Freddie Mac and Fannie Mae, as directed by the Federal Housing Finance Agency (FHFA), took the first steps in implementation of the new "Qualified Mortgage" (QM) rules today. The two GSEs sent letters to lenders from who they purchase loans outlining requirements for acquisitions after the January 10, 2014 effective date of the rule. The rule requires lenders to make reasonable determinations of a consumer's ability to repay the debt in order to be considered "qualified." QM regulations are mandated by the Dodd Frank Wall Street Reform and Consumer Protection Act.
Loans with applications dated on or after January 10, 2014 will have to either meet the ability to repay rule or be exempt from it such as in an investor transaction. Effectively this means that neither Freddie nor Fannie will be able to purchase loans if they are subject to the ability to repay requirements AND if the loan:
- Is not fully amortizing
- Has a term in excess of 30 years;
- Havs points and fees in excess of 3 percent of the total loan amount or such other limits for low balance loans as set forth in the ability to repay rule.
The GSEs will continue to purchase loans that meet the underwriting and delivery eligibility requirements in their respective selling guides including loans processed through their automated underwriting systems and loans with debt-to-income ratios greater than 43 percent.
For loans dated on or after January 10, 2014, the GSEs will rely upon lender selling representations and warranties that they are qualified mortgages and will determine if changes are required to the post-purchase file review processes or repurchase requirements or if further updates are needed to the overall representation and warranty framework.
