MReport February 2021

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28 | M R EP O RT FEATURE Redefining QM Lending New compliance challenges will require new strategies. By Scott McNulla T he mortgage industry is no stranger to volatility. However, with a new presidential administration, a global pandemic, and record high origina- tion volumes, 2021 promises to bring more twists and turns than ever and will undeniably bring along with it new compliance challenges. Successfully dealing with these challenges requires first identifying what they are. We are already aware of some, such as the Consumer Financial Protection Bureau's (CFPB) Qualified Mortgage (QM) rule changes. Others we're not yet sure of—such as the impact the Biden Administration will have on the housing indus- try. Regardless of what happens, it's important for originators and other industry participants to understand the potential risks and have a plan in place for addressing them. More Modifications to QM Loans? O ne of the biggest compliance changes originators will face this year began in December, when the CFPB issued final rules in- volving the Ability to Repay/Qualified Mortgage (ATR/QM) standard. In essence, the CFPB redefined what constitutes a QM loan and also created a new seasoned QM standard for portfo- lio loans that meet certain performance require- ments. The distinctions will be important. For example, issuers of loan pools currently must retain 5 percent of the risk if any loans in the pool are non-QM. This prevents the co-mingling of a few non-QM loans into a securitization that is primarily comprised of QM loans. The final CFPB rule will expire the GSE patch and expand the general QM definition by remov- ing the 43 percent debt-to-income (DTI) threshold and the requirement to adhere to Appendix Q. (Currently, a significant number of loans are at the cusp of the 43 percent threshold.) Originators have the option to comply with the new general QM standard starting in March, but compliance with the new standard will become mandatory on July 1, 2020, which corresponds with the GSE patch expiration. Ultimately, over- coming these challenges will require lenders to educate their loan officers, their realtor partners, as well as consumers on the new QM rules, par- ticularly when it comes to DTI standards. As they adapt to these new definitions, however, lenders are likely to make early errors. Many lenders use multiple computing systems, which may also lead to some inaccuracies when testing loans. Similarly, the QM rule will create a huge burden on document and loan origination system (LOS) providers. Most LOS providers will need to implement updates to ensure clients comply with the new QM rule. Everything lend- ers do is memorialized on their loan documents, but it is the LOS that will need the ability to determine and interpret the new data to per- form APR to APOR comparisons and identify whether loans meet the safe harbor provision. A New Administration and Housing Policy W hile the CFPB's rule has been in the works for some time, a new presidential administration could potentially make addi- tional changes. Many believe that a new CFPB director will be satisfied with the new QM rule as written, as it is an improvement to existing standards. However, modifications could still be possible.

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