QM changes make them viable options for CU originations

September 9, 2020

CUNA generally supports the Consumer Financial Protection Bureau’s (CFPB) proposal amending the definition of a General Qualified Mortgage (QM) and offered specific amendments to help credit unions in its comment letter filed this week. The proposal would, among other things, remove the 43% debt-to-income (DTI) cap and replace it with a price-based threshold.

CUNA has submitted numerous comments to the CFPB on the Ability-to-Repay (ATR)/QM Rule calling for the elimination of the 43% DTI and Appendix Q requirements.

“We appreciate this amendment as both a positive response to those requests and an important step in turning the General QM into a viable option for credit union originations. The proposed pricing-based requirement for General QM designation eliminates the outdated 43% DTI cap and overly prescriptive calculation methods, allowing credit unions to continue providing sustainable mortgages to members with higher DTI ratios,” the letter reads. “We also appreciate the fact that the Bureau is coordinating the effective date of this General QM Rule and the sunset of GSE QM to ensure the smooth and orderly transition of the secondary mortgage market to this new regime.”

However, CUNA recommends the CFPB adopt an extended and gradual test period to allow financial institutions to test out the amended General QM loan definition to ensure there are no negative consequences.

CUNA also recommended the following specific changes:

  • Increase the safe harbor threshold to 2% (up from the current 1.5%);
  • Reject the complicated alternative and hybrid approaches contained in the proposal, as they continue to prescriptive use of DTI and inject complications and uncertainty present in the current rule; and
  • Use indexing or caps to determine General QM eligibility for short reset adjustable rate mortgages.