WASHINGTON (6/11/14)--The Credit Union National Association praised the U.S. Department of Veterans Affairs' interim final rule on qualified mortgages (QM) in a comment letter filed Monday and urged the VA to make the rule permanent.
The interim final rule, in effect since May 9, designates a QM as any loan that the VA makes directly to a borrower; Native American direct loans; and vendee loans, which are made to purchasers of properties the VA acquires as a result of foreclosures in the guaranteed-loan program.
"This is a practical, common sense approach, fully consistent with the Dodd-Frank Act that we support. This approach provides important flexibility to lenders making VA loans in regard to the qualified mortgage requirements and limitations," reads the comment letter. "In our view, consumers and the mortgage market generally would benefit if much more flexibility is provided for all creditors to lend to borrowers, who for example do not meet the Consumer Financial Protection Bureau's 43% debt-to-income (DTI) benchmark."
The Dodd-Frank Act requires the VA, the Department of Housing and Urban Development, the Department of Agriculture and the Rural Housing Service to define the types of loans they insure, guarantee or administer that are qualified mortgages.
The VA's rule replaces the CFPB's temporary qualified mortgage rule that exempts VA loans from the 43% DTI ratio threshold. Under the rule, all purchase money origination loans and refinances, other than certain Interest Rate Reduction Refinance Loans (IRRRLs), guaranteed or insured by the VA are defined as "safe harbor qualified mortgage loans."
In order for a VA IRRRL to be considered a safe harbor qualified mortgage, the loan must meet the following conditions:
Some VA IRRRLs are considered "rebuttable presumption qualified mortgages" under the rule, which means the borrower is provided an opportunity to challenge that the lender did not make a good faith determination that the borrower has a reasonable ability to repay the loan.
According to the VA, 95,000 of the loans it guaranteed in 2013 would have exceeded the CFPB's 43% DTI ratio, and nearly 5,000 would have exceeded the APR limit to qualify for the qualified mortgage safe harbor.
The comment period for the interim final rule closed Monday, and the VA has stated it hopes to move forward with a final soon because of the certainty the final rule will provide veterans and lenders.
As background, in January 2013, the CFPB amended Reg Z to define QM and also created a temporary exception for VA-guaranteed loans. The VA's approach in the interim final rule is to define which VA loans satisfy QM requirements, notwithstanding other limitations, to remove stakeholder's uncertainties concerning VA loans.
Use the resource link to access CUNA comment letters.