Last Thursday, the Consumer Financial Protection Bureau (CFPB) released the “qualified mortgage” rule setting guidelines to ensure that home loans will be given only to qualified borrowers who can repay them, thus protecting consumers from predatory lending. Lenders who follow these rules in making a loan will be protected from liability.

While the QRM (qualified residential mortgage) overseen by the Federal Reserve has not yet been announced, the National Association of REALTORS® applauds the CFPB for creating a broadly defined Qualified Mortgage rule that establishes strong consumer protections while ensuring continued access to safe, affordable mortgage credit.

Under the new guidelines, which take effect on January 2014, lenders must obtain and verify an applicant’s financial information, including employment status, income, assets, debts, and credit history. Borrowers must have enough income or assets to repay the loans. Interest-only and undocumented income mortgages, including loans in excess of 30 years or in which the principal increases over time, will no longer be allowed.

Under the “ability to repay” rule set by the new guidelines, lenders will be required to look at a borrower’s ability to repay over the long term by looking at a borrower’s current income and assets, employment status, credit history, the mortgage monthly payment, other payments like property taxes and other debt obligations. A borrower’s total debt obligations, including the mortgage and other loan obligations is limited to 43 percent of the borrower’s monthly income.

There is no minimum down payment requirement for qualified mortgages. Earlier proposals of a down payment of as much as 20 percent in order to qualify for a mortgage raised concerns that such a requirement would disqualify potential borrowers from owning a home.

Banks are not required to follow either the QM or QRM rules; however, they probably will. By following the QM guidelines, lenders get a measure of protection from litigation. By following the QRM guidelines not yet announced, banks will be able to sell their loans to Fannie Mae and Freddie Mac.

NAR urges regulators to mirror the forthcoming Qualified Residential Mortgage rule after the QM rule to ensure affordable credit remains available to qualified borrowers.

SEE NAR’S SUMMARY OF THE QUALIFIED MORTGAGE (QM) RULE

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