with no more than two 30-day delinquencies and no delinquencies of 60 or more days, it could gain seasoned QM status. Lenders may accept deficient payments within a tolerance of $50 up to three times during the seasoning period without triggering a delinquency.
Notably, language covering the unprecedented impacts of the COVID-19 crisis are woven into the proposal’s language. If there’s a pandemic-related national emergency or other natural disaster during the seasoning period, the proposal wouldn’t disqualify a loan from seasoned QM status in case the borrower fails to make payments, as long as the borrower receives a temporary payment accommodation.
“The [CFPB] believes that a Seasoned QM definition could complement existing QM definitions and help ensure access to responsible, affordable mortgage credit upon the expiration of one of the existing QM definitions,” the notice of proposed rulemaking said.
The status of current QM definitions has been a hot topic since the CFPB last year announced its intention to allow the “GSE Patch” to expire at the end of its term. Since June, the CFPB had issued a pair of other proposed rulemaking notices: one calling for the replacement of the QM standard’s DTI threshold with a “price-based approach,” and the other keeping the patch in place until first proposal’s changes are established.
“Today’s proposal continues the Bureau’s work to encourage safe and responsible innovation in the mortgage origination market,” said CFPB director Kathleen Kraninger. “Our goal through our very deliberative rulemaking process is to protect, promote and preserve the financial well-being of American consumers while at the same time offering access to responsible, affordable mortgage credit.”
The CFPB is asking for comments within 30 days. The full, 130-page notice of proposed rulemaking can be found here.
