The Department of Housing and Urban Development issued a final rule defining a “qualified mortgage” for single family residential loans that it insures, guarantees or administers. The rule retains the definition of “qualified mortgage” proposed by HUD in September 2013 (see October 15, 2013 Alert), but expands the list of mortgage loans exempt from the qualified mortgage standard and makes certain clarifications.
Under the rule, a “qualified mortgage,” must: (1) have regular periodic payments (i.e., no balloon payments); (2) have a maximum loan term of 30 years; (3) meet the limit on points and fees for qualified mortgages (i.e., a 3% cap on points and fees); and (4) be insured or guaranteed by HUD or the FHA. Similar to the CFPB’s qualified mortgage rule, the final rule provides a safe harbor and rebuttable presumption for loans that satisfy the definition of qualified mortgage and meet certain conditions. A mortgage insured under Title II of the National Housing Act that meets the points and fees limit adopted by the CFPB and that has an APR for a first-lien mortgage relative to the average prime rate offer that is no more than the sum of the annual mortgage insurance premium and 1.15 percentage points, enjoys a safe harbor. Whereas, a mortgage insured under Title II of the National Housing Act that meets the points and fees limit adopted by the CFPB and that has an APR that exceeds the average prime rate offer for a comparable mortgage by more than the sum of the annual mortgage insurance premium and 1.15 percentage points enjoys a rebuttable presumption under the rule. HUD will not insure loans that do not meet these criteria. A notable departure from the proposed rule is that the rebuttable presumption standard is tied now to HUD’s underwriting standards, and not the CFPB’s ability- to-repay factors.
The rule adopts the CFPB’s list of mortgage transactions exempt from the qualified mortgage standard, which includes reverse mortgages and mortgages made by housing finance agencies and certain other governmental or nonprofit organizations under programs designed for low- and moderate-income individuals and families. Title I insured mortgages (i.e., manufactured housing and home improvement loans), Title II insured manufactured housing, Section 184-insured mortgages (i.e., Indian housing loans), and Section 184A insured mortgages (i.e., Native Hawaiian housing loans) constitute safe harbor qualified mortgages. The remainder of mortgages insured under Title II of the National Housing Act are subject to the qualified mortgage standard. As in the proposed rule, streamlined refinancing transactions are subject to the qualified mortgage standard. The rule is effective January 10, 2014.