Reg Z – Unpacking the General QM Final Rule & Delayed Compliance Date
The Consumer Financial Protection Bureau (Bureau) has made final a rule delaying the General Qualified Mortgage (QM) final rule’s mandatory compliance date from July 1, 2021, to October 1, 2022, which goes into effect on June 30, 2021. The General QM final rule was originally issued by the Bureau on December 10, 2020, with a mandatory compliance date of July 1, 2021. The General QM final rule amended Regulation Z to remove the General QM loan debt-to-income (DTI) limit and replace it with a limit based on the loan’s pricing. The final rule indicates the annual percentage rate (APR) must not exceed the average prime offer rate of a comparable transaction by 2.25 or more percentage points as of the date the interest rate is set to meet the definition of a QM. Higher thresholds are set for smaller loan amounts, certain manufactured housing loans, and subordinate-lien transactions.
According to the Federal Register, “for covered transactions for which creditors receive an application on or after March 1, 2021, but prior to October 1, 2022, creditors will have the option of complying with either the original, DTI-based General QM loan definition or the revised, price-based General QM loan definition.” After October 1, 2022, the original DTI-based General QM definition will no longer be available.
The rule also extends the Temporary Government-Sponsored Enterprises (GSE) QM loan category, which was set to expire on the earlier of July 1, 2021, or the date the applicable GSE exits the federal conservatorship. Under the final rule mentioned above, the temporary GSE loan definition will expire on the earlier of October 1, 2022, or the date the applicable GSE exits the federal conservatorship.
To recap, there were three amendments to Regulation Z issued in 2020 related to ability to repay and qualified mortgages:
- Patch Extension Final Rule – Issued October 26, 2020
- General QM Final Rule – Issued December 10, 2020
- Seasoned QM Final Rule – Issued December 10, 2020
The final rule is effective June 30, 2021, and affects the Patch Extension final rule and General QM final rule. The Seasoned QM final rule is not affected at this time. According to the February 23, 2021, “Statement on Mandatory Compliance Date of General QM Final Rule and Possible Reconsideration of General QM Final Rule,” the Bureau would consider issuing another final rule to revisit the Seasoned QM final rule and other aspects of the General QM final rule. The Seasoned QM final rule created a new category of QMs for first lien, fixed-rate covered transactions. Three performance requirements must be met for the new category over a seasoning period of at least 36 months:
- Covered transactions must be held in portfolio by the originating creditor or first purchaser until the end of the seasoning period
- Covered transactions must comply with general restrictions on product features and points and fees
- Covered transactions must meet certain underwriting requirements
For more information, see the General QM final rule, issued April 30, 2021, and effective June 30, 2021. If you have questions or would like assistance, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.