The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. have been directed by their regulator-conservator to begin buying only loans that meet the definition of a qualified mortgage.
The Consumer Financial Protection Bureau published its ability-to-repay rule in January. The rule emerged from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Mortgage lenders can comply with the ability to repay rule by making QMs. Fees are limited on QMs, while unconventional loan programs are prohibited and debt-to-income ratios are used to qualify.
On Monday, the Federal Housing Finance Agency announced that it is directing Fanning Mae and Freddie Mac to limit future mortgage acquisitions to QMs.
Acquisitions can include loans the meet the special or temporary QM definition as well as loans that are exempt from the ability to repay requirement.
The CFPB has made the effective rule date Jan. 10, 2014, and Fannie and Freddie will no longer be able to purchase loans subject to the ability to repay rule if they are not fully amortizing, have a term beyond 30 years or have fees in excess of 3 percent of the loan amount if the application is dated on or after the rule date.
So interest-only loans and loans with 40-year terms will no longer be eligible for sale to either secondary lender.
“Fannie Mae and Freddie Mac will continue to purchase loans that meet the underwriting and delivery eligibility requirements stated in their respective selling guides,” the FHFA stated. “This includes loans that are processed through their automated underwriting systems and loans with a debt-to-income ratio of greater than 43 percent. Loans with a debt-to-income ratio of more than 43 percent are not eligible for protection as qualified mortgages under the CFPB’s final rule unless they are eligible for purchase by Fannie Mae and Freddie Mac under the special or temporary qualified mortgage definition.”
Fannie issued Lender Letter LL-2013-05 outlining its QM policy, while Freddie discussed its requirements in an industry letter.
Both Fannie and Freddie indicated that they will rely on lender seller representations and warranties that loans are QMs. A process will be phased in over time to collect and assess data on these loans to assist in validating whether they are QM-compliant.
