VA Issues QM, Safe Harbor Rules

The Veterans Administration has issuedrnan interim final rule defining what constitutes a QM or qualified mortgage underrnVA loan rules.  The rule, which will bernavailable for public comment until June 9, replaces a temporary rule issued byrnthe Consumer Financial Protection Bureau in January.  </p

That rule essentially defined all closed-end residentialrnmortgage loans as QMs if they were eligible for purchase or guarantee by FHA,rnthe VA, USDA, or the government sponsored enterprises (GSEs) Fannie Mae andrnFreddie Mac.  That rule granted QM safernharbor even to loans that did not have the 43 percent debt-to-income ratiornrequired of loans written by other lenders and was to be in effect until Januaryrn2021 or until each of the named agencies issued its own QM rule. </p

The interim VA rule, which became effectivernon May 9, defines a QM loan with safe harbor for VA purposes as all purchasernmoney loans guaranteed or insured by the VA with the exception of certainrninterest rate reduction refinance loans (IRRRL)   The VA includes in this rule any loan maderndirectly by VA to a borrower, loans made by a vendor to purchasers of VArnproperties acquired through foreclosure (REO), and direct Native Americanrnloans.</p

Under the interim rule all IRRRL loansrnare considered QM loans but not all are eligible for the safe harborrndesignation.  To receive safe harborrnprotection the loans must be originated to refinance a loan that has aged arnminimum of 6 months and which has not been more than 30 days past due duringrnthe preceding six months.  The recoupmentrnfee for all fees and charges financed as part of the loan or paid at closingrnmay not exceed 36 months.  Even where anrnIRRRL does not meet safe harbor requirements the lender is still entitled to arnrebuttable presumption that the loan met the ability-to-repay requirements.  Thernrule also excludes IRRRLs from the CFPB’s income verification requirements ifrnpoints and fees do not exceed 3% of the total loan amount where that loan amountrnexceeds 100,000.   </p

The VA noted that 95,000 of thernloans that the VA guaranteed in 2013 exceeded the 43 percent DTI level andrnabout 5,000 would have exceeded the APR limit to qualify for the QM safernharbor. The Department said it issued the interim final rule to ease concernsrnof veterans, lenders, and investors about the availability of and market for itsrnloans.

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