""HUD"":http://portal.hud.gov/hudportal/HUD has issued a newly revised ""definition"":http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-187 of a qualified mortgage (QM) that will affect all Federal Housing Administration (FHA)-insured loans moving forward. The new rules go into effect on January 10, 2014, and will apply to mortgages that are insured, guaranteed, or administered by HUD.[IMAGE]
HUD is legally required to define a QM by the Ability-to-Repay (ATR) criteria set out in the Truth-in-Lending Act (TILA), as mandated by the Dodd├â┬ó├óÔÇÜ┬¼├óÔé¼┼ôFrank Wall Street Reform and Consumer Protection Act. HUD's new rule also builds on the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year.
HUD's new rules define two types of legal QMs. Both types have to conform to these rules:
* Require periodic payments without risky features.
* Have terms not to exceed 30 years.
* Limit upfront points and fees to no more than 3 percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans).
* Be insured or guaranteed by FHA or HUD.
Both types of QMs will have protective features for consumers and different legal consequences for lenders. The main difference between the two is the relation of the loan's Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR), the rate for the average borrower receiving a conventional mortgage.
The two categories of QMs are:
*A Rebuttable Presumption Qualified Mortgage*
These will have an APR greater than APOR + 115 basis points (bps) + an ongoing Mortgage Insurance Premium (MIP) rate.
*Safe Harbor Qualified Mortgages*
These loans will an APR equal to or less than APOR + 115 bps + ongoing MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the ATR standard.
HUD's ruling also adopted CFPB's list of transactions that are exempt from the ATR, some of which include reverse mortgages, bridge loans with terms of 12 months or less, and credit extensions from housing finance agencies.