GMFS Compliance Update – Fannie Mae and Freddie Mac – Early Adoption of the General QM Rule

BACKGROUND

On December 10, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule amending the Ability-to-Repay/Qualified Mortgage (“ATR/QM”) definition. The General ATR/QM definition applies to first lien mortgage loans secured by a home for personal, family, or household use. Meaning, it applies to primary residences and second homes, but does not apply to investment properties.

Highlights of the new General ATR/QM rule and its impacts are as follows:
• General QM replaces the existing 43% debt-to-income limitation with a tiered price-based threshold, generally 2.25% above the Average Prime Offer Rate (“APOR”), although there are different thresholds for loan amounts below $110,260.00 (subject to annual market adjustments).
• Within the general 2.25% threshold, there are two categories of General Qualified Mortgages:
o Safe Harbor Qualified Mortgage – Loans with an APR no more than 1.49% above APOR
o Rebuttable Presumption Qualified Mortgage (HPML Loans) – Loans with an APR between 1.50 – 2.25% above APOR.
• Loans with an APOR more than 2.25% above APOR are Non-QM loans. Other than non-conforming (jumbo) loans, GMFS does not make non-QM loans.
• The “Temporary QM” definition will be eliminated. The temporary QM definition considered any loan that is eligible for delivery to the agencies (i.e. Fannie Mae, Freddie Mac) a Qualified Mortgage.
• Appendix Q is being eliminated and replaced with general language that lenders must “consider and verify” the consumer’s ability to repay
The initial mandatory compliance date was July 1, 2021, however, the CFPB later announced an extension of the mandatory compliance date until October 1, 2022. Although the CFPB extended the mandatory compliance date, Fannie Mae and Freddie Mac announced that they will proceed with adopting the new price-based General QM rule for loan applications dated on or after July 1, 2021. Loan applications dated prior to July 1, 2021 must be purchased by and delivered to by August 31, 2021.

LOANS MOST LIKELY TO BE IMPACTED
Since the new General QM definition is price based, the most likely impacted loans will include, but not be limited to, loans with the following characteristics:
• Borrowers with multiple price adjustments, for example, low FICO, High DTI, cash out
• Borrowers paying non-bona fide discount points.
• Although loan amounts below $110,260 have a higher threshold, lower loan amounts are more likely to be impacted

WHOLESALE- IMPLEMENTATION PROCEDURES
The new price based rule has already been put into production and applied to active loans (i.e. loans in my pipeline) with application dates on or after March 1, 2021, that have not yet been locked, or have lock expiration dated after July 15, 2021, or will not close by July 15, 2021. In the event a loan exceeds the applicable General QM definition (based on tiered loan amount scale), which will present both an Encompass system alert and a Mavent fail, observe the following policy:
• Contact the lock desk and adjust pricing in an amount sufficient to bring the loan within the applicable General QM tolerance
• If the loan cannot be reasonably brought within the General QM price based thresholds, submit a decline request using the Adverse Action Request form to decline the loan using the reason “APR exceeds QM limits”

NON-DELEGATED AND DELEGATED CORRESPONDENT – IMPLEMENTATION PROCEDURES
The following submission guidelines are effective immediately on all correspondent
Closed Loans with Applications Dated Prior to July 1, 2021 –
In order to be eligible for purchase, Correspondent clients must deliver closed loans with application dates dated prior to July 1, 2021 no later than July 15, 2021.

Active Loans –
GMFS recognizes that a correspondent’s locked price with GMFS may not necessarily translate to the price locked with the consumer. Therefore, effective immediately, in the event GMFS’ compliance testing system, Mavent, does not present a passing result for the new General QM price based rule, GMFS will request that the correspondent provide additional documentation, which may include:
o A copy of the correspondent’s compliance testing report (i.e. Mavent, Compliance Ease, or equivalent) reflecting a passing result for the General QM price based rule
o Loans that do not reflect a passing result for the General QM price based rule are ineligible for purchase
o A copy of the lock confirmation with the consumer, including lock date, rate, discount points (if applicable), and pricing adjustments (if applicable)
o If a loan does not pass the General QM price based test based on the correspondent’s lock information with the customer, the loan is ineligible for purchase

REFERENCE MATERIAL:
Click the below link for more detailed information concerning the new Ability-to-Repay/General Qualified Mortgage rules, including the complete price based tier structure. A copy of the announcement from Fannie Mae is also linked below:
https://files.consumerfinance.gov/f/documents/cfpb_atr-qm-final-rule-amendments_executive-summary_2020-12.pdf
https://singlefamily.fanniemae.com/media/25856/display