Qualified Mortgages Overview

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Questions and Answers

What is a key requirement for a mortgage to be classified as a Qualified Mortgage?

It must meet the criteria outlined in the Ability to Repay/Qualified Mortgage Rule. (correct)

It must be backed by private insurance.

It must be originated by a national bank.

It must have a fixed interest rate.

Which category of Qualified Mortgages is no longer available for new originations as of October 1, 2022?

Small Creditor

Temporary (correct)

Balloon

General

Who is typically considered a small creditor under the Qualified Mortgage definitions?

A small depository institution with low annual origination volume. (correct)

A large lending institution with multiple branches.

A credit union operating nationwide.

Any lender that offers government-backed loans.

What is true about Balloon Qualified Mortgages?

They can only be issued by institutions defined as small creditors. Signup and view all the answers

What distinguishes the General category from the other Qualified Mortgage categories?

It is the only category relevant to most lenders. Signup and view all the answers

What is the maximum allowable fee percentage for a loan amount of $100,000?

3 percent Signup and view all the answers

Which of the following fees is excluded from the maximum fee calculation for Qualified Mortgages?

Third-party charges Signup and view all the answers

How are Non-QM loans primarily defined in relation to equity requirements?

They require significant equity. Signup and view all the answers

What is the APR threshold for a Safe Harbor QM loan?

It must exceed APOR by less than 1.5%. Signup and view all the answers

In Non-QM loans, what factors can be used to determine a borrower's ability to repay?

Assets and income verification Signup and view all the answers

Which of the following loan types is specifically targeted at those who have had a recent disqualifying credit event?

Recent credit event loans Signup and view all the answers

For a loan amount between $22,969 and $68,908, what is the maximum fee amount permitted?

$3,445 Signup and view all the answers

What type of mortgage allows for income to be based on cash flow through a bank statement?

Bank statement loans Signup and view all the answers

What is a requirement for a loan to be considered a Rebuttable Presumption QM?

APR exceeds APOR by 1.5 to 2.25%. Signup and view all the answers

What type of Non-QM loan is specifically designated for borrowers without a U.S. Social Security number?

Foreign Nationals loans Signup and view all the answers

Study Notes

Qualified Mortgages (QMs)

QMs are loans meeting lower risk criteria under the Ability to Repay/Qualified Mortgage Rule.
These include some conventional and government loans.
QMs are required for GSE (Government Sponsored Enterprises) sales and securities backing.
2022 revisions updated the 2014 QM definition.
Current QM categories include:
- Temporary: (Expired) Considered any loan eligible for GSE sale as a QM, no new originations.
- Small Creditor: Small depository institutions with low origination volume; have different APR and term limits.
- Balloon: Limited to loans originated by "small creditor" institutions.
- General: Most common QM category. General QM loans:
  - Ability to Repay: Determined using the fully amortizing schedule, maximum rate within first 5 years. No negative amortization, interest-only, balloons, terms over 30 years, or excessive fees.
- Fees:
  - Up to two bona fide discount points are excluded from maximum fee calculation.
  - Maximum fee allowance depends on the loan amount.
  - Most finance charges, PMI over FHA, mortgage broker compensation, lender charges are included.
  - Third-party charges, government mortgage insurance premiums, PMI below government limit, reasonable real estate fees not paid to lender and/or lender affiliates, are excluded.
  - 2022 Fee Limits: Vary by loan amount (see details in original text).
  - APR: Cannot exceed thresholds. Safe Harbor/Conclusive QM when APR is less than 1.5% over comparable transaction APOR when interest rate set.
  - Rebuttable Presumption QM: APR exceeds APOR by 1.5-2.25% and meets QM safe harbor requirements.
  - Subordinate Liens: Have higher APR thresholds.
- Asset and Income Verification: Lender verifies consumer assets, income, and debt obligations against guidelines from agencies (FHA, VA, USDA).

Non-Qualified Mortgages (Non-QMs)

Non-QMs are conventional loans outside QM guidelines.
Non-QMs differ from pre-2007 subprime and Alt-A loans.
Non-QM loans often require significant borrower equity and average credit.
Ability to repay is determined using methods different than QM loans.
Loan Types:
- Bank Statement Loans: Income calculated using bank statement cash flow.
- Asset Qualification Loans: Qualification based on an asset depletion rate.
- One-Year Tax Return Loans: Income based on a shorter tax history than GSE requirements.
- Foreign Nationals Loans: For individuals without a US SSN or established US credit.
- Recent Credit Event Loans: For borrowers with recent disqualifying credit events.
- Rental Property Loans: Directed to owners/buyers of rental properties.
- No Income Investment Loans: Qualification based on rental income of property, not borrower income.
- Commercial Rental Property Loans: Property ineligible for other financing.

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Description

This quiz covers the essentials of Qualified Mortgages (QMs), including the criteria established under the Ability to Repay/Qualified Mortgage Rule. Learn about the different categories of QMs, their requirements, and the updates made in 2022. Test your knowledge on how these loans impact government-sponsored enterprises and securities.