1/15/14
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The Consumer Financial Protection Bureau (CFPB) has issued the final regulations to implement the Ability to Repay (ATR) and Qualified Mortgage (QM) provisions under the Dodd-Frank Act.
Greenbox Loans is providing information on ATR and QM rules and Greenbox requirements. Sellers are responsible to ensure all loans submitted for purchase to Greenbox are in compliance with ATR, QM and Greenbox guidelines. Additionally, Sellers are responsible to ensure all applicable disclosures required under the ATR and QM provisions of the Dodd-Frank Act are provided. Sellers should consult with their own legal counsel to guarantee compliance.
ATR and QM Effective Date
• Conventional, VA, and USDA Loans: ATR and QM rules apply to loan applications dated on or after January 10, 2014.
• FHA Loans: ATR and QM rules apply to case numbers assigned on or after January 10, 2014. If a case number is re-issued, the date of the most recently issued case number will apply.
Transactions Covered by ATR and QM Rules
ATR and QM rules apply to the following:• Purchase and refinance transactions secured by owner-occupied and second homes.
ATR and QM rules do not apply to the following:
• Investment property
NOTE: Investment properties that are for business purposes are exempt from QM rules. If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to ATR/QM rules.
Additionally, there can be no evidence that the borrower purchased/refinanced the investment property for personal rather than business reasons (e.g. property purchased for a family member). Any indication of personal reasons the loan is subject to ATR/QM rules.
• Construction loans (during the construction phase)
WHOLESALE
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ATR and QM rules also do not apply to the following (which are currently not offered by Greenbox but are provided for informational purposes):
• HELOCs
• Timeshares
• Reverse Mortgages
• Temporary or Bridge loans with a term < 12 months
• Manufactured housing
Overview of Ability to Repay and Qualified Mortgage
The Ability to Repay rule requires lenders to determine that the borrower has a reasonable ability to repay the loan. This requirement is satisfied with an AUS approval or when a government loan is manually underwritten to the applicable Agency and Greenbox guidelines.
A Qualified Mortgage is a loan that meets the standards set forth by the CFPB. A QM loan may be identified as a “Safe Harbor” QM or a “Rebuttable Presumption” QM depending upon the loan’s APR and if it is considered a Higher Priced Mortgage Loan (HPML). See page 3 for additional information
regarding “Safe Harbor”, “Rebuttable Presumption”, and HPMLs.
Additionally, QM rules eliminate interest-only loans, loan terms > 30 years, loans with negative amortization, loans with pre-payment penalties and limit points and fees charged to the borrower.
Temporary Qualified Mortgage and HUD QM
Temporary QM loans are loans that are originated and closed in compliance with Agency guidelines (i.e. Fannie Mae, FHA, VA and USDA).
Conventional and government loans with an “Approve/Eligible” or “Accept” AUS Finding, DTI is subject to AUS Findings. Manually underwritten government loans, the maximum DTI is subject to Agency and Greenbox guidelines.
Temporary QM loans are subject to points and fees limitations (refer to page 4 for details).
Greenbox Loans will only originate Temporary QM and HUD QM loans (loans originated and closed in compliance with Agency and Greenbox guidelines) that pass the points and fees test.
QM Impact to Greenbox Programs
The following details changes Sellers can expect with applications dated or FHA case numbers assigned on or after January 10, 2014.
• No change to current credit/underwriting guidelines
• Changes to FHA HPML calculations (refer to the HPML topic on page 3)
• A points and fees test will be required on all loans to ensure QM compliance (refer to Points and Fees topic on page 4)
• ECOA requirement that all borrowers must receive a copy of the appraisal(s)/valuation(s) used to determine the value of the property securing the loan
• HOEPA requirement that borrowers are aware they may obtain homeownership counseling
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Higher Priced Mortgage Loans (HPML)
QM defines higher priced mortgage loans as loans where the APR exceeds the APOR by 1.50%. Greenbox's current policy regarding higher priced mortgage loans is that Greenbox is willing to originate HPML loans provided that the debt-to-income ratio does not exceed 43%.
Under QM, FHA defines a higher priced mortgage loan as a loan where the APR exceeds the APOR by 1.15% plus the annual MIP rate.
To view the APOR tables on the Federal Financial Institutions Examination Council website click on the links below:
• APOR Table - Fixed Rate
• APOR Table - ARMs
Safe Harbor
Loans that meet QM requirements, and are not a higher priced mortgage loan are entitled to Safe Harbor protection which means the lender has met the ATR requirements and has certain legal protection if the borrower goes into default/foreclosure in the future.
Rebuttable Presumption
Loans that are a higher priced mortgage loan (meaning they exceed the APR thresholds stated above) are entitled to Rebuttable Presumption protection assumes the lender complied with the ATR. Rebuttable Presumption does not provide the same protection as Safe Harbor. Under Rebuttable
Presumption if a borrower goes into default/foreclosure in the future, the borrower would be required to demonstrate that they did not have adequate residual income/assets to meet their debt obligations/living expenses at the time the loan closed.
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Points and Fees
The points and fees for a QM loan are subject to the following:
• Loan amounts ≥ $100,000 are limited to 3% of the total loan amount* (Greenbox is limiting the amount to 2.75%.)
• Loans from $60,000 to 99,999 are limited to a $3,000 flat fee
*NOTE: For purposes of the points and fees calculation under the ATR/QM rule, the total loan amount is calculated by taking the amount financed, as determined according to § 1026.18(b), and deducting any cost listed in § 1026.32(b)(1)(iii) [real-estate related fees], §1026.32(b)(1)(iv) or (iv) [prepayment penalties when refinancing with the same creditor] that is both included as points and fees under § 1026.32(b)(1) and financed by the creditor.
The following is a basic list of what can be included and what is excluded from the points and fees test.
Points and Fees Test
Included Excluded
Loan origination fees Prepaid interest
Commitment fees Upfront and monthly FHA MIP
Lock fees VA funding fee
Upfront conventional MI paid by the borrower USDA guarantee fee Excess discount points (greater than 2% bona fide) OR
Any non-bona fide discount points Bona fide discount points – maximum 2% Fees normally considered APR fees under Truth-in-
Lending/Reg Z Fees normally not considered APR fees under Truth-in-
Lending/Reg Z Fees paid to and retained by a Seller’s affiliate
Broker compensation Escrows for taxes and insurance
Up to 2 discount points can be excluded from the fees/points if the discount is to reduce the rate as long as the initial rate without discount does not exceed the APOR by more than 1%. If the initial rate without discount exceeds 1%, but not more than 2%, than 1 discount point can be excluded.
Sellers Concessions can cover non-affiliated discount points and finance charges without being included in the 3% cap. Seller credits CANNOT be applied to broker fees.
Greenbox will require documentation indicating compliance with QM and how fees were applied including fees retained by the Seller. Greenbox will not mandate the use of a specific form; Sellers may utilize their own form, a compliance vendor report or an LOS generated form.
Loans that receive an “Approve/Eligible”, “Accept” AUS Finding or are manually underwritten (government loans only) to Agency and Greenbox guidelines will be considered as meeting QM rules if they pass the applicable points and fees test.
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Summary
Greenbox requirements for loans with an application dated on or after January 10, 2014 are:
• Temporary QM loans i.e. loans that are originated and closed in compliance with Agency and Greenbox guidelines, met either the Safe Harbor or Rebuttable Presumption provisions and
pass the applicable points and fees test are eligible for purchase.
• Borrower paid single premium and split premium mortgage insurance are no longer available. Loans submitted for purchase with borrower paid single premium or split premium must have a loan application dated prior to January 10, 2014.
• As of this time, the CFPB and the Agencies have not issued any guidance on how to cure errors after loan closing; consequently Greenbox will not allow any cures and/or purchase any loan with errors or compliance related issues. Greenbox will provide additional information on this topic if it becomes available.
