CFPB Clarifies QM Rule on Repurchase Demands

In issuing the qualified mortgage rule, the Consumer Financial Protection Bureau wanted to insure the new regulations would not disrupt the mortgage market.

So the bureau gave Fannie Mae, Freddie Mac and Federal Housing Administration loans special status as QM loans, provided the loans meet the agencies’ underwriting requirements.

But what happens if Fannie wants the lender to repurchase a loan.

In a proposed rule to clarify and amend various bureau rules, the CFPB says a repurchase or indemnification demand “does not necessarily mean the loan is not a qualified mortgage.”

A repurchase demand is “not dispositive” with regard to QM status, the proposal says.

It depends on the reason for the repurchase demand. If the demand is related to delivery and pooling requirements, it does not affect the loan’s QM status.

However, underwriting errors with regard to a borrower’s income or debt ratio could be fatal if discovered in a quality control review.

In an example spelled out in the CFPB proposal, a review discovers the borrower does not have annual income of $50,000 as documented by the lender.

“The bureau believes that, given the facts and circumstances of this example (automated underwriting system), approval at the time of consummation was invalid because it was based on inaccurate information provided by the creditor. Therefore, the loan was never a qualified mortgage.”

The CFPB issued the proposed rule April 19. The comment period ends June 3.