CFPB Proposes New “Seasoned Qualified Mortgage”

On August 18, 2020, the CFPB issued a notice of proposed rulemaking that would establish a new type of qualified mortgage, called a “seasoned qualified mortgage” (Seasoned QM), which would grant QM status to certain loans held in a creditor’s own portfolio for three years.  Comments on the Seasoned QM proposal are due 30 days after the proposal is published in the Federal Register.

Under the proposal, a loan, even if it is a higher-priced covered transaction, would be a Seasoned QM and therefore receive safe harbor from liability under the ATR/QM Rule if the loan meets certain product restrictions and satisfies certain performance requirements while held in portfolio during a 36-month seasoning period.  Generally, the product restrictions require that: (1) the loan is secured by a first-lien; (2) the loan has a fixed-rate, with fully amortizing payments and no balloon payment; (3) the loan term does not exceed 30 years; and (4) the total points and fees do not exceed specified limits (i.e., the same limits that apply to other QMs under the ATR/QM Rule).  A creditor would have to consider the consumer’s DTI ratio or residual income and verify the consumer’s debt obligations and income for a loan to be eligible to become a Seasoned QM.  However, such loan would not need to satisfy the current 43% DTI ratio cap and Appendix Q to Regulation Z verification requirements. Further, the loan could have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days during the 36-month seasoning period to comply with the proposal’s performance criteria.