How Big A Deal Is FHFA’s Qualified Mortgage Announcement?
by. Henry Meier
Yesterday’s announcement by the FHFA that, effective January 2014, it will only accept mortgages that comply with certain qualified mortgage criteria is actually not as big a deal as it sounds for those of you who sell your mortgages to Fannie or Freddie. Still, it does demonstrate why credit unions should be preparing now for huge adjustments in the mortgage industry.
First, a quick reminder. Under Dodd-Frank and its regulations, lenders must document the criteria they used in determining that a potential homebuyer has the ability to repay a mortgage loan. In addition, mortgages that meet specific criteria mandated by the regulations will be classified as qualified mortgages, which are granted a safe harbor against legal claims and defenses that a borrower never should have been given a mortgage in the first place. For a phase in period of up to seven years, mortgages purchased by government entities including Fannie and Freddie will also be considered qualified mortgages.
According to its press release, beginning on January 10 of next year, Fannie and Freddie will not purchase a loan subject to the ability to repay requirements if the loan is not fully amortizing, has a term longer than 30 years, or includes points and fees in excess of 3% of the total loan amount or “such other limits for low-balance loans as set forth in the rule.”
I quoted that last part because the points and fees provision is potentially the most problematic for credit unions. Since charges such as origination fees will now be included in the calculation of points, credit unions could find themselves up against the three percent cap more often than they expect. However, the regulations promulgated by the CFPB make exceptions for small loans and exclude so-called bona fide points and fees, which are very generally fees retained by a third-party over which the originator exercises no control or has no affiliated relationship. You should take the time to review the points and fees section-by-section analysis in Section 1026.32(b)(1) to get a sense of exactly how much this may impact your mortgage lending.
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