Qualified Mortgage (QM)
The Consumer Financial Protection Bureau's QM rule was designed to protect borrowers to ensure they don't pay excessive points and fees on their mortgage, and that ultimately, they have the ability to repay their mortgage.
QM Points and Fees Calculation
The following tables illustrate the impact of MGIC MI rate programs on QM Points and Fees Calculation.
Borrower-paid rate programs
|Include||Do not include|
|Refundable single premiums1||X|
|Non-Refundable single premiums||X|
|Split premiums - Upfront premium||X|
|Split premiums - Monthly premium2||X|
Lender-paid rate programs
|Include||Do not include|
| 1 When MGIC Refundable Single Premiums are cancelled, refunds are calculated on a pro rata basis over a 5-year term. To date, the CFPB has not defined pro rata. However, on 10/17/2013, a CFPB official stated during an MBA-hosted webinar that, barring any state law defining the term, "The Bureau interprets the term pro rata to basically mean proportion… So this generally means that the refund should be proportional to the amount of the time remaining on the policy after the pay off and the total term of the policy. So if you wanted to do it mathematically you would say: 'refund equals total premiums times the time remaining over the term of policy.'" Given this statement by the CFPB and because our refund schedule is based on only a 5-year term, we believe our refundable single premiums should be included in the QM Points and Fees Calculation.
2 Include any split premiums monthly premium required to be paid into escrow at closing. Do not include monthly premium payable after closing.
What is a Qualified Mortgage?
A basic guide for lenders from the Consumer Financial Protection BureauAs of Jan. 10, 2014, you must assess the borrower's ability to repay for virtually all closed-end residential mortgage loans. All Qualified Mortgages (QM) are presumed to comply with this requirement. As described below, a loan that meets the product feature requirements can be a QM under any of three main categories: (1) the general definition; (2) the "GSE-eligible" provision; or (3) the small creditor provision.
Mandatory product feature requirements for all QMs
- Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed);
- No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: Balloon loans originated until Jan. 10, 2016, that meet the other product features are QMs if originated and held in portfolio by small creditors);
- Maximum loan term is less than or equal to 30 years.
Three main QM categories
- General definition – Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM
- "GSE-eligible" – Any loan that meets the product feature requirements and is eligible for purchase, guarantee or insurance by a GSE, FHA, VA or USDA is a QM, regardless of the debt-to-income ratio. This QM category applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until an agency issues its own QM rules, or Jan. 10, 2021, whichever occurs first
- Small creditor – If you have less than $2B in assets and originate 500 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower's debt-to-income ratio (though no specific DTI limit applies)
EXTRA NOTE: Even if a loan is not a qualified mortgage, it can still be an appropriate loan.
You can originate any mortgage (whether it is a QM or not) as long as you make a reasonable, good-faith determination that the consumer is able to repay the loan based on common underwriting factors. You can continue to rely on your sound, tested underwriting guidelines that you have used in the past to make loans that have generally performed well, as long as you document the information you consider.
Learn more about the Ability to Repay Rule: www.consumerfinance.gov/Regulations.
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