The CFPB recently released a factsheet on the agency’s Ability-to-Repay/Qualified Mortgage rules set to take effect on Jan. 10 that implement new mortgage protections for American consumers.
According to the bulletin, a qualified mortgage is prohibited from having upfront points and fees and cannot be longer than 30 years.
Qualified mortgages also cannot have certain risky features, such as interest-only payments, and must fit one of three criteria: the monthly loan payment combined with the borrower’s other financial obligations cannot exceed 43 percent of borrower’s monthly income, the loan qualifies for purchase and guarantee by Fannie Mae or Freddie Mac or the loan is made by a small lender that keeps the loan in portfolio.
The CFPB said the ability-to-repay rule will not require lenders to offer any specific type of mortgage, and that some of the largest U.S. banks have already indicated that they plan on making loans that fall outside of QM guidelines.
“More importantly, however, the vast majority of loans being made today are already compliant with the QM guidelines,” the factsheet reads. “The CFPB estimates that roughly 92 percent of mortgages in the current marketplace meet the QM requirements, and reports by independent economists have confirmed the Bureau’s calculations.”
The agency also said the ability-to-repay rule does not require all mortgages to cap debt-to-income at 43 percent but “simply requires lenders to evaluate a borrower’s debt-to-income ratio and use their judgement about how much debt a consumer can afford to take on.”
Additionally, the CFPB said requiring lenders to examine documentation such as payroll stubs, loan statements and credit history will ensure consumers can afford to repay their mortgages.
“Without this information, lenders cannot make an accurate assessment of affordability, and borrowers could wind up in over their heads,” the CFPB said.
The CFPB also clarified that the Ability-to-Repay and QM guidelines to not set a minimum down payment requirement or cap all points and fees. Loans not classified as QMs have no restrictions on the total amount of points and fees.