[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Proposed Rules]
[Pages 59890-59902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23472]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 201, 203, 1005, and 1007
[Docket No. FR 5707-P-01]
RIN 2502-AJ18
Qualified Mortgage Definition for HUD Insured and Guaranteed
Single Family Mortgages
AGENCY: Office of Secretary, HUD.
ACTION: Proposed rule.
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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) created new section 129C in the Truth-in-Lending Act
(TILA), which establishes minimum standards for considering a
consumer's repayment ability for creditors originating certain closed-
end, dwelling-secured mortgages, and generally prohibits a creditor
from making a residential mortgage loan unless the creditor makes a
reasonable and good-faith determination of a consumer's ability to
repay the loan according to its terms. Section 129C provides lenders
more certainty about meeting the ability-to-repay requirements when
lenders make ``qualified mortgages,'' which are presumed to meet the
requirements. Section 129C authorizes the agency with responsibility
for compliance with TILA, which was initially the Federal Reserve Board
and is now the Consumer Financial Protection Bureau (CFPB), to issue a
rule implementing these requirements. The CFPB has issued its rule
implementing these requirements, referred to throughout this proposed
rule as the CFPB final rule.
The Dodd-Frank Act also charges HUD and three other Federal
agencies with prescribing regulations defining the types of loans that
these Federal agencies insure, guarantee, or administer, as applicable,
that are qualified mortgages. Through this proposed rule, HUD submits
for public comment its definition of ``qualified mortgage'' for the
types of loans that HUD insures, guarantees, or administers that aligns
with the statutory ability-to-repay criteria of TILA and the regulatory
criteria of the CFPB's definition, without departing from HUD's
statutory missions. In this rulemaking, HUD proposes that any forward
single family mortgage insured or guaranteed by HUD shall meet the
criteria of a qualified mortgage, as defined in this rule, and HUD
seeks comment on all components of its definition.
DATES: Comment Due Date: October 30, 2013.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Regulations Division, Office of General Counsel,
Department of Housing and Urban Development, 451 7th Street SW., Room
10276, Washington, DC 20410-0500. Communications must refer to the
above docket number and title. There are two methods for submitting
public comments. All submissions must refer to the above docket number
and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to
[[Page 59891]]
the Regulations Division, Office of General Counsel, Department of
Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
www.regulations.gov Web site can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
proposed rule.
No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m., weekdays, at
the above address. Due to security measures at the HUD Headquarters
building, an appointment to review the public comments must be
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or
hearing impairments may access this number via TTY by calling the
Federal Relay Service at 800-877-8339. Copies of all comments submitted
are available for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Michael P. Nixon, Office of Housing,
Department of Housing and Urban Development, 451 7th Street SW., Room
9278, Washington, DC 20410; telephone number 202-402-5216, ext. 3094
(this is not a toll-free number). Persons with hearing or speech
impairments may access this number through TTY by calling the Federal
Relay Service at 800-877-8339 (this is a toll-free number).
SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
This rulemaking commences the process by which HUD will meet its
charge under TILA, as amended by the Dodd-Frank Act, to define, in
regulation, the term ``qualified mortgage'' for the single family
residential mortgages and loans that HUD insures, guarantees, or
otherwise administers. While the CFPB, in accordance with statutory
direction, has defined, through rulemaking, the term ``qualified
mortgage'' for the broader single family mortgage market, HUD must
define this term for use in its own single family insured or guaranteed
mortgage programs.
The statutory purpose of defining ``qualified mortgage,'' whether
for the conventional mortgage market or for specific Federal programs,
as specified in the Dodd-Frank Act, is to identify single family
residential mortgages that take into consideration a borrower's ability
to repay the loans and provide certain protections for the lender from
liability. During the years preceding the mortgage crisis, too many
mortgages were made to borrowers without regard to their ability to
repay the loan and included risky features such as ``no doc'' loans or
``interest only'' loans. As a result, many homeowners defaulted on
these loans and faced foreclosure, causing a collapse in the housing
market in 2008 and leading to the Nation's most serious financial
crisis since the Great Depression.
In developing a proposed definition of qualified mortgage, HUD
reviewed its mortgage insurance and loan guarantee programs and
determined that all of the single family residential mortgage and loan
products offered under HUD programs are qualified mortgages; that is,
they exclude risky features and are designed so that the borrower can
repay the loan. However, for certain of its mortgage products, HUD
proposes qualified mortgage standards similar to those established by
the CFPB in its definition of ``qualified mortgage.''
B. Summary of the Major Provisions of the Regulatory Action
In defining ``qualified mortgage'' in its rulemaking, the CFPB
established both a safe harbor and a rebuttable presumption of
compliance for transactions that are qualified mortgages. The label of
safe harbor qualified mortgage is applied to those mortgages that are
not higher-priced covered transactions (that is the annual percentage
rate does not exceed the average prime offer rate by 1.5 percent).
These are considered to be the least risky loans and presumed to have
conclusively met the ability-to-repay requirements of TILA. The label
of rebuttable presumption qualified mortgage is applied to those
mortgages that are higher-priced transactions.
HUD proposes to designate Title I (home improvement loans), Section
184 (Indian housing loans), and Section 184A (Native Hawaiian housing
loans) insured mortgages and guaranteed loans covered by this
rulemaking to be safe harbor qualified mortgages and HUD proposes no
changes to the underwriting requirements of these mortgage and loan
products. However, for its largest volume of mortgage products, those
insured under Title II of the National Housing Act, HUD proposes two
categories of qualified mortgages similar to the two categories created
in the CFPB final rule--a safe harbor qualified mortgage and a
rebuttable presumption qualified mortgage.
The rulemaking proposes to define safe harbor qualified mortgage as
a mortgage insured under Title II of the National Housing Act (with the
exception of reverse mortgages insured under section 255 of this act)
that meets the points and fees limit adopted by the CFPB in its
regulation at 12 CFR 1026.43(e)(3), and that has an annual percentage
rate for a first-lien mortgage relative to the average prime offer rate
that is less than the sum of the annual mortgage insurance premium and
1.15 percentage points. HUD proposes to define a rebuttable presumption
qualified mortgage as a single family mortgage insured under Title II
of the National Housing Act (with the exception of reverse mortgages
insured under section 255 of this act) that meets the points and fees
limit adopted by the CFPB in its regulation at 12 CFR 1026.43(e)(3),
but has an annual percentage rate that exceeds the average prime offer
rate for a comparable mortgage, as of the date the interest rate is
set, by more than the sum of the annual mortgage insurance premium and
1.15 percentage points for a first-lien mortgage.
HUD requires that all loans be insured under Title II of the
National Housing Act in order to be either a rebuttable presumption or
safe harbor qualified mortgage, and that they meet the CFPB's points
and fees limit at 12 CFR 1026.43(e)(3). The CFPB set a three percent
points and fees limit for its definition of qualified mortgage and
allowed for adjustments of this limit to facilitate the presumption of
compliance for smaller loans.
As more fully discussed later in this preamble, HUD's proposal to
establish
[[Page 59892]]
two categories of qualified mortgages for the majority of National
Housing Act mortgages is to maintain consistency with the TILA
statutory criteria defining qualified mortgage, as well as the CFPB's
definition, to the extent consistent with the National Housing Act. HUD
specifically seeks comment on its proposed two categories.
C. Costs and Benefits
The impacts of HUD's proposed rule are relatively small. HUD's
proposed rule in effect reclassifies a sizeable group (about 19
percent) of Title II loans insured under the National Housing Act from
rebuttable presumption qualified mortgages under the CFPB final rule to
safe harbor qualified mortgages under HUD's proposed rule. A small
number (about 7 percent) of Title II loans would continue to not
qualify as qualified mortgages based on the points and fees limit,
while the remaining Federal Housing Administration (FHA) loans (about
74 percent) would qualify for qualified mortgage status with a safe
harbor presumption of compliance with the ability-to-repay requirements
under both the CFPB final rule and HUD's proposed rule. The Title II
loans that would be nonqualified mortgages under the CFPB's rule would
remain non-qualified mortgages under the proposed rule. The difference
is that HUD, through this rulemaking, will no longer insure loans with
points and fees above the CFPB level for qualified mortgages, but
expects that these loans will adapt to meet the points and fees limit.
In addition, HUD classifies all Title I, Section 184 and Section 184A
insured mortgages and guaranteed loans, which most likely would have
been nonqualified mortgages under the CFPB final rule, as safe harbor
qualified mortgages.
As a result of these reclassifications, lenders face lower costs of
compliance under HUD's qualified mortgage rule than under the CFPB
final rule and therefore receive incentives to continue making these
loans without having to pass on their increased compliance costs to
borrowers. While borrowers benefit from not having to pay for the
higher lender costs, they also face less opportunity to challenge the
lender with regard to ability to repay. HUD expects that almost all
borrowers will gain from the reduction in litigation and that the
reduction of the interest rate will compensate for the loss of the
option to more easily challenge a lender. As a result of the
reclassification of some HUD loans, the maximum expected impact of the
proposed rule would be an annual reduction of lender legal costs by $41
million.
II. Background
New section 129C(a) of TILA, added by section 1411 of subtitle B of
Title XIV of the Dodd-Frank Act (Pub. L. 111-203, 124 Stat. 1736,
approved July 21, 2010), provides minimum standards for considering a
consumer's ability to repay a residential mortgage. New section
129C(b), added by section 1412 of the Dodd-Frank Act, establishes the
presumption that the ability-to-repay requirements of section 129C(a)
are satisfied if a mortgage is a ``qualified mortgage,'' and
authorizes, initially, the Federal Reserve Board and, ultimately, the
CFPB, to prescribe regulations that revise, add to, or subtract from
the criteria in TILA that define a ``qualified mortgage.''
Section 129C(b)(2)(A) defines qualified mortgage as a mortgage that
meets the following requirements: (i) The transaction must have regular
periodic payments; (ii) the terms of the mortgage must not result in a
balloon payment; (iii) the income and financial resources of the
mortgagor are verified and documented; (iv) for a fixed rate loan, the
underwriting process fully amortizes the loan over the loan term; (v)
for an adjustable rate loan, the underwriting is based on the maximum
rate permitted under the loan during the first 5 years and includes a
payment schedule that fully amortizes the loan over the loan term; (vi)
the transaction must comply with any regulations established by the
CFPB relating to ratios of total monthly debt to total monthly income;
(vii) the total points and fees payable in connection with the loan
must not exceed 3 percent of the total loan amount; and (viii) the
mortgage must not exceed 30 years, except in specific areas.\1\
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\1\ Section 129C also provides for a reverse mortgage to be a
qualified mortgage if the mortgage meets the CFPB's standards for a
qualified mortgage except to the extent that reverse mortgages are
statutorily exempted altogether from the ability-to-repay
requirements. The CFPB's regulations provide that the ability-to-
repay requirements of section 129C(a) do not apply to reverse
mortgages. In the preamble to its final rule published on January
30, 2013, the CFPB states: ``The Bureau notes that the final rule
does not define a `qualified' reverse mortgage. As described above,
TILA section 129C(a)(8) excludes reverse mortgages from the
repayment ability requirements. See section-by-section analysis of
Sec. 1026.43(a)(3)(i). However, TILA section 129C(b)(2)(ix)
provides that the term `qualified mortgage' may include a
`residential mortgage loan' that is `a reverse mortgage which meets
the standards for a qualified mortgage, as set by the Bureau in
rules that are consistent with the purposes of this subsection.' The
Board's proposal did not include reverse mortgages in the definition
of a `qualified mortgage.' '' (See 78 FR 6516.)
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New section 129C(b)(3)(B)(ii), also added by section 1412, requires
that HUD, the Department of Veterans Affairs (VA), the Department of
Agriculture (USDA), and the Rural Housing Service (RHS), prescribe
rules in consultation with the Federal Reserve Board \2\ to define the
types of loans they insure, guarantee, or administer, as the case may
be, that are ``qualified mortgages,'' and revise, add to, or subtract
from the statutory criteria used to define a qualified mortgage.
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\2\ Rulemaking authority under TILA has since been transferred
to the CFPB.
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The Federal Reserve Board published a proposed rule on May 11,
2011, at 76 FR 27390, entitled, ``Regulation Z; Truth in Lending,'' in
conformance with amendments to section 129C of TILA. On July 21, 2011,
rulemaking authority under TILA transferred from the Federal Reserve
Board to the CFPB. The CFPB published a final rule on January 30, 2013,
at 78 FR 6408, entitled, ``Ability-to-Repay and Qualified Mortgage
Standards under the Truth in Lending Act (Regulation Z),'' which has
been referred to in this preamble as the CFPB final rule. This final
rule implemented section 129C(b) by defining ``qualified mortgage''
with two degrees of protections for creditors and assignees of a
qualified mortgage. The CFPB's regulations implementing section 129C(b)
are codified at 12 CFR part 1026.
The CFPB's regulations at 12 CFR 1026.43(e)(2) adopt in part the
statutory qualified mortgage definition, and require that a mortgage
meet 6 general requirements: (i) The transaction must have regular
periodic payments; \3\ (ii) the mortgage must not exceed 30 years; \4\
(iii) the points and fees paid in connection with a loan greater than
or equal to $100,000 does not exceed 3 percent of the total loan
amount, with a higher amount allowed for loans under $100,000; \5\ (iv)
the creditor must underwrite the loan taking into account the monthly
payment for mortgage-related obligations; \6\ (v) the creditor must
consider and verify income and debt; \7\ and (vi) the ratio of the
consumer's monthly debt to total monthly income must not exceed 43
percent.\8\
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\3\ 129C(b)(2)(A)(i).
\4\ 129C(b)(2)(A)(viii).
\5\ 129C(b)(2)(A)(vii) (limiting total points and fees payable
in connection with the loan to 3 percent of the total loan amount).
\6\ 129C(b)(2)(A)(iv)-(v).
\7\ 129C(b)(2)(A)(iii).
\8\ 129C(b)(2)(A)(vi) (directing compliance ``with any
guidelines or regulations established by the Board relating to
ratios of total monthly debt to total monthly income or alternative
measures . . .'').
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The limit on points and fees is defined in 12 CFR 1026.43(e)(3) and
the definition of points and fees is set out at 12 CFR 1026.32(b)(1).
The total amount of points and fees for loans
[[Page 59893]]
greater than or equal to $100,000 (indexed for inflation) must not
exceed 3 percent of the total loan amount. For a loan amount greater
than or equal to $60,000 but less than $100,000, the points and fees
must not exceed $3,000; for a loan amount greater than or equal to
$20,000 but less than $60,000, the points and fees must not exceed 5
percent of the total loan amount; for a loan amount greater than or
equal to $12,500 but less than $20,000, the points and fees must not
exceed $1,000; and for a loan amount less than $12,500, the points and
fees must not exceed 8 percent of the total loan amount.
The CFPB final rule creates both a safe harbor and a rebuttable
presumption of compliance for transactions that are ``qualified
mortgages.'' Section 129C(b) of TILA provides a presumption that a
qualified mortgage has met the ability-to-repay requirements. However,
as the CFPB noted in its final rule, ``the statute is not clear as to
whether that presumption is intended to be conclusive so as to create a
safe harbor that cuts off litigation or a rebuttable presumption of
compliance with the ability-to-repay requirements.'' \9\ The CFPB's
analysis of the statutory construction and policy implications
demonstrates that there are sound reasons for adopting either
interpretation.\10\ Given the statutory ambiguity, the CFPB adopted
both a safe harbor and rebuttable presumption standard, exercising its
authority under section 129C(b)(3)(B) of TILA to revise, add to, or
subtract from the qualified mortgage criteria upon finding that the
changes further the purposes of sections 129B and 129C. The CFPB's
analysis found that the use of a safe harbor and a rebuttable
presumption standard best promoted the various policy goals of the
statute.\11\
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\9\ See 78 FR 6506.
\10\ The title of section 129C(b) refers to both a ``safe harbor
and rebuttable presumption,'' and there are references to both safe
harbors and rebuttable presumptions in other provisions of the Act.
The authority to revise the definition of ``qualified mortgage'' at
129C(b)(3)(B) is titled ``revision of safe harbor criteria.'' See
also 76 FR 27390, 27452-55 (May 11, 2011).
\11\ See 78 FR 6506-6513 for the CFPB's full analysis for
adopting a safe harbor and rebuttable presumption standard.
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A ``qualified mortgage'' falls into the safe harbor category and is
conclusively presumed to have met the ability-to-repay requirements if
it is not a ``higher-priced covered transaction.'' The safe harbor
presumption was established to limit ability to repay challenges on
mortgages that are considered to be the least risky.\12\ Consumers can
only challenge loans in this category by showing that the loans do not
meet the definition of a ``qualified mortgage.'' A ``qualified
mortgage'' that is a higher-priced covered transaction has only a
rebuttable presumption of compliance with the ability-to-repay
requirement, even though each element of the ``qualified mortgage''
definition is met. See 12 CFR 1026.43(e)(1)(ii)(B). A ``higher-priced
covered transaction'' is a transaction that has an annual percentage
rate (APR) that exceeds the average prime offer rate (APOR) for a
comparable transaction as of the date the interest rate is set by 1.5
or more percentage points for a first-lien covered transaction, or by
3.5 or more percentage points for a subordinate-lien covered
transaction.
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\12\ See 78 FR 6506.
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The CFPB final rule also temporarily grants ``qualified mortgage''
status to loans that satisfy certain underwriting standards. See 12 CFR
1026.43(e)(4). Loans in this category must satisfy the underwriting
requirements of, and are therefore eligible to be purchased, guaranteed
or insured by, one of the following: The government-sponsored
enterprises (GSEs) (i.e., Fannie Mae and Freddie Mac) while they
operate under Federal conservatorship or receivership, HUD (but only
loans eligible to be insured under the National Housing Act), VA, USDA,
or RHS. The temporary definition requires a qualified mortgage to
satisfy only the first 3 requirements of the general definition of a
qualified mortgage (i.e., must have regular periodic payments, term
must not exceed 30 years, and points and fees must not exceed those
specified in 1026.43(e)(3)) and excludes the underwriting, credit and
income verification, and 43 percent total monthly debt-to-income ratio
requirements for a ``qualified mortgage.'' These applicable provisions
of the temporary definition phase out: (1) When each of the four
Federal agencies issue their own ``qualified mortgage'' rule; (2) when
conservatorship ends for the GSEs; or (3) for all four of the Federal
agencies and the GSEs, no later than January 10, 2021, which is 7 years
after the effective date of the CFPB final rule. (See 12 CFR
1026.43(e)(4) at 78 FR 6586-6588, specifically 12 CFR
1026.43(e)(4)(iii) at 78 FR 6587-6588.)
III. This Proposed Rule
As required by section 129C(b)(3)(B)(ii) of TILA, through this
rulemaking, HUD proposes to prescribe the regulations for the types of
loans that HUD insures, guarantees, or administers, and which HUD has
determined are qualified mortgages, under the definition proposed in
this rulemaking. Section 129C(b)(3)(B)(ii) makes clear and explicit
that the four Federal agencies--HUD, VA, USDA, and RHS--are to define
qualified mortgages for their respective programs. As noted earlier,
section 129C(b)(3)(B)(ii) authorizes the four Federal agencies, in
defining qualified mortgages for their programs, to revise, add to, or
subtract from the statutory criteria used to define a qualified
mortgage. HUD proposes to provide a definition of qualified mortgage
that is aligned, to the extent feasible, with the ability-to-repay
criteria set out in TILA, given the statutory mandates and missions of
HUD's mortgage insurance and loan guarantee programs.
A. Scope of Coverage
Through FHA, HUD insures single family loans under the National
Housing Act (12 U.S.C. 1701 et seq.). HUD guarantees section 184 loans
for Indian housing under the Housing and Community Development Act of
1992 (12 U.S.C. 1715z-13a) (Section 184 guaranteed loans) and
guarantees section 184A loans for Native Hawaiian housing under the
Housing and Community Development Act of 1992 (1715z-13b) (Section 184A
guaranteed loans). Although section 129C(b)(3)(B)(ii)(I) of TILA
specifically references mortgages insured by HUD under the National
Housing Act, HUD submits that Section 184 guaranteed loans and Section
184A guaranteed loans were intended to be covered. While Section 184
guaranteed loans and Section 184A guaranteed loans are authorized by
the Housing and Community Development Act of 1992, their authorizing
sections of the 1992 law are codified in the National Housing Act. They
are codified at 12 U.S.C. 1715z-13a and 1715z-13b, respectively. In
addition, the direction to all four Federal agencies in section
129C(b)(3)(B)(ii) is to prescribe regulations defining the ``types''
(plural) of loans they insure, guarantee, or administer that are
qualified mortgages, and this proposed rule follows that direction.
Mortgages insured under the National Housing Act are only one type of
mortgage product and, therefore, subclause (I) covers only a portion of
the overall scope of section 129C(b)(3)(B)(ii), creating some ambiguity
as to its scope. HUD reads the reference to the National Housing Act as
being exemplary, and not being an exclusive, limiting provision. The
more limiting reading would undercut the intent present in the broader
language directing agencies to make qualified mortgage determinations
for the types, without qualification, of the loans they insure,
guarantee, or administer. HUD,
[[Page 59894]]
therefore, interprets the more general language of this provision to
permit HUD to define types of mortgages besides those insured under the
National Housing Act as qualified mortgages.
Accordingly, this proposed rule would define ``qualified mortgage''
for FHA-insured single family mortgages, section 184 guaranteed loans,
and section 184A guaranteed loans.
B. National Housing Act Single Family Mortgage Programs
Of the insured/guaranteed loan programs covered by this rule,
single family loans insured under the National Housing Act (12 U.S.C.
1701 et seq.) present the largest volume of mortgages insured by HUD,
through FHA. Under the National Housing Act, FHA is not only required
to meet the housing needs of borrowers (12 U.S.C. 1708(a)(7)(B)),
including low- and moderate-income borrowers; borrowers from
underserved areas, central city areas, and rural areas; and minority
borrowers (12 U.S.C. 1709(w)), but to ensure the financial soundness of
the Mutual Mortgage Insurance Fund, and make programmatic or premium
adjustments as necessary to reduce risk to the fund. See 12 U.S.C.
1708(a)(3) and (6). In addition, under the National Housing Act, FHA is
charged with prohibiting acts or practices in connection with loans or
extensions of credit for the purchase of a manufactured home that are
unfair, deceptive, or otherwise not in the interests of the borrower
(12 U.S.C. 1706f(d)), and to take administrative action (12 U.S.C.
1708(c)) or impose civil money penalties (12 U.S.C. 1735f-14) against
participants who violate the requirements of FHA programs.
Given the broad missions to meet the housing needs of borrowers and
to ensure the financial soundness of its programs, HUD is proposing to
adopt a definition of qualified mortgage that adheres to the statutory
criteria and the CFPB final rule but in a manner that will
appropriately fit with the missions of the National Housing Act
programs. HUD is proposing to maintain its existing regulatory
structure for FHA-insured single family mortgage programs for purposes
of defining qualified mortgages, but augment these programs with
features of the statutory criteria as revised by the CFPB that are not
inconsistent with the statutory parameters of the National Housing Act
single family mortgage insurance programs or missions.
In this rulemaking, HUD proposes to define all FHA-insured single
family mortgages to be qualified mortgages, except for reverse
mortgages insured under HUD's Home Equity Conversion Mortgage (HECM)
program (section 255 of the National Housing Act (12 U.S.C. 1715z-20)),
which are exempt from the ability-to-repay requirements.\13\
Additionally, except for mortgages insured under the Title I Property
Improvement Loan Insurance program (Title I), authorized by section 2
of the National Housing Act (12 U.S.C. 1703), HUD proposes to adopt the
statutory points and fees structure for all of its FHA-insured single
family mortgages, as this feature was implemented by the CFPB final
rule. Further, similar to the CFPB final rule structure, this proposed
rule would distinguish between two types of qualified mortgages: (1) A
safe harbor qualified mortgage and (2) a rebuttable presumption
qualified mortgage. For those HUD-insured loans subject to the points
and fees structure, HUD would modify the APR limit used in the
``higher-priced covered transaction'' element as defined by the CFPB to
distinguish between HUD's safe harbor qualified mortgages and
rebuttable presumption qualified mortgages.
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\13\ Similar to action taken by the CFPB, HUD exempts HECM,
HUD's reverse mortgage program, from the ability-to-repay
requirements. As CFPB further stated in its preamble to the
published January 30, 2013, final rule, making a reverse mortgage a
``qualified mortgage'' would be contrary to the purpose of the
statue because it would allow a ``qualified mortgage'' to include
otherwise banned prepayment penalties. (See 78 FR 6516.)
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All National Housing Act single family mortgages, except for HECMs,
are defined as qualified mortgages by HUD. HUD is proposing to add a
new Sec. 203.19 to its regulations in 24 CFR part 203 \14\ that would
require, through the proposed definition of ``qualified mortgage,'' for
all FHA-insured single family mortgages, except for HECMs, to be
``qualified mortgages.'' HUD's definition would incorporate the safe
harbor and rebuttable presumption standards within the definition of a
``qualified mortgage'' rather than create subsets based on whether a
mortgage is a higher-priced covered transaction. HUD recognizes, as did
the CFPB, that the Dodd-Frank Act language is ambiguous in prescribing
the type of presumption provided for a qualified mortgage. The CFPB
used its authority under section 129C(b)(3)(B)(i) of TILA to adopt both
standards. The CFPB found that adopting both a safe harbor and
rebuttable presumption standard, based on a limit of the APR relative
to the APOR, provides certainty to encourage creditors to extend credit
reasonably and promotes consumers' access to credit.\15\ HUD also
proposes to adopt both standards using its authority at section
129C(b)(3)(B)(ii) of TILA to revise, add to, or subtract from criteria
used to define a qualified mortgage for purposes of section
129C(b)(2)(A).
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\14\ All single family mortgages insured by FHA under the
National Housing Act are governed by regulations in 24 CFR part 203
except for property improvement and manufactured home loans under
Title I and the Home Equity Conversion Mortgage (HECM) program.
\15\ See 78 FR 6506-6513 for the CFPB's full analysis for
adopting a safe harbor and rebuttable presumption standard.
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FHA streamlined refinancing. This proposed rule would require FHA
streamlined refinances to comply with HUD's qualified mortgage rule.
Section 129C(a)(5) of TILA grants HUD the authority to exempt
streamlined refinancing from the income verification requirements of
section 129C(a)(4) as long as such refinances meet certain
requirements, including that the consumer is not 30 days or more past
due on the prior existing residential mortgage loan, the loan does not
increase the principal balance, the points and fees do not exceed 3
percent, and the new interest rate on the refinanced loan is lower than
the current rate. HUD does not consider it necessary to exercise this
authority under section 129C(a)(5) because HUD's qualified mortgage
definition results in an exemption similar to the one contemplated
under section 129C(a)(5) but consistent with HUD's mission to help
existing FHA homeowners refinance. Specifically, HUD's qualified
mortgage rule would require streamlined refinances to meet the points
and fees requirements and HUD requirements for FHA-streamlined
refinances. HUD requirements only exempt lenders from verifying income
if the loan is originated consistent with the FHA-streamlined
refinancing requirements, which means that the mortgage must be
current, that the loan is designed to lower the monthly principal and
interest payment, and that the loan involves no cash back to the
borrower except for minor adjustments.\16\
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\16\ Handbook 4155.1, Ch. 6, Sec. C (Mortgage Credit Analysis
for Mortgage Insurance on One-to-Four Unit Mortgage Loans--
Streamline Refinances) http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4155.1.
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Requiring streamlined refinances to be ``qualified mortgages'' will
also subject them to the APR threshold requirement for being either a
rebuttable presumption or safe harbor qualified mortgage. Given the
unique nature of streamlined refinances, this proposed rule would
modify the CFPB rebuttable presumption standard to clarify that a
[[Page 59895]]
presumption is rebutted if the lender does not meet the underwriting
requirements applicable to the transaction. Therefore, if a streamlined
refinance was a ``rebuttable presumption qualified mortgage'' the
presumption could only be rebutted by showing that the lender did not
meet the applicable HUD requirements for originating streamlined
refinances, including the points and fees limit.
Title I program. Loans insured under the Title I program would be
safe harbor qualified mortgages, with no specific points and fees
limits and with no APR limits. The Title I program insures loans to
finance the light or moderate rehabilitation of properties, as well as
the construction of nonresidential buildings on the property. This
program may be used to insure such loans for up to 20 years on either
single or multifamily properties. The maximum loan amount is $25,000
for improving a single family home. Under section 2(a) of the National
Housing Act (12 U.S.C. 1703(a)), the Secretary is vested with the
authority to establish the terms and conditions under which FHA will
insure financial institutions that extend loan financing for home
improvement loans for manufactured homes. Under section 2(h) of the
National Housing Act (12 U.S.C. 1703(h)), the Secretary is authorized
to issue rules and regulations to carry out the provisions of Title I.
HUD has determined that designating Title I loans as safe harbor
qualified mortgages, as proposed in this rule, furthers the purposes of
Title I. HUD's proposed approach is intended to provide the necessary
flexibility to continue to meet the housing needs of underserved
borrowers, recognizing the unique nature of the Title I loan program,
and to make programmatic and premium changes to maintain financial
soundness. Coverage of the Title I program would be addressed by adding
a definition of ``qualified mortgage'' to the definitions in 24 CFR
201.7.
Points and fees limitation. HUD's proposed ``qualified mortgage''
definition adopts the CFPB's points and fees limitations at 12 CFR
1026.43(e)(3). A mortgage, except a mortgage insured under Title I or
HECM, which does not comply with the limit on points and fees would be
ineligible for insurance under the National Housing Act.
The three percent points and fees limit is one of the statutory
criteria used to define a qualified mortgage, and the CFPB has retained
this criterion in its regulatory definition, with adjustments to
facilitate compliance for smaller loans. Although it is also within the
purview of HUD's ability to ``revise, add to, or subtract from'' the
definition of qualified mortgage, under section 129C(b)(3) of TILA, and
amend the points and fees, HUD considers the proposed adoption of the
points and fees limit as established by statute and adopted by the CFPB
in its final rule to be appropriate.\17\ By maintaining consistency
with the points and fees threshold that applies to conventional
qualified mortgages under the CFPB final rule, HUD expects to remove
that requirement as a consideration in whether an insured or a
conventional qualified mortgage is a more appropriate choice in a
particular situation.
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\17\ HUD's upfront mortgage insurance premium (UFMIP) is not
included in the points and fees.
---------------------------------------------------------------------------
This approach also isolates points and fees as an independent
factor and would allow HUD to focus on its existing requirements while
it considers whether adjustments are necessary as HUD's experience with
the effects of qualified mortgages develops.
Specific solicitation of comment. HUD is aware of the considerable
comment on the issue of the three percent points and fees limitation
(which is the limitation in the statute), including specific elements
of the points and fees, received in response to the proposed rule that
preceded CFPB's final rule on qualified mortgages. With respect to FHA-
insured loans, HUD has limited data on points and fees charged on past
FHA-insured loans, and therefore relies, to an extent, on the analysis
undertaken by the CFPB, much of which was presented in the CFBP final
rule in response to public comments. Essentially, the proposal that HUD
presents in this rulemaking is that the CFPB's points and fees
limitation for the broader mortgage market is also appropriate for
FHA's segment of the market. As a result, HUD seeks comment from
lenders participating in its programs on any issues specific to HUD's
mortgage insurance and loan guarantee programs that HUD should take
into consideration in setting its points and fees limits consistent
with the CFPB's definition, including relevant differences (if any)
with the non-FHA market, and the possibility for potential adverse
selection issues if FHA were not to adopt the CFPB's points and fees
limitation.
Two subsets of FHA-insured qualified mortgages. This rulemaking
proposes to establish two subsets of FHA-insured ``qualified
mortgages'': a ``rebuttable presumption qualified mortgage'' and a
``safe harbor qualified mortgage.'' As noted earlier in this preamble,
with the exception of HECMs, the proposed rule would require all FHA-
insured single family mortgages to meet either the ``rebuttable
presumption qualified mortgage'' or ``safe harbor qualified mortgage''
definition. HUD reads the ``for purposes of paragraph [129(b)(2)(A) of
TILA]'' to include the basic purpose served by a qualified mortgages;
namely, to provide mortgagees the presumption that a loan that is a
qualified mortgage meets the ability to repay requirements of TILA
section 129C(a). The proposed rule also states the degree to which each
subset of FHA-insured qualified mortgages addresses its purpose of
providing a presumption of compliance with the ability to repay
requirements.
Rebuttable presumption qualified mortgage. A ``rebuttable
presumption qualified mortgage'' would be defined as a single family
mortgage that is insured under the National Housing Act, except for
loans insured under Title I or HECMs, which would include the
requirement that it does not exceed the CFPB's limits on points and
fees, codified at 12 CFR 1026.43(e)(3), and has an annual percentage
rate that exceeds the average prime offer rate for a comparable
mortgage, as of the date the interest rate is set by, more than the
combined annual mortgage insurance premium and 1.15 percentage points
for a first-lien mortgage. The rule provides that a mortgage that meets
the requirements for a rebuttable presumption qualified mortgage would
be presumed to comply with the ability to repay requirements in 15
U.S.C. 1639c(a). Additionally, any rebuttal of such presumption of
compliance must show that despite meeting the ``rebuttable presumption
qualified mortgage'' requirements, the mortgagee did not make a
reasonable and good-faith determination of the mortgagor's repayment
ability at the time of consummation, as applicable to the type of
mortgage, when underwriting the mortgage in accordance with HUD
requirements, or that the points and fees limit was exceeded.
Safe harbor qualified mortgage. A ``safe harbor qualified
mortgage'' would be defined as one that is either (1) a mortgage
insured under the National Housing Act, except for a mortgage insured
under Title I or a HECM, and that meets the requirements of the
National Housing Act, including the points and fees limit, and that has
an APR for a first-lien mortgage relative to the APOR that is less than
the combined annual mortgage insurance premium and 1.15 percentage
points; or (2) a mortgage insured under Title I. A mortgagee that meets
the requirements for a safe harbor qualified mortgage is deemed to meet
the ability-to-repay requirements in 15 U.S.C. 1639c(a).
[[Page 59896]]
HUD's proposed categorizations of safe harbor and rebuttable
presumption are similar, but not identical to those of the CFPB. The
CFPB final rule does not establish a ``safe harbor qualified mortgage''
or a ``rebuttable presumption qualified mortgage'' per se. Rather, the
CFPB final rule provides separate definitions of ``higher-priced
covered transaction'' and ``qualified mortgage'' and then states that
(1) a qualified mortgage that is not a higher-priced transaction
complies with the ability-to-repay requirements; and (2) a qualified
mortgage that is a higher-priced transaction is presumed to comply with
the ability-to-repay requirements. Even though the CFPB final rule is
structured in this way to provide only a single definition of
``qualified mortgage,'' the preamble to the CFPB final rule
acknowledges that the result is that ``the final rule distinguishes
between two types of qualified mortgages based on the mortgage's APR
relative to the APOR.'' See the CFBP final rule at 78 FR 6505. The CFPB
final rule also acknowledges that the definition of ``qualified
mortgage'' may be structured in different ways, and the Federal Reserve
Board's proposed rule on qualified mortgage (76 FR 27390, May 11, 2011)
proposed two alternative definitions of a qualified mortgage, one that
would have operated as a legal safe harbor, and one that would have
provided a rebuttable presumption of compliance. See 78 FR 6417, 6508.
APR (Annual Percentage Rate) relative to APOR (Average Prime Offer
Rate). Similar to the CFPB final rule, HUD's proposed rule would
distinguish between the two types of qualified mortgages based on the
mortgage's APR relative to the APOR for the great majority of FHA-
insured single family mortgages. Using the APR relative to APOR to
distinguish between safe harbor and rebuttable presumption for most
loans provides consistency with a significant feature of the CFPB
rule.\18\ The CFPB final rule, at 12 CFR 1026.35, consistent with
section 129C(b)(2)(B) of TILA, provides for CFPB to set the APOR for a
comparable transaction and to publish such rate.
---------------------------------------------------------------------------
\18\ APOR does not include private mortgage insurance (PMI).
---------------------------------------------------------------------------
Title I single family mortgages are specialized products that
require further study to determine additional parameters for
distinguishing the rebuttable presumption and safe harbor qualified
mortgages. As referenced above, HUD proposes to designate them as safe
harbor qualified mortgages so as not to interfere with current lending
practices until appropriate parameters to distinguish between safe
harbor and rebuttable presumption mortgages under Title I can be
determined.
HUD's purpose in establishing two categories of qualified mortgages
for the bulk of loans it insures is to maintain consistency with the
TILA statutory criteria defining qualified mortgage, as well as the
CFPB's definition, to the extent consistent with the National Housing
Act. The difference in structure from the CFPB final rule is that HUD
proposes to incorporate the APR as an internal element of HUD's
definition of qualified mortgages that would distinguish the safe
harbor qualified mortgages from the rebuttable presumption qualified
mortgages. The CFPB's ``higher-priced covered transaction'' is an
external element that is applied to a single definition of ``qualified
mortgage.''
HUD's ``safe harbor qualified mortgage'' would provide a different
APR relative to APOR threshold than the CFPB's requirement that a
first-lien covered transaction have an APR of less than 1.5 percentage
points above the APOR. Under this proposed rule, for a non-Title I
single family mortgage to meet the ``safe harbor qualified mortgage''
definition, the mortgage would be required to have an APR that does not
exceed the APOR for a comparable mortgage by more than the combined
annual mortgage insurance premium (MIP) and 1.15 percentage points.
Because all FHA-insured mortgages include a MIP that may vary from time
to time to address HUD's financial soundness responsibilities,
including the MIP as an element of the threshold that distinguishes
safe harbor from rebuttable presumption allows the threshold to
``float'' in a manner that allows HUD to fulfill its responsibilities
that would not be feasible if HUD adopted a threshold based only on the
amount that APR exceeds APOR. If a straight APR over APOR threshold
were adopted by HUD, every time HUD would change the MIP, to ensure the
financial soundness of its insurance fund and reduce risk to the fund
or to reflect a more positive market, HUD would also have to consider
changing the threshold APR limit.
Specific solicitation of comment. HUD seeks comment on whether
lenders participating in its mortgage insurance and loan guarantee
programs would lower the APR relative to the APOR such that it is
always less than the combined annual mortgage insurance premium and
1.15 percentage points, so that the lender is originating only safe
harbor qualified mortgages. Specifically, would lenders always opt for
the safe harbor qualified mortgage and never make a rebuttable
presumption qualified mortgage? If so, HUD welcomes comments on views
on the effect that this incentive may have on lenders, borrowers, and
the broader economy.
Safe harbor versus rebuttable presumption mortgage--differences in
liability protection. FHA-approved lenders that originate a safe harbor
mortgage operate with greater legal protections than those that issue
rebuttable presumption mortgages, but the latter group is not without
legal protections.
For an FHA-approved lender that originates a safe harbor qualified
mortgage, the mortgage is conclusively presumed to comply with the
ability to repay requirements. Meeting the qualified mortgage criteria
and underwriting requirements and pricing of the loan at a prime rate
are sufficient to ensure that the lender made a reasonable and good-
faith determination that the borrower will be able to repay the loan.
If a borrower brings a claim that the FHA-approved lender did not make
a reasonable and good-faith determination of the borrower's ability to
repay the FHA-insured mortgage, and the court finds that the originated
mortgage was a safe harbor qualified mortgage, as defined by HUD, then
that finding by the court conclusively establishes that the lender
complied with the ability-to-repay requirements and the consumer's
claim is denied.
For an FHA-approved lender that originates a rebuttable presumption
mortgage, the mortgage is presumed to comply with the ability-to-repay
requirements. If a borrower brings a claim that the FHA-approved lender
did not make a reasonable and good-faith determination of the
borrower's ability to repay the FHA-insured mortgage, and the court
finds that the originated mortgage was a rebuttable presumption
qualified mortgage, as defined by HUD, then the borrower may rebut the
presumption. Therefore, the lender should exert greater care in
underwriting the loan than would be true in the absence of any
liability for extending a loan which the borrower cannot afford to
repay. For the borrower to prevail on its claim against a lender that
originates a rebuttable presumption, the borrower must prove that the
lender did not make a reasonable and good-faith effort in evaluating
the borrower's ability to repay the FHA-insured mortgage in accordance
with HUD requirements.
For either type of mortgage, however, documentation of the
borrower's ability to repay will be important in demonstrating
compliance with the ability-to-repay requirements. As stated
[[Page 59897]]
in the preamble to the CFPB final rule: ``As enacted by the Dodd-Frank
Act, TILA section 129C(a)(1) provides that no creditor may make a
residential mortgage loan unless the creditor makes a reasonable and
good-faith determination, based on verified and documented information,
that, at the time the loan is consummated, the consumer has a
reasonable ability to repay the loan according to its terms and all
applicable taxes, insurance, and assessments.'' (See 78 FR 6460.)
C. Native American and Native Hawaiian Loan Guarantee Programs
Similar to Title I loans, HUD's Section 184 and Section 184A
guaranteed loans create a very unique subset of loans for HUD and
require additional study to determine the appropriate parameters for
distinguishing rebuttable presumption and safe harbor qualified
mortgages. HUD proposes to designate them as safe harbor qualified
mortgages, with no APR limit, and with no points and fees limit, so as
not to interfere with current lending practices until appropriate
parameters to distinguish between safe harbor and rebuttable
presumption mortgages can be determined. The pertinent regulatory
provisions designating these loans safe harbor qualified mortgages are
included in parts 1005 and 1007 of this title.
D. Existing HUD Requirements
There are also provisions among HUD's requirements at 24 CFR part
203 that already apply to mortgages insured under the National Housing
Act and are consistent with section 129C(b)(2)(B) of TILA and the
CFPB's requirements, including that a mortgage have regular periodic
payments, that the mortgage does not exceed 30 years, and that lenders
apply specific underwriting requirements.\19\ HUD is proposing to
continue to use its existing underwriting and income verification
requirements. HUD is proposing to not adopt the CFPB's 43 percent total
monthly debt-to-income ratio requirement, in order to remain consistent
with HUD's mission with respect to underserved borrowers. HUD does not
expect its loan volume to increase as a result of its decision not to
adopt the CFPB's 43 percent total monthly debt-to-income ratio
requirement.
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\19\ See 24 CFR 203.1, 203.17(c)-(d), 203.33, 203.34; Handbook
4155.1 (Mortgage Credit Analysis for Mortgage Insurance on One-to-
Four Unit Mortgage Loans) and Handbook 4155.2 (Lender's Guide to the
Single Family Mortgage Insurance Process) available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh; Borrowers Section 184 Loan Resources,
available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/ih/homeownership/184/borrowers;
Section 184A Native Hawaiian Housing Loan Guarantee Program,
available at http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_8711.pdf.
---------------------------------------------------------------------------
E. Higher-Priced Covered Transactions
The fact that the CFPB final rule provides a separate definition of
``higher-priced covered transaction'' may potentially create issues in
that some HUD safe harbor qualified mortgages would also be higher-
priced covered transactions as defined by the CFPB. To the extent that
there are requirements not related to qualified mortgages that apply to
higher-priced covered transactions, such requirements would apply to
mortgages that meet the higher-priced covered transaction definition
regardless of whether they are safe harbor or rebuttable presumption.
For example, the calculation of certain maximum payments with respect
to loans with balloon payments under 12 CFR 1026.43(c)(5)(ii)(A) of the
CFPB's regulations is not expected to have any impact on mortgages
insured under the National Housing Act. Apart from this requirement,
HUD, however, is currently not aware of other possible overlaps of CFPB
requirements.
F. HUD's Proposed Rule Is Consistent With Sections 129B and 129C of
TILA
In prescribing by rule the types of loans HUD insures that are
qualified mortgages for purposes of TILA section 129C(b)(2)(A), HUD is
required to consult with the CFPB and to make a finding that such rule
is consistent with the purposes of sections 129B and 129C of TILA.\20\
HUD has consulted with the CFPB in the preparation of this proposed
rule. HUD's existing regulations and guidance, promulgated under HUD's
mandates to assist underserved borrowers and ensure the financial
soundness of its insurance programs, already require FHA lenders to
carefully assess a borrower's ability to repay, prohibit the use of
products with higher risk, and restrict certain fees charged to the
borrower. This rulemaking proposes to incorporate, in HUD's existing
regulations, the CFPB's limit on points and fees and an APR relative to
APOR calculation comparable to CFPB's calculation, but not identical,
to establish safe harbor and rebuttable presumption qualified mortgages
for the majority of FHA's portfolio and will provide further safeguards
against risky lending and abusive terms. In addition, clarifying the
extent of the presumption of ability to repay compliance afforded a
single family mortgage insured under the National Housing Act or
guaranteed under section 184 or 184A of the Housing and Community
Development Act of 1992 provides TILA compliance assurance to lenders
making loans insured and guaranteed by HUD.
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\20\ The purpose of 129B and 129C of TILA is to assure that
consumers are offered and receive residential mortgages on loan
terms that reasonably reflect their ability to repay the loans and
that are understandable and not unfair, deceptive or abusive. 15
U.S.C.1639b(a)(2).
---------------------------------------------------------------------------
HUD, therefore, finds that defining the loans it insures and
guarantees as qualified mortgages in terms of its existing requirements
for all lenders participating in its programs, coupled with the
requirements adapted here, will provide a wide range of mortgagors
access to residential mortgages on loan terms that reasonably reflect
their ability to repay while protecting such mortgagors from unfair
lending practices, consistent with the purpose of sections 129B and
129C of TILA, as stated in section 129B(a)(2).
In defining ``qualified mortgage'' in this way, HUD is stating that
its insured single family mortgages and guaranteed residential loans
meet TILA's ability-to-repay requirements. In essence, HUD is proposing
not to insure a single family mortgage or guarantee a single family
residential loan that is not a qualified mortgage, as defined by HUD.
When HUD's definition is issued in final and becomes effective,
following review and consideration of public comment, HUD's definition
will replace the CFPB's qualified mortgage definition at 12 CFR
1026.43(e), and therefore preclude the applicability of the temporary
definition for loans eligible to be insured by HUD under the National
Housing Act, as provided in the CFPB final rule at 12 CFR
1026.43(e)(4)(iii).
As addressed in the following section, HUD has determined that it
is important for its definition to govern its programs, consistent with
statutory intent and the statutory mandate to HUD and the other three
Federal agencies to issue their own definitions of qualified mortgage.
The CFPB's definition was designed for the general lending market, not
specifically for HUD's mortgage insurance and loan guarantee programs.
Therefore, wholesale application of ``qualified mortgage,'' as defined
by the CFPB, without any modifications made by HUD, does not work as
well for HUD's programs as HUD's definition.
IV. Justification for Shortened Public Comment Period
For HUD rules issued for public comment, it is HUD's policy to
afford the public ``not less than 60 days for submission of comments.''
See 24 CFR 10.1. In cases in which HUD determines that a shorter public
comment period
[[Page 59898]]
may be appropriate, it is also HUD's policy to provide an explanation
of why the public comment period has been abbreviated. For the reasons
provided in this section of the preamble, HUD believes that this
proposed rule merits an abbreviated public comment period.
HUD's rule needs to be issued and effective by January 10, 2014, to
decrease the risk of disruption to HUD's mortgage programs and avoid
jeopardizing the availability of an important source of affordable home
financing for first-time homebuyers and minority homebuyers, including
Native Americans and Native Hawaiians. If HUD's rule is not effective
by this date, these mortgages will be subject to the CFPB's definition
of qualified mortgage, a definition that is not focused on, to the
extent that HUD's definition is required to be, the populations that
the HUD programs have a mission to serve. Specifically, CFPB's
definition would result in a lower share of safe harbor qualified
mortgages for FHA and would negatively affect borrowers with greater
than 43 percent total monthly debt-to-income ratios. Further, the lack
of a HUD rule on qualified mortgages would create uncertainty among FHA
lenders. Delay in the implementation of this rule would increase the
risk of disruption or delay in the availability of homeownership or
home improvement financing for vulnerable groups of consumers,
especially those who utilize the Title I, Section 184, and Section 184A
programs.
As discussed in the preamble, section 129C(b)(3)(B)(ii) of TILA
charges HUD, VA, USDA, and RHS to prescribe their own rules, in
consultation with the CFPB, defining the types of loans that these
agencies insure, guarantee, or administer, as applicable, that are
qualified mortgages. The statutory charge to these four agencies to
issue their own definitions of qualified mortgage for their financing
programs reflects a statutory view that these agencies are in the best
position to define ``qualified mortgage'' for their loan products,
consistent with the purposes of sections 129B and 129C of TILA, and
within the statutory parameters of the programs and the mission of each
agency.
For HUD to responsibly and effectively carry out its rulemaking
mandate under the Dodd-Frank Act, HUD did not issue its own qualified
mortgage rule in advance of the CFPB final rule (nor did any of the
other three Federal agencies). Similar to the statutory authority
provided to the four Federal agencies, the CFPB was also authorized, in
prescribing its rule defining qualified mortgage, to revise, add to, or
subtract from, the statutory criteria defining qualified mortgage,
factoring into HUD's decision to be prudent and wait for the CFPB final
rule. HUD determined it was important to wait for the CFPB final rule
defining qualified mortgage, with HUD's objective to be as consistent
as feasible with the CFPB's definition, which closely tracks the
statutory definition, while remaining attentive to HUD's mission and
the statutorily required features of the various types of insured
mortgage products.
Although the CFPB published its final rule in the Federal Register
on January 30, 2013, at 78 FR 6408 (effective as of January 10, 2014,
one year from the date of the CFPB's posting of the rule on its Web
site), the CFPB published on that same date, at 78 FR 6622, a proposed
rule that submitted for public comment certain amendments to the CFPB
final rule. These amendments included additional exemptions from the
ability-to-repay requirements, and one such exemption was for the four
Federal agencies' refinance programs. See 78 FR 6623. By final rule
issued on May 29, 2013, and published on June 12, 2013, at 78 FR 35430,
the CFPB determined that the Federal agencies' refinance programs would
not be exempt from the ability-to-repay requirements.
With CFPB having made its determinations on ability to pay/
qualified mortgage requirements, as provided in its January 30 and June
12, 2013, final rules, it is necessary, in order to avoid disruptions
in meeting the housing needs of borrowers that HUD is charged to serve,
for HUD to issue for effect as quickly as possible its own rule on
``qualified mortgage'' so that HUD's rule is in place on or before
January 10, 2014, the date the CFPB final rule becomes effective. It
was important for HUD to wait and see the scope of the CFPB's
amendments, which were finalized in the June 12, 2013, rule because HUD
must not only take into consideration the statutory criteria and
purposes for defining a qualified mortgage as set out in the Dodd-Frank
Act and the regulatory criteria as promulgated in the CFPB's rules, but
must take into consideration the purposes and provisions of the
programs HUD administers. Unlike the CFPB, HUD's definition is not
designed for the general lending market but for the lenders who
participate in HUD's mortgage insurance and guarantee programs and the
borrowers who utilize mortgages under HUD's programs, and, as
previously noted, the Dodd-Frank Act, is clear that HUD's definition of
``qualified mortgage'' is to govern HUD programs.
As discussed in this preamble, HUD maintains for its mortgage
insurance and loan guarantee programs the regulatory framework now in
place. HUD's proposed definition of ``qualified mortgage'' presents
some additions to the requirements under which these programs are
governed, to the extent feasible to better align them with the TILA
purposes and the CFPB final rule.
HUD's mortgage insurance and loan guarantee programs play a central
role in the housing market and act as a stabilizing force during times
of economic distress, facilitating mortgage financing during periods of
severe constriction in conventional markets. Having HUD's qualified
mortgage rule in place and effective by January 10, 2014, is a step
that HUD must take to avoid unnecessarily disrupting the mortgage
market, and seriously jeopardizing the security and certainty that
HUD's mortgage insurance and loan guarantee programs provide in the
housing market.
For these reasons, HUD has determined that an abbreviated comment
period is appropriate for this proposed rule. Because the comment
period is an abbreviated one, HUD will consider comments that are
submitted after the comment period has closed.
V. Findings and Certifications
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this proposed
rule under Executive Order 12866 (entitled ``Regulatory Planning and
Review''). This proposed rule was determined to be a ``significant
regulatory action,'' as defined in section 3(f) of the Order (although
not economically significant, as provided in section 3(f)(1) of the
Order). The docket file is available for public inspection in the
Regulations Division, Office of General Counsel, Department of Housing
and Urban Development, 451 7th Street SW., Room 10276, Washington, DC
20410-0500.
As already discussed in the preamble, this rulemaking would remove
the application of the CFPB's qualified mortgage rule to HUD-eligible
loans and replace it with a definition of ``rebuttable presumption
qualified mortgage'' and ``safe harbor qualified mortgage'' for loans
insured or guaranteed by HUD. Neither the economic costs nor the
benefits of this proposed rule are greater than the $100 million
threshold that determines economic significance under Executive Orders
12866 and 13563. The expected impact of the rulemaking would be no
greater than an annual reduction of
[[Page 59899]]
lenders' legal costs of $41 million on the high end to $12.3 million on
the low end, and may even fall below this range.
Under HUD's qualified mortgage rule, lenders face lower costs of
compliance than under the CFPB final rule and therefore receive
incentives to continue making these loans without having to pass on
their increased compliance costs to borrowers. While borrowers benefit
from not having to pay for the higher lender costs, they also face less
opportunity to challenge the lender with regard to ability to repay.
HUD expects that almost all borrowers would gain from the reduction in
litigation and that the reduction of the interest rate will compensate
for the loss of the option to more easily challenge a lender. In
addition, with reduced interest payments, the likelihood of a challenge
is reduced. Very few borrowers would lose from this rulemaking.
Generally, the reduction in legal costs represents a societal benefit.
However, the rare instance a settlement in the borrower's favor is
prevented that represents a transfer from the borrower to lender (to be
redistributed to all other borrowers). Relative to the CFPB rule, HUD
does not expect its qualified mortgage rule will substantially decrease
the potential benefits of ability-to-repay lawsuits.
If HUD had proposed a limit in excess of the CFPB standard on
points and fees for receiving qualified mortgage status, there would be
fewer borrowers benefiting as lenders would have less incentive to
reduce points and fees (in both the FHA market and in the conventional
market as conventional lenders who charge points and fees above the
CFPB limit but below a higher HUD limit could attain qualified mortgage
status by sending some of these loans to HUD). Moreover, HUD through
proposing its own rebuttable presumption standard based on the spread
between APOR and APR plus MIP keeps pressure on conventional lenders to
keep APR within the limit for safe harbor as well, which will help
ensure consumers are not merely charged higher interest rates in return
for reduced points and fees.
To estimate the size of the reduction in cost to FHA lenders, HUD
notes that the CFPB estimated the legal costs to defend potential
challenges on a nonqualified mortgage loan would add between 3 and 10
basis points to the interest rate on the loan.\21\ HUD views 10 basis
points (0.10 percentage points) as an upper bound because qualified
mortgage loans with rebuttable presumption are expected to incur much
lower legal costs to defend against challenges than non- qualified
mortgage loans.
---------------------------------------------------------------------------
\21\ Regulatory impact analysis by the CFPB of the ``Ability-to-
Repay and Qualified Mortgage Standards under Truth in Lending Act
(Regulation Z),'' page 24.
---------------------------------------------------------------------------
As discussed above, HUD would make all Title I, Section 184, and
Section 184A insured mortgages and guaranteed loans safe harbor
qualified mortgages. Under the CFPB final rule, many of these loans
would have upfront fees and points that exceed the cap listed and would
therefore be classified as nonqualified mortgages. Estimating the
number of FY 2013 loans for the Title I program at 5,000 with an
average balance of $47,900, the aggregate loan amount would be
approximately $200 million. Estimating the number of FY 2013 loans for
the Section 184 and Section 184A program also at 5,000, with an average
balance of $175,000, the aggregate loan amount would be approximately
$900 million. Classifying this group of loans as safe harbor qualified
mortgages and applying the upper bound of 0.10 percentage points would
lower lenders' legal costs to defend the loans by $1.1 million or a
lower bound estimate of $400,000. However, because HUD does not track
APR or points and fees on Title 1, Section 184, and Section 184A loans,
HUD cannot estimate with certainty the percentage of loans that would
be non-qualified mortgages. As such, HUD believes a high share of these
loans would be non-qualified mortgages, and assumes 100 percent for
this analysis, but it is reasonable to state that this percentage may
be less than 100 percent, and the resulting benefits to consumers and
legal cost reductions for lenders from the proposed rule may be
overstated.
Under the CFPB final rule, mortgages insured under Title II of the
National Housing Act (with the exception of reverse mortgages insured
under section 255 of this act) would be classified as nonqualified
mortgages, while others would be qualified mortgages afforded a
rebuttable presumption or a safe harbor presumption. A small number
(about 7 percent) of Title II loans would not qualify as qualified
mortgages based on their exceeding the points and fees limit. All other
loans that FHA currently insures under Title II would meet qualified
mortgage standards under the CFPB final rule, but about 20 percent only
do so with a rebuttable presumption of compliance with ability to
repay. The remaining FHA loans under the CFPB final rule (about 74
percent) would qualify for qualified mortgage status with a safe harbor
presumption of compliance with the ability to repay requirements.
The Title II loans that would be nonqualified mortgages under the
CFPB final rule would remain nonqualified mortgage under the proposed
rule. The difference is that HUD, through this rulemaking, would no
longer insure loans with points and fees above the CFPB level for
qualified mortgage. This policy provides a very strong incentive for
HUD mortgagees to comply with the qualified mortgage points and fees
requirements. As a result, only a negligible fraction of these affected
loans would have to find alternatives to FHA execution, or not be made
at all, once the HUD qualified mortgage rule is in place. Most are
expected to comply and to continue to be insured by HUD. Therefore, the
costs and benefits would be similar to all other Title II loans.
The primary impact on FHA loans (excluding Title I) is the
reclassification of 19 percent of FHA's non-Title I loans from
rebuttable presumption to safe harbor under the proposed rule. HUD
estimates the number of loans insured in FY 2013 under the Title I
program to be 1,180,000 with an aggregate loan amount of $210 billion.
Only 19 percent of the portfolio would be a rebuttable presumption
qualified mortgage making the adjusted aggregate loan amount $39.9
billion. Classifying this group of loans as safe harbor qualified
mortgages and applying the upper bound of .10 percentage points would
lower lenders' legal costs to defend the loans by $39.9M, and applying
the lower bound of .03 would result in a reduced cost of $12 million.
Figure 1 in HUD's accompanying economic analysis illustrates the
characteristics of the loan categories for FHA-insured loans under this
proposed rule. A full economic analysis of the costs and benefits and
possible impacts of this rulemaking is available on
www.regulations.gov.
Due to security measures at the HUD Headquarters building, please
schedule an appointment to review the docket file by calling the
Regulations Division at 202-708-3055 (this is not a toll-free number).
Individuals with speech or hearing impairments may access this number
via TTY by calling the Federal Relay Service at 800-877-8339 (this is a
toll-free number).
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
[[Page 59900]]
As provided in this rulemaking, HUD proposes no change to the
current requirements governing its Title I loans, its Section 184 and
184A guaranteed loans, and HECM loans. Therefore, there is no impact on
either lenders or prospective borrowers under these programs.
With respect to FHA-insured single family mortgages (except for
Title I and HECMs), FHA proposes to adopt the points and fees
limitation, similar to the structure provided in the CFPB final rule.
As noted earlier in this preamble, the 3 percent points and fees limit
is one of the statutory criteria used to define a qualified mortgage,
and the CFPB retained this criterion in its regulatory definition with
adjustments to facilitate the presumption of compliance for smaller
loans. HUD considers the proposed adoption of the points and fees limit
as established by statute and adopted by the CFPB in its rule to be
appropriate. In addition to the points and fees limitation, and similar
to the CFPB final rule, HUD's rulemaking proposes to distinguish
between the two types of qualified mortgages based on the mortgage's
APR relative to the APOR, for the great majority of FHA-insured single
family mortgages. The difference, however, in structure from the CFPB
final rule is that HUD proposes to incorporate the APR as an internal
element of HUD's definition of qualified mortgages that would
distinguish the safe harbor qualified mortgages from the rebuttable
presumption qualified mortgages.
With these few exceptions, HUD retains its existing requirements
for the majority of its FHA-insured single family mortgages, thereby
creating minimal impact on its programs. As also noted earlier in this
preamble, there are provisions among HUD's requirements at 24 CFR part
203 that are consistent with section 129C(b)(2)(B) of TILA and the
CFPB's requirements, including that a mortgage have regular periodic
payments, that the mortgage does not exceed 30 years, and that lenders
apply specific underwriting requirements. See 24 CFR 203.1, 203.17(c)-
(d). HUD is proposing to continue to use its existing underwriting
requirements, in order to remain consistent with HUD's mission with
respect to underserved borrowers, and therefore does not propose to
adopt the CFPB's 43 percent total monthly debt-to-income ratio
requirement. The primary change made to the status quo by the Dodd-
Frank Act and the CFPB final rule is, simply put, to extend the
requirement that a lender determine that a borrower has the ability to
repay most single family loans. (See section 129C of TILA as added by
title XIV, subtitle B, section 1411 of the Dodd-Frank Act, codified at
15 U.S.C. 1639c (note).) While this may be a new requirement for
private industry, HUD has long required, as a matter of prudent
underwriting, that lenders determine that borrowers whose mortgage
loans are HUD-insured have the ability to repay. For example, in HUD's
single family mortgage insurance regulations at 24 CFR 203.21
(consistent with section 203(b)(4) of the National Housing Act), the
monthly payments on a mortgage must not be in excess of the borrower's
reasonable ability to pay. When there is a second mortgage, the monthly
payments on both mortgages must be within the borrower's reasonable
ability to repay. See 24 CFR 203.32(c).
Specific underwriting guidance, including factors for
consideration, are found in HUD Handbook 4151.1, Mortgage Credit
Analysis for Mortgage Insurance (October 18, 2010). Factors examined
include factors similar to the factors stated in section 129C(a)(3) of
the Dodd-Frank Act, 15 U.S.C. 1639c(a)(3). These include current income
and expected income that the consumer is reasonably assured of
receiving (Handbook 4155.1, chapter 4, sections D and E); debt
obligations (as part of credit review in chapter 4, section C); debt-
to-income ratio (chapter 4, section C); and employment (chapter 4,
section D). The preamble to the CFPB final rule also includes alimony
and child support obligations (78 FR 6408, January 30, 2013; see HUD
Handbook 4155.1 at chapter 4, section C, page 18), and monthly payments
on the current transaction, any mortgage-related loans, and
simultaneous loans (Id.; see also chapter 5, section C, page 4 of the
Handbook, stating that ``The monthly payments under the insured
mortgage and second lien, plus housing expense and other recurring
charges, cannot exceed the borrower's ability to repay''). Thus, in
large part, the requirements of the Dodd-Frank Act and the CFPB final
rule are closely aligned with HUD's existing mortgage insurance and
loan guarantee programs. HUD requires verification of income on all
loans and full documentation.
The one area where HUD's past practice differs from this rulemaking
is in the area of points and fees. HUD has chosen to follow the CFPB's
cap of 3-percent on points and fees combined, whereas previously points
and fees would be individually negotiated. As to points, generally this
refers to points charged against interest, so that a higher up-front
payment results in a lower interest rate or vice-versa. Origination
points and fees, although there is no firm cap for HUD-insured
mortgages, are currently limited to reasonable and customary amounts
not to exceed the actual costs of specific items and reasonable and
customary charges as may be approved by the Federal Housing
Commissioner (24 CFR 203.27(a)).
As the market adopts the CFPB's 3-percent cap on points and fees
for qualified mortgages, FHA lenders would be required to cap points
and fees at about 3 percent, as a result of HUD's existing reasonable
and customary standard. However, if HUD simply maintained its existing
reasonable and customary standard for FHA lenders, FHA lenders would be
forced to determine if charging an amount a little over 3-percent
points and fees would mean the loan is a qualified mortgage, which
could result in higher litigation costs. By HUD adopting the cap of 3-
percent points and fees, lenders would not be forced to determine what
is reasonable and customary, thereby, providing certainty in the market
and setting a clear enforcement standard.
As an insurer or guarantor of a loan, it is equally important to
note that HUD has long had ability-to-repay requirements. As an insurer
or guarantor of a loan, it is important for HUD to have its lenders
ensure, to the best of their ability and consistent with HUD
requirements, that a borrower is capable of repaying a mortgage or loan
insured or guaranteed by HUD. If the borrower defaults and is unable to
continue to make payments, HUD must pay the lender's claim. To this
point, HUD's insurance and loan guarantee programs are statutorily
exempt from the credit risk retention requirements of section 15G of
the Securities and Exchange Act of 1934, as added by the Dodd-Frank
Act. The statute provides that qualified residential mortgages are
exempt from credit risk retention requirements and included HUD as one
of the four Federal agencies to define what is meant by a qualified
residential mortgage. HUD's handbook 4155.1 (Mortgage Credit Analysis
for Mortgage Insurance) was included by the Federal agencies charged
with promulgating rules to implement the credit risk retention
requirements as an appendix to the agencies' proposed rule published on
April 29, 2011 (see 76 FR 24090 at 24173) for the purpose of
determining and verifying, among other things, borrower funds to close
and borrower's monthly household debt, total monthly debit, and monthly
gross income. (See 76 FR 24119.) Given HUD's longstanding ability to
repay requirements, the transition to qualified mortgage requirements
is not as
[[Page 59901]]
significant of a change as it is for conventional mortgages.
However, with the CFPB's final regulations now in place,
conventional mortgages will now meet ability-to-repay requirements
following similar underwriting guidelines long used by HUD. Since FHA-
approved lenders also originate conventional mortgages, the
establishment of ability-to-repay requirements for conventional
mortgages adds more consistency in the mortgage market overall; that
is, conventional mortgages will be originated based on underwriting
guidelines similar to those long in use by HUD and other federally
insured or guaranteed mortgages. Such consistency will further reduce
burden on lenders, large and small.
For the reasons provided above and in this preamble overall, the
undersigned certifies that this proposed rule would not have a
significant economic impact on a substantial number of small entities.
Notwithstanding HUD's determination that this proposed rule would not
have a significant effect on a substantial number of small entities,
HUD specifically invites comments regarding any less burdensome
alternatives to this rulemaking that will meet HUD's objectives as
described in the preamble to this proposed rule.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made in accordance with HUD regulations at 24 CFR
part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is
available for public inspection between 8 a.m. and 5 p.m., weekdays, in
the Regulations Division, Office of General Counsel, Department of
Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500. Due to security measures at the HUD
Headquarters building, an advance appointment to review the docket file
must be scheduled by calling the Regulations Division at 202-708-3055
(this is not a toll-free number). Hearing-or speech-impaired
individuals may access this number through TTY by calling the Federal
Relay Service at 800-877-8339 (this is a toll-free number).
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either (i) imposes substantial direct compliance costs on state and
local governments and is not required by statute, or (ii) preempts
state law, unless the agency meets the consultation and funding
requirements of section 6 of the Executive Order. This proposed rule
would not have federalism implications and would not impose substantial
direct compliance costs on state and local governments or preempt state
law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for Federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This proposed rule would
not impose any Federal mandates on any state, local, or tribal
governments, or on the private sector, within the meaning of the UMRA.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number for Mortgage
Insurance-Homes is 14.117; for the Section 184 Loan Guarantees for
Indian Housing is 14.865, and for the Section 184A Loan Guarantees is
14.874.
List of Subjects
24 CFR Part 201
Claims, Health facilities, Historic preservation, Home improvement,
Loan programs--housing and community development, Manufactured homes,
Mortgage insurance, Reporting and recording requirements.
24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
24 CFR Part 1005
Indians, Loan programs--Indians, Reporting and recordkeeping
requirements.
24 CFR Part 1007
Loan programs--Native Hawaiians, Native Hawaiians, Reporting and
recordkeeping requirements.
Accordingly, for the reasons stated above, HUD proposes to amend 24
CFR parts 201, 203, 1005 and 1007 as follows:
PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS
0
1. The authority citation for part 201 is amended to read as follows:
Authority: 12 U.S.C. 1703; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
0
2. Section 201.7 is added to read as follows:
Sec. 201.7 Qualified Mortgage.
A mortgage insured under section 2 of title I of the National
Housing Act (12 U.S.C. 1703) is a safe harbor qualified mortgage that
meets the ability to repay requirements in 15 U.S.C. 1639c(a).
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
0
3. The authority citation for part 203 is amended to read as follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and
1717z-21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
0
4. Section 203.19 is added to read as follows:
Sec. 203.19 Qualified Mortgage.
(a) Definitions. As used in this section:
(1) Average prime offer rate means an annual percentage rate that
is derived from average interest rates, points, and other loan pricing
terms currently offered to mortgagors by a representative sample of
mortgagees for mortgage transactions that have low-risk pricing
characteristics as published by the Consumer Financial Protection
Bureau (CFPB) from time to time in accordance with the CFPB's
regulations at 12 CFR 1026.35, pertaining to prohibited acts or
practices in connection with higher-priced mortgage loans.
(2) Annual percentage rate is the measure of the cost of credit,
expressed as a yearly rate, that relates the amount and timing of value
received by the mortgagor to the amount and timing of payments made and
is the rate required to be disclosed by the mortgagee under 12 CFR
1026.18, pertaining to disclosure of finance charges for mortgages.
(b) Qualified Mortgage--(1) Limit. For a single family mortgage to
be insured under the National Housing Act (12 U.S.C. 1701 et seq.),
except for Home Equity Conversion Mortgages under section 255 of the
National Housing Act (12 U.S.C. 1715z-20) and mortgages under section 2
of Title I of the National Housing Act (12 U.S.C. 1703), the total
points and fees payable in connection with a loan used to secure a
dwelling shall not exceed the CFPB's limit on points and fees for
qualified mortgage regulations at 12 CFR 1026.43(e)(3), or successor
regulation.
(2) Rebuttable presumption qualified mortgage. (i) A single family
mortgage insured under the National Housing Act (12 U.S.C. 1701 et
seq.), except for Home Equity Conversion Mortgages
[[Page 59902]]
under section 255 of the National Housing Act (12 U.S.C. 1715z-20) and
mortgages under section 2 of Title I of the National Housing Act (12
U.S.C. 1703), that has an annual percentage rate that exceeds the
average prime offer rate for a comparable mortgage, as of the date the
interest rate is set, by more than the combined annual mortgage
insurance premium and 1.15 percentage points for a first-lien mortgage
is a rebuttable presumption qualified mortgage that is presumed to
comply with the ability to repay requirements in 15 U.S.C. 1639c(a).
(ii) To rebut the presumption of compliance, it must be proven that
the mortgage exceeded the points and fees limit in paragraph (b)(1) of
this section or that, despite the mortgage being insured under the
National Housing Act, the mortgagee did not make a reasonable and good-
faith determination of the mortgagor's repayment ability at the time of
consummation, by failing to consider the mortgagor's income, debt
obligations, alimony, child support, monthly payment on any
simultaneous loans, and monthly payment (including mortgage-related
obligations) on the mortgage, as applicable to the type of mortgage,
when underwriting the mortgage in accordance with HUD requirements.
(3) Safe harbor qualified mortgage. (i) A mortgage that is insured
under section 2, Title I of the National Housing Act (12 U.S.C. 1703)
is a safe harbor qualified mortgage that meets the ability to repay
requirements in 15 U.S.C. 1639c(a); and
(ii) A single family mortgage insured under the National Housing
Act (12 U.S.C. 1701 et seq.), except for Home Equity Conversion
Mortgages under section 255 of the National Housing Act (12 U.S.C.
1715z-20), that has an annual percentage rate that does not exceed the
average prime offer rate for a comparable mortgage, as of the date the
interest rate is set, by more than the combined annual mortgage
insurance premium and 1.15 percentage points for a first-lien mortgage
is a safe harbor qualified mortgage that meets the ability to repay
requirements in 15 U.S.C. 1639c(a).
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
0
5. The authority citation for part 1005 is amended to read as follows:
Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C.
3535(d).
0
6. Section 1005.120 is added to read as follows:
Sec. 1005.120 Qualified Mortgage.
A mortgage guaranteed under section 184 of the Housing and
Community Development Act of 1992 (12 U.S.C. 1715z-13a) is a safe
harbor qualified mortgage that meets the ability-to-repay requirements
in 15 U.S.C. 1639c(a).
PART 1007--SECTION 184A LOAN GUARANTEES FOR NATIVE HAWAIIAN HOUSING
0
7. The authority citation for part 1007 is amended to read as follows:
Authority: 12 U.S.C. 1715z-13b; 15 U.S.C. 1639c; 42 U.S.C.
3535(d).
0
8. Section 1007.80 is added to read as follows:
Sec. 1007.80 Qualified Mortgage.
A mortgage guaranteed under section 184A of the Housing and
Community Development Act of 1992 (1715z-13b) is a safe harbor
qualified mortgage that meets the ability-to-repay requirements in 15
U.S.C. 1639c(a).
Dated: September 20, 2013.
Shaun Donovan,
Secretary.
[FR Doc. 2013-23472 Filed 9-27-13; 8:45 am]
BILLING CODE 4210-67-P