New CFPB Clarifications Add to Regulatory Framework

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On April 19, the Consumer Financial Protection Bureau issued clarifications to its qualified mortgage rules. In large part, these clarifications provide additional substance and details relating to the determination of the debt to income ratio. In particular, the rules provide guidance on how rental income and self-employed income can be considered, as well as issues pertaining to the use of employment records and business credit reports.

Importantly, the CFPB also issued clarification to the temporary QM exception—those loans that do not need to meet otherwise applicable QM standards to be considered a qualified mortgage. In particular, the proposed rule clarifies that loans that meet eligibility requirements set forth in any agreement between a GSE/federal agency and a creditor will be considered a qualified mortgage. The loans need not meet the GSE’s guidelines to be considered qualified. Further, to satisfy the QM requirements, loans need not meet the loan deliverable mandates and other similar metrics unrelated to assessing a borrowers’ ability to repay.  Of course, this exception to the QM rules expires after seven years.

The proposal also clarifies that a repurchase demand by a GSE or federal agency is not dispositive for determining QM status. In addition, it provides guidance for determining which servicers fall under the small servicer exemption. Specifically, mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgages, and mortgage loans secured by a consumer’s interest in a timeshare will not be considered in determining small servicer status.

Comments to the above proposal must be received within the 30 days following publication in the Federal Register.