Lenders originating loans with private mortgage insurance might get squeezed under the QM rule’s 3% points and fees cap.
The final qualified mortgage rule issued by the Consumer Financial Protection Bureau exempts upfront premiums that Federal Housing Administration charges from the 3% cap. The FHA upfront fee is currently 175 basis points.
But PMI upfront premiums that exceed 175 bps will be included in the 3% cap, according to the final QM rule that goes into effect next January. PMI upfront premiums can be as high as 250 bps.
If a PMI premium payable at or before consummation exceeds the FHA insurance premium, “the portion of the private mortgage insurance premium that exceeds the FHA premium must be included in points and fees,” CFPB says in the preamble of the QM rule.
PMI companies are struggling to gain market share from FHA and the QM rule is not going to help.
Lenders will have to reduce other fees to include PMI premiums within the 3% cap or charge a higher interest rate, according to Brian Chappelle, a mortgage consultant.
This creates “another hurdle to meeting the 3% ceiling on fees and charges,” he said.
The Mortgage Insurance Cos. of America could not be reached for comment.