Applying Mortgage Knowledge to Exam Preparation: General Mortgage Knowledge Flashcards
What Are Qualified Mortgages?
A qualified mortgage is a closed-end loan that meets the following product feature prerequisites:
- The periodic payments are sufficient to pay the principal and interest due and will not result in negative amortization
- The loan does not allow the borrower to defer repayment of the principal (e.g. interest-only loans)
- The loan does not include a balloon payment feature (with some limited exceptions)
- The loan’s term does not exceed 30 years
- The points and fees for the loan do not exceed 3% of the total loan amount (with some limited exceptions), and
- The borrower’s debt-to-income ratio does not exceed 43%
-This DTI ratio limit is only in effect until October 1, 2022. From that date forward, an
APR threshold will be used. More information about this is discussed in a later section of this course.
What is a covered transaction?
closed-end consumer credit transactions secured by a dwelling.
note: These not only include transactions secured by a principal dwelling, but also secured by second homes or investment properties.
What is a General QM (Qualified Mortgage)
The revised general QM category follows the same underwriting standards as the typical qualified mortgage product that has been in place since the QM Rule was implemented, with one notable difference:
the elimination of the 43% debt-to-income ratio limit.
general QMs qualify based on an APR limit.
A loan will meet the general QM definition only if, the APR exceeds the average prime offer rate (APOR) for a comparable transaction by no more than 2.25%.
What is a Seasoned QM (Qualified Mortgage)
A residential mortgage loan is a seasoned QM and benefits from the conclusive presumption of compliance with the ATR/QM Rule if it:
- Satisfies certain product restrictions
- Does not exceed a points and fees limit
- Satisfies underwriting requirements
- Is held in portfolio until the end of the seasoning period (with limited exceptions)
- Meets certain performance standards at the end of the seasoning period
Seasoned QM restrictions
The applicable product restrictions are as follows:
- The loan must be a first lien
- The loan must have a fixed interest rate
- Adjustable-rate and step-rate loans are not acceptable for this category
- The loan has regular, substantially equal, fully amortizing payments that repay the loan over its term
The loan does not allow for:
- Negative amortization
- Balloon payments
- The loan term does not exceed 30 years
- The loan is not a high-cost mortgage as defined by HOEPA
- Higher-priced mortgage loans may be seasoned QMs if they meet all other prerequisites described here
- The points and fees do not exceed the threshold set out in the ATR/QM Rule (generally 3%, though variable based on loan amount)
note: To qualify as a seasoned QM, at the end of its seasoning period, the loan must have: - No more than two delinquencies of 30 or more days, and
- No delinquencies of 60 or more days
What is the seasoning period for Seasoned QM?
Generally, the seasoning period to qualify as a seasoned QM is 36 months, beginning from the date on which the first periodic payment is due after consummation.
What two scenarios may affect the end of the seasoning period for Seasoned QM
-The borrower is delinquent for a period of 30 days or more at the end of the final month of seasoning, in which case the seasoning period is extended until there is no more delinquency, or
-The borrower obtains a temporary payment accommodation in connection with a disaster or pandemic-related national emergency, the time for which does not apply to the seasoning period
The seasoning period will only resume after the temporary payment accommodation ends and delinquency, if any, is cured through the loan’s original terms or through a qualifying change
What two scenarios may affect the end of the seasoning period for Seasoned QM
- The borrower is delinquent for a period of 30 days or more at the end of the final month of seasoning, in which case the seasoning period is extended until there is no more delinquency, or
- The borrower obtains a temporary payment accommodation in connection with a disaster or pandemic-related national emergency, the time for which does not apply to the seasoning period
Note: The seasoning period will only resume after the temporary payment accommodation ends and delinquency, if any, is cured through the loan’s original terms or through a qualifying change
What is a small creditor?
A small creditor is a creditor that:
- At the end of the preceding calendar year, the creditor had assets worth less than $2 billion (this amount will be adjusted annually), and
- The combined first-lien originations of the creditor and its affiliates did not exceed 2,000 first-lien covered transactions during the preceding calendar year
What are small creditor qualified mortgages (QM)
qualified mortgages from a small creditor that feature:
- No negative amortization
- A loan term that does not exceed 30 years
- Compliance with the 3% points and fees cap that is established for qualified mortgages
