CFPB proposes a brand new class of "skilled" certified mortgages

The Consumer Financial Protection Bureau is proposing the creation of an entirely new category of loans, known as "seasoned" qualified mortgages, to protect lenders from legal liability for obtaining risky loans.

The CFPB announced on Tuesday in a 130-page notice about the proposed rule setting that fixed-rate loans with first lien that have been held on a lender's balance sheet for more than 36 months could qualify for so-called QM status – the current one Gold standard for home loans – based in part on a borrower's payment history over the past three years.
Consumer advocates immediately criticized the plan, saying it would allow lenders to issue expensive loans with no consequences and it contradicts the Dodd-Frank Act's requirement that lenders trust a borrower's ability to repay a loan and belief must determine.

The CFPB said loans could be given "skilled" QM status even if they had two 30-day arrears at the end of roughly a three-year seasonal period. Loans in forbearance plans, where the borrower can waive mortgage payments for up to a year due to the coronavirus pandemic, could ultimately also qualify for experienced QM status, the CFPB said, as long as certain conditions are met.

The office said a disaster or pandemic-induced national emergency would not exclude a loan from a senior QM loan if the borrower was given temporary payment accommodation and made full contractual payments.

"Today's proposal continues the Bureau's work to promote safe and responsible innovation in the mortgage market," CFPB Director Kathy Kraninger said in a press release. "Our goal through our very deliberate rulemaking process is to protect, promote, and maintain the financial well-being of American consumers while providing access to responsible, affordable mortgage credit."

The CFPB asks for comments within 30 days.

The CFPB has two other proposed QM loan schemes in the works that address the competitive advantages of loans sold to Fannie Mae and Freddie Mac.

The CFPB said in June that it plans to revise the definition of a “qualifying mortgage” by replacing a debt-to-income limit of 43% with a price-based approach. The CFPB has also extended an exemption for government-sponsored companies known as the GSE patch to mid-2021.

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

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