HUD - Qualified Mortgage Proposal for FHA Loans

Executive Summary

 

· The Department of Housing and Urban Development (HUD) is required under the Dodd-Frank Act to issue its own qualified mortgage rule, separate from the one issued earlier this year by the Consumer Financial Protection Bureau (CFPB).

· The Department of Veterans Affairs, Department of Agriculture, and the Rural Housing Service are also required under the same provision of the Dodd-Frank Act to issue their own qualified mortgage rules, in addition to HUD’s proposed rule and that which the CFPB has already issued.

· For its Title II mortgages, HUD proposes to define “qualified mortgage” with both a safe harbor and a rebuttable presumption of compliance, but these two terms will be defined differently than the safe harbor and rebuttable presumption terms as defined under the CFPB’s qualified mortgage rule.

· Under HUD’s proposed safe harbor, the rule would require a qualified mortgage to meet the CFPB’s points and fees test, and have an annual percentage rate (APR) for a first-lien single-family mortgage that does not exceed the average prime offer rate (APOR) by the sum of the annual mortgage insurance premium (MIP) plus 1.15%.

· Under HUD’s rebuttable presumption, the rule would require a qualified mortgage to meet the CFPB’s points and fees test, and have an APR for a first-lien single-family mortgage that exceeds the APOR for a comparable mortgage, as of the date the interest rate is set, by more than the sum of the annual MIP plus 1.15%.

· HUD also proposes to designate Title I (home improvement loans), Section 184 (Indian housing loans) and Section 184a (Native Hawaiian housing loans) to be safe harbor qualified mortgages, and HUD is not proposing to change any of the underwriting requirements of these loan products.

· The points and fees limitation would not apply to mortgages insured under HUD’s Title I Property Improvement Loan Insurance program.

· HUD’s proposed rule does not have a debt-to-income (DTI) ratio requirement, unlike the CFPB’s rule.

· Reverse mortgages would not be deemed qualified mortgages under HUD’s proposed rule.

· FHA streamlined refinances would have to comply with HUD’s qualified mortgage rule, and would be required to meet the points and fees requirements and other HUD requirements for FHA-streamlined refinances.

HUD plans to finalize its QM rule and have it become effective on the same date as the CFPB’s QM rule becomes effective – January 10, 2014.