CFPB Provides QM Exemptions for Refinancing Risky Loans

The final qualified mortgage rule provides a wide exemption from the ability to repay underwriting standards when lenders refinance borrowers with hybrid ARMs, negative amortization loans and other toxic mortgages.

The borrowers must be current on these mortgages that where popular before the subprime market crashed in 2008.

Lenders will enjoy a safe harbor from litigation if they refinance these borrowers into a “standard mortgage” with fixed rates for at least five years that reduces the borrower’s monthly payments.

“The purpose of this provision is to provide flexibility for creditors to refinance a consumer out of a risky mortgage into a more stable loan without undertaking a full underwriting process,” the Consumer Financial Protection Bureau said.

This provision to encourage the refinancing of risky loans—like the entire QM rule—does not go into effect until Jan. 10, 2014.

The CFPB is also seeking public comments on extending the QM exemptions to nonprofit groups and housing finance agencies that traditionally serve low- and moderate-income consumers.

Separately, housing advocates at the Neighborhood Assistance Corp. of America are disappointed that the CFPB is not taking more forceful actions to help current homeowners who were victimized by lenders in the past.

“Thousands of homeowners are losing their homes everyday while CFPB and their director Richard Cordray sit on the sidelines doing absolutely nothing. When the new rules go into effect in 2014,” Marks said, “the landscape will be very different with many more communities devastated due to CFPB’s failure as the consumer watchdog.”