CFPB proposes a new category of 'seasoned' qualified mortgages

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The Consumer Financial Protection Bureau is proposing the creation of an entirely new category of loans known as “seasoned” qualified mortgages that would protect lenders from legal liability for making risky loans.

The CFPB said Tuesday in a 130-page notice of proposed rulemaking that first-lien, fixed-rate loans that have been held on a lender’s balance sheet for over 36 months could become eligible for so-called QM status — the current gold standard for home loans — based in part on a borrower’s past three years of payment history.

Consumer advocates immediately criticized the plan, saying it would permit lenders to make high-cost loans with no consequences and that it contradicts the Dodd-Frank Act's requirement that lenders make a good faith determination of a borrower’s ability to repay a loan.

The CFPB said loans could gain "seasoned" QM status even if they have two, 30-day delinquencies at the end of a roughly three-year seasoning period. Loans in forbearance plans allowing the borrower to forgo mortgage payments for up to a year because of the coronavirus pandemic could ultimately become eligible for seasoned QM status as well, the CFPB said, as long as certain conditions are met.

The bureau said that a disaster or pandemic-related national emergency would not disqualify a loan from becoming a seasoned QM loan if the borrower received a temporary payment accommodation and made full contractual payments.

“Today’s proposal continues the Bureau’s work to encourage safe and responsible innovation in the mortgage origination market,” CFPB Director Kathy Kraninger said in a press release. “Our goal through our very deliberative rulemaking process is to protect, promote and preserve the financial well-being of American consumers while at the same time offering access to responsible, affordable mortgage credit.”

The CFPB is asking for comments within 30 days.

The CFPB has two other proposed rulemakings on QM loans in the works that deal with the competitive advantages given to loans sold to Fannie Mae and Freddie Mac.

The CFPB in June said it planned to revise the definition of what constitutes a qualified mortgage, by replacing a 43% debt-to-income ratio limit with a price-based approach. The agency also has extended an exemption given to the government-sponsored enterprises known as the GSE patch until mid-2021.

Consumer advocates said the proposal would be subject to a challenge under the Administrative Procedure Act, which governs how agencies issue regulations.

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Qualified Mortgages CFPB Qualified mortgage rules Coronavirus Underwriting Consumer lending Kathy Kraninger
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