In January, the "Qualified Mortgage" (QM) was born. The QM, a type of mortgage designed with consumer interests at its core, is the offspring of the Consumer Financial Protection Bureau (CFPB).
Recognizing that consumers were harmed by aggressive marketing of mortgages that borrowers were not able to repay, the CFPB set out to create a basic standard of mortgage underwriting that squarely addresses ability to repay. The QM rule sets limits for interest rates, maturity, payment limits, and limits on upfront costs. In addition, loan originators must verify and document all information collected to establish the borrower’s financial condition. If a loan complies with the QM standards, the lender is afforded a "safe harbor " against attacks on the loan’s enforceability.
If a loan does not qualify as a QM, severe penalties may be imposed against a lender. Further, borrowers may have defenses against foreclosure if they find themselves unable to fulfill the obligations of the mortgage.
The limit on upfront costs (points and fees) is 3 percent of the mortgage amount. This limit includes all costs associated with services rendered by affiliates of the lender (i.e., appraisal, credit reporting, title insurance, settlement, etc.). Costs for services furnished by non-affiliates do not have to be loaded in the 3 percent cap.
Advocacy efforts by groups representing affiliated service providers have sought to change this dichotomy. H.B. 3211, currently under debate in the U.S. House of Representatives, seeks to treat all fees and costs associated with processing, underwriting and closing the loan the same (whether rendered by an affiliate or non-affiliate). The fate of the QM as Congress scrutinizes the implications of its implementation is a story all in the real estate industry should be following.
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