GSEs Begin Qualified Mortgage Rollout; Purchases Restricted in 2014

Freddie Mac and Fannie Mae, as directed by thernFederal Housing Finance Agency (FHFA), took the first steps in implementationrnof the new “Qualified Mortgage” (QM) rules today.  The two GSEs sent letters to lenders from whornthey purchase loans outlining requirements for acquisitions after the Januaryrn10, 2014 effective date of the rule.  Thernrule requires lenders to make reasonable determinations of a consumer’s abilityrnto repay the debt in order to be considered “qualified.”  QM regulations are mandated by the Dodd FrankrnWall Street Reform and Consumer Protection Act.</p

Loans with applications dated on or after January 10, 2014 will have to either meet the ability to repay rule or be exemptrnfrom it such as in an investor transaction. rnEffectively this means that neither Freddie nor Fannie will be able tornpurchase loans if they are subject to the ability to repay requirements AND if the loan:</p<ul class="unIndentedList"<liIs not fully amortizing</li<liHas a term in excessrnof 30 years;</li<liHavs points and feesrnin excess of 3 percent of the total loan amount or such other limits for lowrnbalance loans as set forth in the ability to repay rule.</li</ul

The GSEs will continue to purchase loans that meetrnthe underwriting and delivery eligibility requirements in their respectivernselling guides including loans processed through their automated underwritingrnsystems and loans with debt-to-income ratios greater than 43 percent.  </p

For loans dated on or after January 10,rn2014, the GSEs will rely upon lender selling representations and warranties thatrnthey are qualified mortgages and will determine if changes are required to thernpost-purchase file review processes or repurchase requirements or if furtherrnupdates are needed to the overall representation and warranty framework.

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