Federal financial regulators have clarified what they expect from financial institutions when it comes to making Qualified Mortgages and non-QM loans.
The clarification addresses QM and non-QM lending as it relates to safety-and-soundness expectations and Community Reinvestment Act considerations.
The regulators hope to guide banks and credit unions as they assess the implementation of the Consumer Financial Protection Bureau’s Ability-to-Repay and QM standards rule, which takes effect on Jan. 10, 2014.
The statement was jointly issued Friday by the Federal Deposit Insurance Corp., Federal Reserve Board, National Credit Union Administration and Office of the Comptroller of the Currency.
Residential loans won’t be subject to safety-and-soundness criticism based on their status as QMs or non-QMs.
According to the regulators, from a safety-and-soundness perspective, institutions can originate both QMs and non-QMs based on their business strategies and risk appetites.
“The agencies continue to expect institutions to underwrite residential mortgage loans in a prudent fashion and address key risk areas in residential mortgage lending, including loan terms, borrower qualification standards, loan-to-value limits, documentation requirements, and portfolio- and risk-management practices, regardless of whether a residential mortgage loan is a Qualified Mortgage or non-Qualified Mortgage,” the statement said.
Banks and credit unions do need, however, to continue complying with their regulators’ guidance on home lending.
The regulators don’t expect that a decision to originate only QMs will adversely affect CRA evaluations as long as other factors aren’t involved. They acknowledge that some lenders already operate in this manner.
“As recently addressed in the Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule issued on Oct. 22, 2013, the requirements of the bureau’s Ability-to-Repay Rule and the fair lending laws are compatible,” the statement said. “Similarly, the requirements of the bureau’s Ability-to-Repay Rule and CRA are compatible.”
