Do you know all 7 types of QM?
Here's a brief overview of how many different versions of Qualified Mortgages are out there ... and some thoughts on the basic differences.
To be technical, there are actually seven different types of Qualified Mortgages (QMs). Here's a brief look at all of them, and some of their requirements.
#1) Regular QM (issued by the CFPB)
No balloon or other "risky features" (neg. am, interest only, etc.)
3% points + fees
43% debt-to-income
Appendix Q applies
Rebuttable presumption vs. safe harbor
Whether you get rebuttable presumption QM (much less protection) or full safe harbor QM, depends on whether the loan is "higher- priced" (HPML)
#2) GSE-Eligible QM (issued by the CFPB)
No balloon or other "risky" features
3% points + fees
Underwritten to Fannie's or Freddie's standards
Rebuttable presumption vs. safe harbor
Same as for Regular QM
Benefits:
1. Avoid 43% DTI limitation
2. Avoid appendix Q
Downside - Only a temporary exception
#3) Small Creditor Portfolio QM (issued by the CFPB)
No balloon or other "risky" features
3% points + fees
Rebuttable presumptions vs. safe harbor
There is a more lenient test than for other types of QM.
Benefits:
1. Avoid 43% DTI limitation
2. Avoid appendix Q
3. Avoid Fannie/Freddie underwriting standards (keep in-house)
Downside - Only available to "small creditors" willing to hold the loan in portfolio for 3 years.
#4) HUD QM (issued by HUD under the Federal Housing Administration)
HUD had the authority to write its own QM definition for all FHA loans. It essentially makes sure all FHA-insured single family loans will be QM (with some exceptions for bridge and construction-to-perms.).
No 43% or other DTI limitation
3% points + fees cap
No appendix Q
Rebuttable presumption vs. safe harbor
FHA uses a different test than CFPB: Safe Harbor = APR does not exceed APOR for a comparable mortgage by more than the combined percentage of the annual mortgage insurance premium (MIP) and 1.15 percentage points.
Note:
There's also a different way to protect yourself (compared to CFPB or VA) with rebuttable presumption loans (e.g., consumers will be required to rebut the presumption in different ways).
#5) VA QM (issued by the US Dept. of Veterans Affairs)
The VA also had its own authority to define QM. It did so, and the VA rule essentially makes 100% of VA-guaranteed or insured loans into QMs. There will be no non-QMs here.
No appendix Q
No points + fees
No 43% or other DTI ceiling
Rebuttable presumption vs. safe harbor
All VA loans will be full safe harbor QM with the exception of IRRRLs (interest rate reduction refinance loans); there is a specific test for whether IRRRL is rebuttable or full safe harbor.
#6) Temporary Balloon-Payment QM (issued by the CFPB)
This is a type of QM that allows a balloon-payment feature (despite general ban in QM).
Balloon payment permitted
No 43% DTI limitation
Must be a fixed rate
Loan term must be a minimum of 5 years
No appendix Q
Downsides:
This is only available to "small creditors" (under $2 billion assets and 500 originations per year)
This is only a temporary exception and will expire on January 10, 2016
#7) Rural/Underserved Balloon-Payment QM (issued by the CFPB)
This is another special category of QM that allows balloon payments. There are only 2 differences between this type of QM (#7) and the other (#6):
This is a permanent exception -- it is not temporary.
This is only available to a mortgage lender whose annual volume was more than 50% to properties in "rural" or "underserved" areas (as those terms are defined by the CFPB).
Other news/thoughts/trivia:
The CFPB has issued some game-changing guidance on "mini-correspondents." This is a "must-read" for non- depository mortgage lenders and any company utilizing correspondents or acting as a correspondent itself. Essentially, the CFPB is saying that many emerging bankers (recently converted from broker to lender) will be treated as brokers for regulatory purposes, despite the fact that they're calling themselves a lender and listed as such on the mortgage. Whether a correspondent lender will be treated as a broker depends on many factors--but depository institutions are more likely to be safe (not a broker), but watch for lenders that table-fund or rely heavily on captive lines to be under extra scrutiny.
"Syrian dictator Bashar Assad says he may run for re-election next year. In fact, today he went over the results of next year's election and he said it looks pretty good." - Jay Leno (editor's note: this is an old joke, Assad won the election by a landslide, with some calling the election a "farce").
How often have you been involved in a debate like this?
Joe - Do we really need this many branches? Do we need the brick & mortar to serve borrowers. Branches are so expensive!
Jill - The banking industry is a "belly-to-belly" business ... you need the personal touch that a branch provides!
It's become a classic. The cost of physical branches being too high, considering reinvesting in an online presence to be competitive, but the counterargument being that consumers can't feel warm and welcomed when visiting a website. Well, here's something to chew on: Two companies-Amazon and Zappos- rank abnormally high with customer satisfaction and service standards despite not having any physical locations! How is this possible? Both companies make their websites easy to use (consumer friendly) and back them up with strong support over the phone or by electronic messaging. This is an interesting concept - that a company can provide a legendary level of customer service without any physical location.
"Big doors swing on little hinges."
- W. Clement Stone
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