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?

    <p>They can only be issued by institutions defined as small creditors. (B)</p> Signup and view all the answers

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

    <p>It is the only category relevant to most lenders. (C)</p> Signup and view all the answers

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

    <p>3 percent (B)</p> Signup and view all the answers

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

    <p>Third-party charges (A)</p> Signup and view all the answers

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

    <p>They require significant equity. (D)</p> Signup and view all the answers

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

    <p>It must exceed APOR by less than 1.5%. (B)</p> Signup and view all the answers

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

    <p>Assets and income verification (B)</p> 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?

    <p>Recent credit event loans (A)</p> Signup and view all the answers

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

    <p>$3,445 (B)</p> Signup and view all the answers

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

    <p>Bank statement loans (B)</p> Signup and view all the answers

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

    <p>APR exceeds APOR by 1.5 to 2.25%. (D)</p> Signup and view all the answers

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

    <p>Foreign Nationals loans (D)</p> Signup and view all the answers

    Flashcards

    Qualified Mortgage (QM)

    A loan that meets lower risk criteria, making it eligible for sale to government-sponsored enterprises (GSEs) or inclusion in GSE-backed securities.

    Ability to Repay (ATR) Rule

    A rule designed to ensure borrowers can repay their loans, influencing loan qualification criteria.

    GSEs (Government-Sponsored Enterprises)

    Organizations like Fannie Mae and Freddie Mac that buy and guarantee mortgages.

    Ginnie Mae

    A government agency that guarantees mortgage-backed securities.

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    Small Creditor

    A small depository institution with low annual mortgage origination volume, having different lending limits than larger institutions.

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    Ability to Repay (ATR)

    A key requirement for QM loans where lenders must verify a borrower's income, assets, and debt obligations to ensure they can afford the loan.

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    Maximum Fee Calculation

    QM loans have strict limits on upfront fees, including points, lender charges, and mortgage broker compensation.

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    Safe Harbor QM

    A type of QM loan where the APR (Annual Percentage Rate) is within a specific threshold compared to a 'comparable transaction'.

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    Rebuttable Presumption QM

    A QM loan with a higher APR compared to Safe Harbor, but still meeting strict requirements.

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    Non-Qualified Mortgage (Non-QM)

    A mortgage loan that does not meet the strict QM requirements but still adheres to certain underwriting guidelines.

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    Bank Statement Loans

    A type of Non-QM loan where income is verified using bank statements, often for self-employed borrowers.

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    Asset Qualification Loans

    A type of Non-QM loan where the borrower's assets are used to determine loan eligibility, often for high-net-worth individuals.

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    Foreign National Loans

    A type of Non-QM loan designed for foreign nationals without US credit history or a Social Security number.

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    No Income Investment Loans

    A type of Non-QM where loan approval is based on the rental income of the property itself, not the borrower's income.

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    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.

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