The whole point of the Qualified Mortgage was to give the mortgage industry some product it could sell to consumers that carried with it a relatively high probability that it would not come back to haunt the originator in the future. Protection from buyback requests, a safe harbor from future losses, if you will, is what the whole thing is about. Given that, it’s in our best interest to explore the various safe harbors the regulator is building into the QM in order to assess its overall ability to reach that goal.
Presumably, safe harbor will be created under the QM for every rule the CFPB advances. This is going to make the exercise of ensuring that the QM really offers protection to the industry a bit difficult. We hope that by examining these issues in this blog, we can be of some assistance in that.
Let’s start with the Ability to Repay rule. In regard to this rule, we are told that three tests to ensure safe harbor will exist within the QM to offer shelter to the originator when it goes into effect on January 10, 2014. In this space, I want to take them each in turn.
The first test is to check to see if the loan is a Higher Priced Mortgage Loan (HPML). At this time, the CFPB is still using an older version the definition for an HPML. There is no difference for conforming loan amounts (1.50%) and Jumbo loan amounts (2.50%) as the revised HPML definition now has. All first mortgages must have an APR with a difference < or = 1.50% of the APOR (Average Prime Offer Rate) index.
If this rule is met, these loans will meet the safe harbor definition—meaning that they are conclusively presumed to comply with the ATR standards. QMs that are HPMLs ( exceed the 1.50% margin over the APOR index) have a rebuttable presumption that they comply with the ATR standards--meaning consumers can argue that you violated the ATR rule but must prove the data the lender had, at the time the loan was made, shows that they did not have enough residual income left to meet living expenses. For second liens and Small Creditors the margin is 3.50% from the APOR index.
Stay tuned for two more tests for safe harbor for the Ability to Repay rule.