With the mandatory compliance date for the new, revised General QM loan definition just on the horizon, banks should ensure their implementation plans are in place. In terms of a quick-look at dates, CFPB issued a final rule on December 29, 2020 (Final Rule) which amends the General QM loan definition in Regulation Z. The Final Rule included a mandatory compliance date of July 1, 2021. However, on April 27, 2021, CFPB extended that mandatory compliance date to October 1, 2022. The General QM Final Rule was effective on March 1, 2021 and, among other things, replaces the existing 43 percent debt-to-income ratio limit with price-based thresholds. As such, it presents the potential for significant changes to a bank’s mortgage lending operation.
To expand upon the new price-based thresholds with a general summary: a loan meets the revised General QM definition only if the annual percentage rate exceeds the average prime offer rate for a comparable transaction by less than the applicable threshold set forth in the Final Rule as of the date the interest rate is set. Additionally, the Final Rule removes Appendix Q as well as any requirements to use Appendix Q for General QM loans. Consequently, it amends the consider and verify requirements in Regulation Z and its associated commentary. First, it outlines the minimum considerations required by creditors, including, for example, the consumer’s current or reasonably expected income or assets. Second, it requires that creditors verify those considerations using reasonably reliable third-party records and reasonable methods and criteria.
Banks have likely already taken time to evaluate the categories of QMs they originate, and how the revised General QM definition may or may not affect its current loan policy and underwriting procedures. Even banks which originate Small Creditor QMs should still consider the extent to which they may or may not original General QMs. For example, does bank originate General QMs? Will it continue to do so, or will it exclusively utilize the Small Creditor QM exception, if applicable?
Given the mandatory compliance date of October 1, 2022 banks should confirm that their implementation steps are in place. Banks should prepare to fully transition current policies and procedures to conform with the new definition and consider what training might be necessary in advance of and after the transition.
As an additional resource, WBA has prepared an ATR/QM Toolkit to assist bankers.