HUD QM Rule Announced; Closely Mirrors CFPB QM

ThernDepartment of Housing and Urban Development (HUD) has issued its final rulerndefining a “Qualified Mortgage” (QM) as required by the Dodd-Frank Act.   Thernnew rule, HUD says, builds off of the existing QM rule issued by the ConsumerrnFinancial Protection Bureau (CFPB) earlier this year.  Like the CFPB QM the new HUD, which appliesrnonly to loans insured, guaranteed, or administered by HUD/FHA will go intorneffect on January 10.</p

In orderrnto be a qualified mortgage as defined by HUD as loan must meet the followingrnrequirements:</p<ul class="unIndentedList"<liRequire periodic payments withoutrnrisky features;</li<liHave terms not to exceed 30 years;</li<liLimit upfront points and fees to nornmore than three percent with adjustments to facilitate smaller loans (exceptrnfor Title I, Title II Manufactured Housing, Section 184,Section 184A loans andrnothers as detailed below); and</li<liBe insured or guaranteed by FHA orrnHUD.</li</ul

HUD’s rule establishes tworntypes of QM.  The Rebuttable PresumptionrnQM will have an annual percentage rate (APR) greater than the Average PrimernOffer Rate (APOR), the rate for the average borrower receiving a conventionalrnmortgage, plus 115 basis points plus the on-going (FHA) Mortgage InsurancernPremium (MIP) rate.  Lenders that offerrnthese loans are presumed to have determined that their borrower meets thernAbility-to-Repay standard set out in the Truth-in-Lending Act (TILA) but consumersrncan challenge that presumption by proving they did not have sufficient income tornpay the mortgage and other living expenses.</p

The second type of qualifiedrnmortgage is the Safe Harbor QM.  Thesernloans must have an APR less that that laid out under the formula above forrnRebuttable Presumption loans.  This QArntype offers lenders the greatest legal certainty they are complying withrnTILA.  Consumers can still challengerntheir lender but only on the basis that their loan does not meet Safe Harborrnrequirements.</p

HUD has alsornadopted CFPB’s list of transactions that are exempt from the ability-to-repayrnrequirements including Reverse Mortgages; short term (12 months or less) bridgernloans, construction to permanent loans, and a list loans available under specializedrnHUD financing</p

The new QArnrule also covers Title II manufactured housing, Title I manufactured housingrnand property improvement loans, Section 184 Indian Home Loan Guarantee Programrnmortgages, and Section 184A Native Hawaiian Housing Loan Guarantee Programrnmortgages. The rule designates loans insured under these programs as SafernHarbor Qualified Mortgages regardless of upfront points/fees and APR tornAPOR ratio so as not to interfere with current lending practices untilrnappropriate parameters can be determined. 

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