Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): Seasoned QM Loan Definition

Federal RegisterDec 29, 2020

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2020-0028]

RIN 3170-AA98

Qualified Mortgage Definition Under the Truth in Lending Act (Regulation Z): Seasoned QM Loan Definition

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule; official interpretation.

SUMMARY:

With certain exceptions, Regulation Z requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any residential mortgage loan, and loans that meet Regulation Z's requirements for “qualified mortgages” (QMs) obtain certain protections from liability. Regulation Z contains several categories of QMs, including the General QM category and a temporary category (Temporary GSE QMs) of loans that are eligible for purchase or guarantee by government-sponsored enterprises (GSEs) while they are operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA). The Bureau of Consumer Financial Protection (Bureau) is issuing this final rule to create a new category of QMs (Seasoned QMs) for first-lien, fixed-rate covered transactions that have met certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. The Bureau's primary objective with this final rule is to ensure access to responsible, affordable mortgage credit by adding a Seasoned QM definition to the existing QM definitions.

DATES:

This final rule is effective on March 1, 2021.

FOR FURTHER INFORMATION CONTACT:

Eliott C. Ponte or Ruth Van Veldhuizen, Counsels, or Joan Kayagil, Amanda Quester, or Jane Raso, Senior Counsels, Office of Regulations, at 202-435-7700. If you require this document in an alternative electronic format, please contact

CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms. Loans that meet the ATR/QM Rule's requirements for QMs obtain certain protections from liability. The Bureau issued a proposal in August 2020 to create a new category of QMs, Seasoned QMs. The Bureau is now finalizing the proposal largely as proposed.

The final rule defines Seasoned QMs as first-lien, fixed-rate covered transactions that have met certain performance requirements over a seasoning period of at least 36 months, are held in portfolio until the end of the seasoning period by the originating creditor or first purchaser, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.

As explained in more detail in part VI below, the final rule differs from the proposal in certain limited respects, including by adding a new exception to the portfolio requirement that allows loans to be transferred once during the seasoning period, excluding high-cost mortgages as defined in 12 CFR 1026.32(a), and applying the same consider and verify requirements that will apply to General QM loans.

The Bureau concludes that a Seasoned QM definition will complement existing QM definitions and help ensure access to responsible, affordable mortgage credit. One QM category defined in the ATR/QM Rule is the General QM category. General QMs must comply with the ATR/QM Rule's prohibitions on certain loan features, its points-and-fees limits, and its underwriting requirements. Under the definition for General QMs currently in effect, the ratio of the consumer's total monthly debt to total monthly income (DTI) must not exceed 43 percent. In a separate final rule released simultaneously with this final rule, the Bureau is amending the General QM loan definition to, among other things, replace the existing General QM loan definition that includes the 43 percent DTI limit with a price-based General QM loan definition (General QM Final Rule).

A second, temporary category of QMs defined in the ATR/QM Rule is the Temporary GSE QM category, which consists of mortgages that (1) comply with the same loan-feature prohibitions and points-and-fees limits as General QMs and (2) are eligible to be purchased or guaranteed by the GSEs while under the conservatorship of the FHFA. The Temporary GSE QM loan definition was previously set to expire with respect to each GSE when that GSE ceases to operate under conservatorship or on January 10, 2021, whichever comes first. In a final rule issued on October 20, 2020 and published in the

Federal Register

on October 26, 2020, the Bureau extended the Temporary GSE QM loan definition until the earlier of the mandatory compliance date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship or receivership (Extension Final Rule).

85 FR 67938 (Oct. 26, 2020).

The Bureau is issuing this final rule to create a new category of QMs because it seeks to encourage safe and responsible innovation in the mortgage origination market, including for certain loans that are not QMs or are rebuttable presumption QMs under the existing QM categories. The Bureau presumes compliance with the ability-to-repay (ATR) requirements if such loans season in the manner set forth in this final rule. Under this final rule, a covered transaction receives a safe harbor from ATR liability at the end of a seasoning period of at least 36 months as a Seasoned QM if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and it meets performance and portfolio requirements during the seasoning period. Specifically, a covered transaction has to meet the following product restrictions to be eligible to become a Seasoned QM:

1. The loan is secured by a first lien;

2. The loan has a fixed rate, with regular, substantially equal periodic payments that are fully amortizing and no balloon payments;

3. The loan term does not exceed 30 years; and

4. The loan is not a high-cost mortgage as defined in § 1026.32(a).

In order to become a Seasoned QM, the loan's total points and fees also must not exceed specified limits.

For a loan to be eligible to become a Seasoned QM, this final rule requires that the creditor consider the consumer's DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and verify the consumer's income or assets other than the value of the dwelling and the consumer's debts, using the same consider and verify requirements established for General QMs in the General QM Final Rule.

Under this final rule, a loan generally is eligible to season only if the creditor holds it in portfolio until the end of the seasoning period. There are several exceptions to this portfolio requirement that are similar to the exceptions to the Small Creditor QM portfolio requirement under the ATR/QM Rule. This final rule also includes an additional exception for a single transfer of a loan during the seasoning period. In the event of such a transfer, the final rule requires the purchaser to hold the

loan in portfolio after the transfer until the end of the seasoning period.

In order to become a Seasoned QM, a loan must meet certain performance requirements at the end of the seasoning period. Specifically, seasoning is available only for covered transactions that have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. Funds taken from escrow in connection with the covered transaction and funds paid on behalf of the consumer by the creditor, servicer, or assignee of the covered transaction (or any other person acting on their behalf) are not considered in assessing whether a periodic payment has been made or is delinquent for purposes of this final rule. Creditors can, however, generally accept deficient payments, within a payment tolerance of $50, on up to three occasions during the seasoning period without triggering a delinquency for purposes of this final rule.

This final rule generally defines the seasoning period as a period of 36 months beginning on the date on which the first periodic payment is due after consummation. Failure to make full contractual payments does not disqualify a loan from eligibility to become a Seasoned QM if the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, as long as certain conditions are met. However, time spent in such a temporary accommodation does not count towards the 36-month seasoning period, and the seasoning period can only resume after the temporary accommodation if any delinquency is cured either pursuant to the loan's original terms or through a qualifying change as defined in this final rule. This final rule defines a qualifying change as an agreement entered into during or after a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency that ends any preexisting delinquency and meets certain other conditions to ensure the loan remains affordable (such as a restriction on increasing the amount of interest charged over the full term of the loan as a result of the agreement).

This final rule will take effect 60 days after publication in the

Federal Register

, which aligns with the effective date provided in the General QM Final Rule. For this final rule, the revised regulations apply to covered transactions for which creditors receive an application on or after the effective date.

II. Background

A. Dodd-Frank Act Amendments to the Truth in Lending Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

amended the Truth in Lending Act (TILA)

to establish, among other things, ATR requirements in connection with the origination of most residential mortgage loans.

The amendments were intended “to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive.”

As amended, TILA prohibits a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan.

Public Law 111-203, 124 Stat. 1376 (2010).

15 U.S.C. 1601

et seq.

Dodd-Frank Act sections 1411-12, 1414, 124 Stat. 2142-49; 15 U.S.C. 1639c.

15 U.S.C. 1639b(a)(2).

15 U.S.C. 1639c(a)(1). TILA section 103 defines “residential mortgage loan” to mean, with some exceptions including open-end credit plans, “any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or on residential real property that includes a dwelling.” 15 U.S.C. 1602(dd)(5). TILA section 129C also exempts certain residential mortgage loans from the ATR requirements.

See, e.g.,

15 U.S.C. 1639c(a)(8) (exempting reverse mortgages and temporary or bridge loans with a term of 12 months or less).

TILA identifies the factors a creditor must consider in making a reasonable and good faith assessment of a consumer's ability to repay. These factors are the consumer's credit history, current and expected income, current obligations, DTI ratio or residual income after paying non-mortgage debt and mortgage-related obligations, employment status, and other financial resources other than equity in the dwelling or real property that secures the repayment of the loan.

A creditor, however, may not be certain whether its ATR determination is reasonable in a particular case.

15 U.S.C. 1639c(a)(3).

A creditor that violates this ATR requirement may be subject to government enforcement and private actions. Generally, the statute of limitations for a private action for damages for a violation of the ATR requirement is three years from the date of the occurrence of the violation. 15 U.S.C. 1640(e). TILA also provides that if a creditor, an assignee, other holder, or their agent initiates a foreclosure action, a consumer may assert a violation by the creditor of the ATR requirement as a matter of defense by recoupment or set off without regard for the time limit on a private action for damages. 15 U.S.C. 1640(k).

TILA addresses this potential uncertainty by defining a category of loans—called QMs—for which a creditor “may presume that the loan has met” the ATR requirements.

The statute generally defines a QM to mean any residential mortgage loan for which:

15 U.S.C. 1639c(b)(1).

• The loan does not have negative amortization, interest-only payments, or balloon payments;

• The loan term does not exceed 30 years;

• The total points and fees generally do not exceed 3 percent of the loan amount;

• The income and assets relied upon for repayment are verified and documented;

• The underwriting uses a monthly payment based on the maximum rate during the first five years, uses a payment schedule that fully amortizes the loan over the loan term, and takes into account all mortgage-related obligations; and

• The loan complies with any guidelines or regulations established by the Bureau relating to the ratio of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt.

15 U.S.C. 1639c(b)(2)(A).

The ATR/QM Rule

In January 2013, the Bureau issued a final rule amending Regulation Z to implement TILA's ATR requirements (January 2013 Final Rule).

The January 2013 Final Rule became effective on January 10, 2014, and the Bureau has amended it several times since January 2013.

This final rule refers to the January 2013 Final Rule and later amendments to it collectively as the ATR/QM Rule. The ATR/QM Rule implements the statutory ATR provisions discussed above and defines several categories of QMs.

78 FR 6408 (Jan. 30, 2013).

See

78 FR 35429 (June 12, 2013); 78 FR 44686 (July 24, 2013); 78 FR 60382 (Oct. 1, 2013); 79 FR 65300 (Nov. 3, 2014); 80 FR 59944 (Oct. 2, 2015); 81 FR 16074 (Mar. 25, 2016); 85 FR 67938 (Oct. 26, 2020).

12 CFR 1026.43(c), (e).

1. General QMs

One category of QMs defined by the ATR/QM Rule consists of General QMs. Under the definition for General QMs currently in effect, a loan is a General QM if:

• The loan does not have negative-amortization, interest-only, or balloon-payment features, a term that exceeds 30 years, or points and fees that exceed specified limits;

12 CFR 1026.43(e)(2)(i) through (iii).

• The creditor underwrites the loan based on a fully amortizing schedule

using the maximum rate permitted during the first five years;

12 CFR 1026.43(e)(2)(iv).

• The creditor considers and verifies the consumer's income and debt obligations in accordance with appendix Q;

and

12 CFR 1026.43(e)(2)(v).

• The consumer's DTI ratio is no more than 43 percent, determined in accordance with appendix Q.

12 CFR 1026.43(e)(2)(vi).

Appendix Q contains standards for calculating and verifying debt and income for purposes of determining whether a mortgage satisfies the 43 percent DTI limit for General QMs. Appendix Q addresses how to determine a consumer's employment-related income (

e.g.,

income from wages, commissions, and retirement plans); non-employment-related income (

e.g.,

income from alimony and child support payments, investments, and property rentals); and liabilities, including recurring and contingent liabilities and projected obligations.

12 CFR 1026, appendix Q.

On June 22, 2020, the Bureau proposed amendments to the General QM loan definition, which would, among other things, replace the General QM loan definition's 43 percent DTI limit with a price-based approach and remove appendix Q.

In addition to soliciting comment on the Bureau's proposed price-based approach, the Bureau requested comment on certain alternative approaches that would retain a DTI limit but would raise it above the current limit of 43 percent and provide a more flexible set of standards for verifying debt and income in place of appendix Q. Simultaneously with issuing this final rule, the Bureau is issuing the General QM Final Rule, which is discussed in part II.D below.

85 FR 41716 (July 10, 2020).

2. Temporary GSE QMs

A second, temporary category of QMs defined by the ATR/QM Rule, Temporary GSE QMs, consists of mortgages that (1) comply with the ATR/QM Rule's prohibitions on certain loan features and its limitations on points and fees;

and (2) are eligible to be purchased or guaranteed by either GSE while under the conservatorship of the FHFA.

Regulation Z does not prescribe a DTI limit for Temporary GSE QMs. Thus, a loan can qualify as a Temporary GSE QM even if the DTI ratio exceeds 43 percent, as long as the DTI ratio meets the applicable GSE's DTI requirements and other underwriting criteria, and the loan satisfies the other Temporary GSE QM requirements. In addition, income, debt, and DTI ratios for such loans generally are verified and calculated using GSE standards, rather than appendix Q. The January 2013 Final Rule provided that the Temporary GSE QM loan definition—also known as the GSE Patch—would expire with respect to each GSE when that GSE ceases to operate under conservatorship or on January 10, 2021, whichever comes first.

On June 22, 2020, the Bureau proposed to extend the Temporary GSE QM category until the effective date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship or receivership, whichever comes first.

In a final rule issued on October 20, 2020, the Bureau extended the Temporary GSE QM category until the earlier of the mandatory compliance date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship or receivership.

12 CFR 1026.43(e)(2)(i) through (iii).

12 CFR 1026.43(e)(4).

12 CFR 1026.43(e)(4)(iii)(B). The ATR/QM Rule created several additional categories of QMs. The first additional category consisted of mortgages eligible to be insured or guaranteed (as applicable) by the U.S. Department of Housing and Urban Development, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, and the Rural Housing Service. 12 CFR 1026.43(e)(4)(ii)(B) through (E). This temporary category of QMs no longer exists because the relevant Federal agencies have since issued their own QM rules.

See, e.g.,

24 CFR 203.19. Other categories of QMs provide more flexible standards for certain loans originated by certain small creditors. 12 CFR 1026.43(e)(5), (f);

cf.

12 CFR 1026.43(e)(6) (applicable only to covered transactions for which the application was received before April 1, 2016).

85 FR 41448 (July 10, 2020).

85 FR 67938 (Oct. 26, 2020).

3. Small Creditor QMs

In a May 2013 final rule, the Bureau amended the ATR/QM Rule to add, among other things, a new QM category—the Small Creditor QM—for covered transactions that are originated by creditors that meet certain size criteria and that satisfy certain other requirements.

Those requirements include many that apply to General QMs, with some exceptions. Specifically, the threshold for determining whether Small Creditor QMs are higher-priced covered transactions, and thus qualify for the QM safe harbor or rebuttable presumption, is higher than the threshold for General QMs.

Small Creditor QMs also are not subject to the General QM loan definition's 43 percent DTI limit, and the creditor is not required to use appendix Q to calculate debt and income.

In addition, Small Creditor QMs must be held in portfolio for three years (a requirement that does not apply to General QMs).

The Bureau made several amendments to the Small Creditor QM provisions in 2015.

These included: Amending the small creditor definition to increase the number of loans a small creditor can originate each year to 2,000; exempting from the 2,000-loan limit any loans held in the creditor's portfolio; and revising the small creditor definition's asset threshold to include the assets of any of the creditor's affiliates.

78 FR 35430 (June 12, 2013).

QMs are generally considered to be higher priced if they have an annual percentage rate (APR) that exceeds the applicable average prime offer rate (APOR) by at least 1.5 percentage points for first-lien loans and at least 3.5 percentage points for subordinate-lien loans. In contrast, Small Creditor QMs are only considered higher priced if the APR exceeds APOR by at least 3.5 percentage points for either a first- or subordinate-lien loan. 12 CFR 1026.43(b)(4). The same is true for another QM definition that permits certain creditors operating in rural or underserved areas to originate QMs with a balloon payment provided that the loans meet certain other criteria (Balloon Payment QM loans). QMs that are higher priced enjoy only a rebuttable presumption of compliance with the ATR requirements, whereas QMs that are not higher priced enjoy a safe harbor.

12 CFR 1026.43(e)(5)(i)(A).

12 CFR 1026.43(e)(5)(ii), (f)(2).

80 FR 59944 (Oct. 2, 2015).

As with Small Creditor QMs, Balloon Payment QMs must be held in portfolio for three years. In addition, Balloon Payment QMs may not have negative-amortization or interest-only features and must comply with the points-and-fees limits that apply to other QM loans. Also, Balloon Payment QMs must carry a fixed interest rate, payments other than the balloon must fully amortize the loan over 30 years or less, and the loan term must be at least five years. The creditor must also determine the consumer's ability to make periodic payments other than the balloon and verify income and assets. 12 CFR 1026.43(f).

The Bureau created the Small Creditor QM category based on its determination that the characteristics of a small creditor—its small size, community-based focus, and commitment to relationship lending—and the inherent incentives associated with portfolio lending together justify extending QM status to loans that do not meet all of the ordinary QM criteria.

With respect to the role of portfolio lending, the Bureau stated that the discipline imposed when small creditors make loans that they will hold in portfolio is important to protect consumers' interests and to prevent evasion of the ATR requirements.

The Bureau noted that by retaining mortgage loans in portfolio, creditors retain the risk of delinquency

or default on those loans, and as such the presence of portfolio lending within the small creditor market is an important influence on such creditors' underwriting practices.

78 FR 35430, 35485 (June 12, 2013) (“The Bureau believes that § 1026.43(e)(5) will preserve consumers' access to credit and, because of the characteristics of small creditors and portfolio lending described above, the credit provided generally will be responsible and affordable.”).

Id.

at 35486.

Id.

at 35437.

C. Economic Growth, Regulatory Relief, and Consumer Protection Act

The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) was signed into law on May 24, 2018.

Section 101 of the EGRRCPA amended TILA to provide protection from liability for insured depository institutions and insured credit unions with assets below $10 billion with respect to certain ATR requirements regarding residential mortgage loans.

Specifically, the protection from liability is available if a loan: (1) Is originated by and retained in portfolio by the institution, (2) complies with requirements regarding prepayment penalties and points and fees, and (3) does not have any negative amortization or interest-only features. Further, for the protection from liability to apply, the institution must consider and document the debt, income, and financial resources of the consumer. Section 101 of the EGRRCPA also provides that the protection from liability is not available in the event of legal transfer except for transfers: (1) To another person by reason of bankruptcy or failure of a covered institution; (2) to a covered institution that retains the loan in portfolio; (3) in the event of a merger or acquisition as long as the loan is still retained in portfolio by the person to whom the loan is sold, assigned, or transferred; or (4) to a wholly owned subsidiary of a covered institution, provided that, after the sale, assignment, or transfer, the loan is considered to be an asset of the covered institution for regulatory accounting purposes.

Public Law 115-174, 132 Stat. 1296 (2018).

EGRRCPA section 101, 15 U.S.C. 1639c(b)(2)(F).

D. General QM Final Rule

Simultaneously with this final rule, the Bureau is issuing a final rule to amend the General QM loan definition because retaining the existing General QM loan definition with the 43 percent DTI limit after the Temporary GSE QM loan definition expires would significantly reduce the size of the QM market and could significantly reduce access to responsible, affordable credit.

Readers should refer to the General QM Final Rule for a full discussion of the amendments and the Bureau's rationale for them.

85 FR 41716 (July 10, 2020).

In the General QM Final Rule, the Bureau is establishing a price-based General QM loan definition to replace the DTI-based approach. Under the General QM Final Rule, a loan meets the General QM loan definition in § 1026.43(e)(2) only if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set. The General QM Final Rule provides higher thresholds for loans with smaller loan amounts, for certain manufactured housing loans, and for subordinate-lien transactions. It retains the existing product-feature and underwriting requirements and limits on points and fees. Although the General QM Final Rule removes the 43 percent DTI limit from the General QM loan definition, the General QM Final Rule requires that the creditor consider the consumer's monthly DTI ratio or residual income; current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan; and debt obligations, alimony, and child support, and verify the consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan and the consumer's current debt obligations, alimony, and child support. The General QM Final Rule removes appendix Q. To prevent uncertainty that may result from appendix Q's removal, the General QM Final Rule clarifies the consider and verify requirements. The General QM Final Rule preserves the current threshold separating safe harbor from rebuttable presumption QMs, under which a loan is a safe harbor QM if its APR does not exceed APOR for a comparable transaction by 1.5 percentage points or more as of the date the interest rate is set (or by 3.5 percentage points or more for subordinate-lien transactions).

E. Presumption of Compliance for Existing Categories of QMs Under the ATR/QM Rule

In the January 2013 Final Rule, the Bureau considered whether QMs should receive a conclusive presumption (

i.e.,

a safe harbor) or a rebuttable presumption of compliance with the ATR requirements.

The statute does not specify whether the presumption of compliance means that the creditor receives a conclusive presumption or a rebuttable presumption of compliance with the ATR provisions. The Bureau noted that its analysis of the statutory construction and policy implications demonstrated that there are sound reasons for adopting either interpretation.

The Bureau concluded that the statutory language is ambiguous and does not mandate either interpretation and that the presumptions should be tailored to promote the policy goals of the statute.

The Bureau ultimately interpreted the statute to provide for a rebuttable presumption of compliance with the ATR requirements but used its adjustment authority to establish a conclusive presumption of compliance for loans that are not “higher priced.”

78 FR 6408, 6511 (Jan. 30, 2013).

Id.

at 6507.

Id.

at 6511.

Id.

at 6514.

Under the ATR/QM Rule, a creditor that makes a QM is protected from liability presumptively or conclusively, depending on whether the loan is “higher priced.” The ATR/QM Rule generally defines a “higher-priced” loan to mean a first-lien mortgage with an APR that exceeded APOR for a comparable transaction as of the date the interest rate was set by 1.5 or more percentage points; or a subordinate-lien mortgage with an APR that exceeded APOR for a comparable transaction as of the date the interest rate was set by 3.5 or more percentage points.

A creditor that makes a QM that is not “higher priced” is entitled to a conclusive presumption that it has complied with the ATR/QM Rule—

i.e.,

the creditor receives a safe harbor from liability.

A creditor that makes a loan that meets the standards for a QM but is “higher priced” is entitled to a rebuttable presumption that it has complied with the ATR/QM Rule.

12 CFR 1026.43(b)(4).

12 CFR 1026.43(e)(1)(i).

12 CFR 1026.43(e)(1)(ii).

F. The Bureau's Assessment of the ATR/QM Rule

Section 1022(d) of the Dodd-Frank Act requires the Bureau to assess each of its significant rules and orders and to publish a report of each assessment within five years of the effective date of the rule or order.

In June 2017, the Bureau published a request for information in connection with its assessment of the ATR/QM Rule (Assessment RFI).

These comments are summarized in general terms in part III below.

12 U.S.C. 5512(d).

82 FR 25246 (June 1, 2017).

In January 2019, the Bureau published its ATR/QM Rule Assessment Report

(Assessment Report).

The Assessment Report included findings about the effects of the ATR/QM Rule on the mortgage market generally, as well as specific findings about Temporary GSE QM originations.

Bureau of Consumer Fin. Prot.,

Ability to Repay and Qualified Mortgage Assessment Report

(Jan. 2019),

https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment-report.pdf

(Assessment Report).

The Assessment Report found that the ATR/QM Rule did not eliminate access to credit for consumers with DTI ratios above 43 percent who qualify for loans eligible for purchase or guarantee by either of the GSEs, that is, Temporary GSE QMs.

On the other hand, based on application-level data obtained from nine large creditors, the Assessment Report found that the ATR/QM Rule eliminated between 63 and 70 percent of home purchase loans with DTI ratios above 43 percent that were not Temporary GSE QMs.

See, e.g., id.

at 10, 194-96.

See, e.g., id.

at 10-11, 117, 131-47.

One main finding about Temporary GSE QMs was that such loans continued to represent “a large and persistent” share of originations in the conforming segment of the mortgage market, and a robust and sizable market to support non-QM lending has not emerged.

As discussed, the GSEs' share of the conventional, conforming purchase-mortgage market was 69 percent in 2013 before the ATR/QM Rule took effect, and the Assessment Report found a small increase in that share since the ATR/QM Rule's effective date, reaching 71 percent in 2017.

Id.

at 188, 198.

Id.

at 191.

The Assessment Report discussed several possible reasons for the continued prevalence of Temporary GSE QM originations, including the structure of the secondary market.

If creditors adhere to the GSEs' guidelines, they gain access to a robust, highly liquid secondary market.

In contrast, while private-label securitizations have grown somewhat in recent years, they are still a fraction of their pre-crisis levels.

There were less than $20 billion in new origination private-label securities (PLS) issuances in 2017, compared with $1 trillion in 2005,

and only 21 percent of new origination PLS issuances in 2017 were non-QM issuances.

To the extent that private-label securitizations have occurred since the ATR/QM Rule took effect in 2014, the majority of new origination PLS issuances have consisted of prime jumbo loans made to consumers with strong credit characteristics, and these securities include a small share of non-QM loans.

The Assessment Report noted that the Temporary GSE QM loan definition may be inhibiting the growth of the non-QM market.

However, the Assessment Report also noted that it is possible that this market might not exist even with a narrower Temporary GSE QM loan definition, if consumers were unwilling to pay the premium charged to cover the potential litigation risk associated with non-QM loans (which do not have a presumption of compliance with the ATR requirements) or if creditors were unwilling or lack the funding to make the loans as a result of the potential litigation risk.

Id.

at 196.

Id.

at 197.

Id.

at 196.

Id.

at 205.

Id.

G. Effects of the COVID-19 Pandemic on Mortgage Markets

The COVID-19 pandemic has had a significant effect on the U.S. economy. In the early months of the pandemic, economic activity contracted, millions of workers became unemployed, and mortgage markets were affected. In recent months, the unemployment rate has declined, and there has been a significant rebound in mortgage origination activity, buoyed by historically low interest rates and by an increasingly large share of government and GSE-backed loans. However, origination activity outside the government and GSE-backed origination channels has declined, and mortgage-credit availability for many consumers—including those who would be dependent on the non-QM market for financing—remains tight relative to pre-pandemic levels. While nearly all major non-QM creditors ceased making loans in March and April 2020, the market has begun to recover and many non-QM creditors—which largely depend on the ability to sell loans in the secondary market to fund new loans—have begun to resume originations, albeit with tighter underwriting requirements.

Brandon Ivey,

Expanded Credit Lending Inches Up in Third Quarter,

Inside Mortg. Fin. (Nov. 25, 2020),

https://www.insidemortgagefinance.com/articles/219861-expanded-credit-lending-ticks-up-in-3q-amid-slow-recovery

(on file).

In March 2020, Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

The CARES Act provides additional protections for borrowers with federally backed mortgages, such as those whose mortgages are purchased or securitized by a GSE or insured or guaranteed by the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA). The CARES Act mandated a 60-day foreclosure moratorium for such mortgages, which has since been extended by the agencies until the end of 2020 or January 31, 2021 in the case of the GSEs.

The CARES Act also allows borrowers with federally backed mortgages to request up to 180 days of forbearance due to a COVID-19-related financial hardship, with an option to extend the forbearance period for an additional 180 days. While forbearance rates remain elevated at 5.54 percent for the week ending November 22, 2020, they have decreased since reaching their high of 8.55 percent on June 7, 2020.

Public Law 116-136, 134 Stat. 281 (2020) (includes loans backed by the U.S. Department of Housing and Urban Development, the U.S. Department of Agriculture, the U.S. Department of Veterans Affairs, Fannie Mae, and Freddie Mac).

See, e.g.,

Fed. Hous. Fin. Agency,

FHFA Extends Foreclosure and REO Eviction Moratoriums

(Dec. 2, 2020),

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Extends-Foreclosure-and-REO-Eviction-Moratoriums-12022020.aspx;

Press Release, U.S. Dep't of Hous. & Urban Dev.,

FHA Extends Foreclosure And Eviction Moratorium For Homeowners Through Year End

(Aug. 27, 2020),

https://www.hud.gov/press/press_releases_media_advisories/HUD_No_20_134;

Veterans Benefits Admin.,

Extended Foreclosure Moratorium for Borrowers Affected by COVID-19

(Aug. 24, 2020),

https://www.benefits.va.gov/HOMELOANS/documents/circulars/26-20-30.pdf;

Rural Dev., U.S. Dep't of Agric.,

Extension of Foreclosure and Eviction Moratorium for Single Family Housing Direct Loans

(Aug. 28, 2020),

https://content.govdelivery.com/accounts/USDARD/bulletins/29c3a9e.

Press Release, Mortg. Bankers Ass'n,

Share of Mortgage Loans in Forbearance Increases to 5.54%

(Dec. 1, 2020),

https://www.mba.org/2020-press-releases/december/share-of-mortgage-loans-in-forbearance-increases-to-554-percent.

For further discussion of the effect of the COVID-19 pandemic on mortgage origination and servicing markets, see part II.D of the General QM Final Rule.

III. Summary of the Rulemaking Process

The Bureau has solicited and received substantial public and stakeholder input on issues related to the ATR/QM Rule generally and the substance of this final rule. In addition to the Bureau's discussions with and communications from industry stakeholders, consumer advocates, other Federal agencies,

and members of Congress, the Bureau issued requests for information (RFIs) in 2017

and 2018, and in July 2019, it issued an advance notice of proposed rulemaking regarding the ATR/QM Rule (ANPR).

The input from these RFIs and from the ANPR is briefly summarized in the General QM Final Rule and Extension Final Rule and below. The Bureau has also received substantial additional input through three ATR/QM rulemakings this year, as discussed below and in the General QM Final Rule and Extension Final Rule.

The Bureau has consulted with agencies including the FHFA, the Board of Governors of the Federal Reserve System, the Federal Housing Administration, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission, the National Credit Union Administration, and the U.S. Department of the Treasury.

84 FR 37155 (July 31, 2019).

A. The Requests for Information

In June 2017, the Bureau published the Assessment RFI to gather information for its assessment of the ATR/QM Rule.

In response to the Assessment RFI, the Bureau received approximately 480 comments from creditors, industry groups, consumer advocate groups, and individuals.

The comments addressed a variety of topics, including the General QM loan definition and the 43 percent DTI limit; perceived problems with, and potential changes and alternatives to, appendix Q; and how the Bureau should address the expiration of the Temporary GSE QM loan definition. The comments expressed a range of ideas for addressing the expiration of the Temporary GSE QM loan definition. Some commenters recommended making the definition permanent or extending it for various periods of time. Other comments stated that the Temporary GSE QM loan definition should be eliminated or permitted to expire.

82 FR 25246 (June 1, 2017).

See

Assessment Report,

supra

note 47, appendix B (summarizing comments received in response to the Assessment RFI).

Beginning in January 2018, the Bureau issued a general call for evidence seeking comment on its enforcement, supervision, rulemaking, market monitoring, and financial education activities.

As part of the call for evidence, the Bureau published RFIs relating to, among other things, the Bureau's rulemaking process,

the Bureau's adopted regulations and new rulemaking authorities,

and the Bureau's inherited regulations and inherited rulemaking authorities.

In response to the call for evidence, the Bureau received comments on the ATR/QM Rule from stakeholders, including consumer advocate groups and industry groups. The comments addressed a variety of topics, including the General QM loan definition, appendix Q, and the Temporary GSE QM loan definition. The comments also raised concerns about, among other things, the risks of allowing the Temporary GSE QM loan definition to expire without any changes to the General QM loan definition or appendix Q. The concerns raised in these comments were similar to those raised in response to the Assessment RFI.

See

Bureau of Consumer Fin. Prot.,

Call for Evidence, https://www.consumerfinance.gov/policy-compliance/notice-opportunities-comment/archive-closed/call-for-evidence

(last updated Apr. 17, 2018).

83 FR 10437 (Mar. 9, 2018).

83 FR 12286 (Mar. 21, 2018).

83 FR 12881 (Mar. 26, 2018).

The Advance Notice of Proposed Rulemaking

As noted above, on July 25, 2019, the Bureau issued an ANPR.

The ANPR stated the Bureau's tentative plans to allow the Temporary GSE QM loan definition to expire in January 2021 or after a short extension, if necessary, to facilitate a smooth and orderly transition away from the Temporary GSE QM loan definition. The Bureau also stated that it was considering whether to propose revisions to the General QM loan definition in light of the potential expiration of the Temporary GSE QM loan definition and requested comments on several topics related to the General QM loan definition, including: Whether and how the Bureau should revise the DTI limit in the General QM loan definition; whether the Bureau should supplement or replace the DTI limit with another method for directly measuring a consumer's personal finances; whether the Bureau should revise appendix Q or replace it with other standards for calculating and verifying a consumer's debt and income; and whether, instead of a DTI limit, the Bureau should adopt standards that do not directly measure a consumer's personal finances.

Of relevance to this final rule, the ANPR noted that some stakeholders had suggested that the Bureau amend the ATR/QM Rule so that a performing loan, whether or not it qualified as a QM at consummation, would convert to, or season into, a QM if it performed for some period of time. The Bureau also requested comment on how much time industry would need to change its practices in response to any revisions the Bureau makes to the General QM loan definition.

84 FR 37155 (July 31, 2019).

Id.

at 37160-62.

The Bureau received 85 comments on the ANPR from businesses in the mortgage industry (including creditors and their trade associations), consumer advocate groups, elected officials, individuals, and research centers. The General QM Proposal contains an overview of these comments.

Of the 85 comments received, approximately 20 comments discussed whether the Bureau should permit a mortgage that was not a QM at consummation to season into a QM on the ground that a loan's performance over an extended period should be considered sufficient or conclusive evidence that the creditor adequately assessed a consumer's ability to repay at consummation. The discussion below provides a more detailed overview of comment letters that supported a seasoning approach to QM status and those that opposed such an approach.

85 FR 41716 (July 10, 2020).

1. Comments Supporting Seasoning

As discussed in the General QM Proposal, commenters from the mortgage industry and its trade associations, as well as several research centers, recommended that a mortgage that is originated as a non-QM or rebuttable presumption QM should be eligible to season into a QM safe harbor loan if a consumer makes timely payments for a predetermined length of time. According to these commenters, if a loan defaults after performing for some period of time, such as three or five years, it is reasonable to conclude that the default was not caused by the creditor's failure to reasonably determine the consumer had the ability to repay at the time of consummation. Rather, these commenters maintained that defaults in those cases are more likely to be caused by unexpected life events or other factors, such as general economic trends, rather than a creditor's poor underwriting or failure to make an ATR determination at consummation.

A few commenters pointed to the GSEs' representation and warranty framework.

Under this framework, after a loan meets certain payment requirements, the creditor obtains relief from the enforcement of representations and warranties it must make to a GSE regarding its underwriting. These commenters indicated that a creditor's legal exposure to the ATR requirements should sunset in a similar way. In addition, several commenters noted that the 2019 U.S. Department of the Treasury Housing Reform Plan report also suggested consideration of a seasoning approach to QM safe harbor loan status.

A few commenters

asserted that allowing mortgages to season into QMs is consistent with comment 43(c)(1)-1.ii.A.

in the current ATR/QM Rule.

A comment letter jointly submitted by two research centers suggested that a seasoning approach to portfolio-held mortgages build on the EGRRCPA's portfolio loan QM category.

The GSEs' representation and warranty framework is discussed in greater detail in part V below.

U.S. Dep't of the Treasury,

Housing Reform Plan

at 38 (Sept. 2019),

https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf?mod=article_inline.

Comment 43(c)(1)-1.ii.A (“The following may be evidence that a creditor's ability-to-repay determination was reasonable and in good faith:

The consumer demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, for a significant period of time after consummation or, for an adjustable-rate, interest-only, or negative-amortization mortgage, for a significant period of time after recast . . . .”).

Further, a number of commenters stated that a seasoning approach to QM status would benefit the mortgage market. Among other things, they stated that it could reduce compliance burden. Additionally, commenters in support of seasoning suggested that seasoning could improve investor confidence by addressing the issue of assignee liability and litigation risk with non-QM loans and rebuttable presumption QM loans. These commenters stated that this, in turn, could enhance capital liquidity in the market, which could expand access to credit. Several commenters suggested that a seasoning rule should apply to loans even if they were originated before the adoption of the rule.

Commenters supporting a seasoning approach offered differing views on the appropriate length of the seasoning period, varying from as brief as 12 months following consummation to as long as five years following consummation. Some opposed any restrictions on loan features, while others supported some restrictions, such as limiting the seasoning approach to mortgages that follow the statutory QM product prohibitions or to fixed-rate mortgage products. Several commenters supporting a seasoning approach also supported or did not oppose a requirement for creditors to hold loans in portfolio until the conclusion of the seasoning period. For example, some research center commenters noted that keeping loans in portfolio demonstrates creditors' acceptance of the default risk associated with the loan.

Some research center commenters suggested graduated or step approaches. Under one such approach, for example, a non-QM loan would first have to season into a rebuttable presumption QM loan and then either stay in that category or be allowed to season into a QM safe harbor loan if it meets certain conditions. Commenters supporting seasoning generally acknowledged that delinquencies during the seasoning period should disqualify a loan from seasoning into a QM, but most did not offer specific suggestions regarding what it means for a loan to be performing. A comment letter from a research center suggested the Bureau use the Mortgage Bankers Association's method for determining timely payments.

Several commenters supporting a seasoning approach also addressed the possibility of creditors engaging in gaming to minimize defaults during the seasoning period. Two commenters asserted that the Bureau could require consumers to use their own funds to make monthly payments but did not provide any suggestions on how to determine whether the funds used are the consumer's funds rather than the funds of another. A research center commenter suggested that a competitive guarantor market such as the one the U.S. Department of the Treasury envisions in the long term would serve as a check on gaming by creditors. The same commenter also argued that it would be hard for creditors to game a seasoning approach because they would not be able to easily time harmful mortgages to go delinquent only after a given period following consummation.

Comments Opposing Seasoning

Two coalitions of consumer advocate groups submitted separate comment letters opposing a seasoning approach to QM status. The General QM Proposal described some of their concerns, including the following: (1) A period of successful repayment is insufficient to presume conclusively that the creditor reasonably determined ability to repay at consummation; (2) creditors would engage in gaming to minimize defaults during the seasoning period; and (3) seasoning would inappropriately prevent consumers from raising lack of ability to repay as a defense to foreclosure. In addition, the consumer advocate groups asserted that, depending on the length of the seasoning period, seasoning could inappropriately prevent consumers from bringing affirmative claims against creditors for allegedly violating the ATR requirements. One coalition of consumer advocate groups stated that in providing a three-year statute of limitations for consumers to bring such claims, Congress had indicated that the seasoning period could not be less than three years for rebuttable presumption or non-QM loans. Another coalition of consumer advocate groups stated that the three-year statute of limitations may be extended if equitable tolling applies and, as such, consumers may pursue affirmative claims for alleged violations of the ATR requirements beyond the three-year period. Both coalitions of consumer advocate groups stated that non-QM loans and QM loans that only receive a rebuttable presumption of compliance with the ATR requirements at consummation should not be allowed to season into QM safe harbor loans because the right a consumer has to raise the lack of ability to repay as a defense to foreclosure is not subject to the three-year statute of limitations.

The consumer advocate groups also stated that certain types of mortgages should never be allowed to season into QMs, including adjustable-rate mortgages (ARMs) and mortgages with product features that disqualify them from being a QM loan currently (

e.g.,

interest-only and negative-amortization mortgages). With respect to adjustable-rate mortgages, consumer advocate groups expressed concern stating that just because a consumer can remain current during an initial teaser-rate period or during a low-interest rate environment does not mean that the consumer has the ability to repay the loan when the interest rate rises. One coalition of consumer advocate groups noted that consumers may not have the ability to repay interest-only or negative-amortization mortgages after the teaser rate payment period ends and stated that payment shock from higher future payments is inherent in the structure of these mortgage products.

In contrast to industry commenters who argued that allowing loans to season into QMs would promote access to credit and improve market liquidity, consumer advocate groups suggested that providing a QM seasoning definition would not benefit market liquidity and could hurt underserved communities. They asserted that a seasoning rule would prevent creditors from originating loans with certainty about who ultimately bears the credit and liquidity risk and what their litigation risk will eventually be. They further asserted that the uncertainty created by such risks has a greater, negative impact on independent mortgage bankers without large balance sheets that are an important source of credit for underserved communities. One coalition of consumer advocate groups also asserted that a heightened risk of put-backs with mortgages not originated as QMs would create significant liquidity and credit risks for creditors, particularly non-depository creditors important to fully serving the market.

Lastly, the consumer advocate groups challenged the Bureau's authority to amend the definition of QM to provide seasoning as a pathway to QM status, asserting that seasoning would facilitate,

not prevent, circumvention or evasion of the statute's ATR requirements. They stated that consumers can resort to extraordinary measures to stay current on mortgage payments to stay in their homes, such as foregoing spending on necessities; drawing down retirement accounts; borrowing money from family and friends; going without food, medicine, or utilities; or taking on other types of debt (such as credit card debt). These commenters stated that, as a result, even mortgages that were not affordable at consummation can perform for a long period of time. The consumer advocate groups further cited examples to show that mortgages can default due to unforeseen events. One coalition of consumer advocate groups noted that the timing of default often reflects broader economic conditions, given the procyclical nature of the mortgage market.

Extension Proposal, General QM Proposal, and Ensuing Final Rules

On June 22, 2020, the Bureau released the Extension Proposal, which would have extended the Temporary GSE QM loan definition to expire on the effective date of final amendments to the General QM loan definition or the date the GSEs cease to operate under conservatorship, whichever comes first.

On the same date, the Bureau separately released the General QM Proposal, which proposed amendments to the General QM loan definition.

In another final rule issued simultaneously with this final rule, the Bureau is amending the General QM loan definition. The General QM Final Rule is discussed in part II.D above.

85 FR 41448 (July 10, 2020).

85 FR 41716 (July 10, 2020).

85 FR 67938 (Oct. 26, 2020).

Seasoned QM Proposal

On August 18, 2020, the Bureau issued a proposed rule to create a new category of QMs, Seasoned QMs, for first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period, are held in portfolio until the end of the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements (Seasoned QM Proposal). The Seasoned QM Proposal was published in the

Federal Register

on August 28, 2020, with a 30-day comment period.

The comment period was later extended briefly and ended on October 1, 2020.

85 FR 53568 (Aug. 28, 2020).

85 FR 60096 (Sept. 24, 2020).

Consumer advocate groups and an organization representing State regulators further asked the Bureau to provide an extension to the comment period of up to an additional 60 days. These commenters cited the complexity of the rule, the concurrent QM rulemakings, and the difficulties presented by the COVID-19 pandemic in support of their request. The Bureau concludes that the comment period (including the brief extension) provided interested stakeholders with sufficient opportunity to comment on the proposal. The Bureau has previously issued other rules of similar complexity pursuant to a 30-day comment period and concludes that the data and analysis supporting the proposal were relatively straightforward for commenters to understand and comment on.

In response to the Seasoned QM Proposal, the Bureau received around 40 comments from consumer advocate groups, industry participants, industry trade associations, other nonprofit organizations, a member of Congress, and others. As discussed in more detail below, the Bureau has considered these comments in adopting this final rule.

The Bureau also received a number of comments in response to the General QM Proposal that relate to the Seasoned QM Proposal. The Bureau has considered those comments as well in adopting this final rule.

IV. Legal Authority

The Bureau is issuing this final rule pursuant to its authority under TILA and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board of Governors of the Federal Reserve System (Board). The Dodd-Frank Act defines the term “consumer financial protection function” to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”

Title X of the Dodd-Frank Act (including section 1061), along with TILA and certain subtitles and provisions of title XIV of the Dodd-Frank Act, are Federal consumer financial laws.

12 U.S.C. 5581(a)(1)(A).

Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws” and the provisions of title X of the Dodd-Frank Act), Dodd-Frank Act section 1002(12)(O), 12 U.S.C. 5481(12)(O) (defining “enumerated consumer laws” to include TILA).

A. TILA

TILA section 105(a).

Section 105(a) of TILA directs the Bureau to prescribe regulations to carry out the purposes of TILA and states that such regulations may contain such additional requirements, classifications, differentiations, or other provisions and may further provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.

A purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.”

Additionally, a purpose of TILA sections 129B and 129C is to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive.

As discussed in the section-by-section analysis below, the Bureau is issuing certain provisions of this final rule pursuant to its rulemaking, adjustment, and exception authority under TILA section 105(a).

15 U.S.C. 1604(a).

15 U.S.C. 1601(a).

15 U.S.C. 1639b(a)(2).

TILA section 129C(b)(2)(A)(vi).

TILA section 129C(b)(2)(A)(vi) provides the Bureau with authority to establish guidelines or regulations relating to ratios of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt, taking into account the income levels of the borrower and such other factors as the Bureau may determine relevant and consistent with the purposes described in TILA section 129C(b)(3)(B)(i).

As discussed in the section-by-section analysis below, the Bureau is issuing certain provisions of this final rule pursuant to its authority under TILA section 129C(b)(2)(A)(vi).

15 U.S.C. 1639c(b)(2)(A).

TILA section 129C(b)(3)(A) and (B)(i).

TILA section 129C(b)(3)(B)(i) authorizes the Bureau to prescribe regulations that revise, add to, or subtract from the criteria that define a QM upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains

available to consumers in a manner consistent with the purposes of TILA section 129C; or are necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections.

In addition, TILA section 129C(b)(3)(A) directs the Bureau to prescribe regulations to carry out the purposes of TILA section 129C(b).

As discussed in the section-by-section analysis below, the Bureau is issuing certain provisions of this final rule pursuant to its authority under TILA section 129C(b)(3)(B)(i).

15 U.S.C. 1639c(b)(3)(B)(i).

15 U.S.C. 1639c(b)(3)(A).

B. Dodd-Frank Act

Dodd-Frank Act section 1022(b).

Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.

TILA and title X of the Dodd-Frank Act are Federal consumer financial laws. Accordingly, in this final rule, the Bureau is exercising its authority under Dodd-Frank Act section 1022(b) to prescribe rules that carry out the purposes and objectives of TILA and title X and prevent evasion of those laws.

12 U.S.C. 5512(b)(1).

V. Why the Bureau Is Issuing This Final Rule

The Bureau is issuing this final rule to create an alternative pathway to a QM safe harbor to encourage safe and responsible innovation in the mortgage origination market, including for loans that may be originated as non-QM loans but meet certain underwriting conditions, product restrictions, and performance requirements. The Bureau is establishing this alternative definition because it concludes that many loans made to creditworthy consumers that do not fall within the existing QM loan definitions at consummation may be able to demonstrate through sustained loan performance compliance with the ATR requirements.

A. Considerations Related to Access to Responsible, Affordable Credit Discussed in the Proposal

As described in the proposal, a primary objective of the Seasoned QM alternative pathway to a QM safe harbor is to ensure the availability of responsible and affordable credit. Incentivizing the origination of non-QM loans that otherwise may not be made (or may be made at a significantly higher price) due to perceived litigation or other risks, even if a creditor has confidence that it can originate the loan in compliance with the ATR requirements, furthers the objective of ensuring the availability of responsible and affordable credit. The Bureau is concerned that, as discussed in the Assessment Report, the perceived risks associated with non-QM status at consummation may inhibit creditors' willingness to make such loans and thus could limit access to responsible, affordable credit for certain creditworthy consumers.

As noted in the proposal, an analysis of rejected applications in the Assessment Report suggested that the January 2013 Final Rule's impact on access to credit among particular categories of consumers did not correlate with traditional indicators of creditworthiness, such as credit score, income, and down payment amount. Moreover, the Assessment Report also found that there was significant variation in the extent to which creditors have tightened credit for non-GSE eligible high DTI loans following the publication of the January 2013 Final Rule. This variation and its persistence in the years following the ATR/QM Rule's issuance suggest that creditors have not developed a common approach to measuring and predicting risk of noncompliance with the ATR/QM Rule, as they have accomplished for other types of risks, such as prepayment and default.

For instance, cross-creditor differences in both the level and the change in approval rates of high DTI applications are much larger than, for example, differences in approval rates by FICO category.

The lack of uniformity is likely due in part to the difficulties associated with measuring and quantifying the litigation and compliance risk associated with originating non-QM loans. Thus, the Assessment Report concluded that some of the observed effect of the ATR/QM Rule on access to credit was likely driven by creditors' interest in avoiding litigation or other risks associated with non-QM status, rather than by rejections of consumers who were unlikely to repay the loan based on traditional indicators of creditworthiness.

See

Assessment Report,

supra

note 47, at 11, 118, 150.

Id.

at 118, 147, 150.

Id.

at 147.

Id.

at 118, 150.

While the proposal acknowledged that the Assessment Report analyzed the impact of the January 2013 Final Rule and its 43 percent DTI limit on access to credit, the proposal noted that specific findings related to the uncertainty of compliance and litigation risk for non-QM loans—and the resulting impact on consumers' access to credit—remain relevant regardless of any amendments to the General QM loan definition.

Indeed, while the Bureau anticipated that its General QM Proposal to replace the current 43 percent DTI limit with a price-based approach would increase access to responsible and affordable mortgage credit among consumers with DTI ratios above 43 percent, the proposal expressed concern that compliance uncertainty and litigation risk would still persist for the remaining population of loans originated as non-QM loans at consummation. Furthermore, the proposal noted that the composition of the non-QM market has continued to grow and evolve since the period covered by the Assessment Report. In recent years, the share of non-QM securitizations comprised of loans with a DTI in excess of 43 percent has fallen, while loans based on alternative income documentation has grown to become the largest non-QM subsector, comprising approximately 50 percent of securitized pools in the first half of 2019.

As a result, the Bureau preliminarily concluded in the proposal that providing a QM safe harbor to non-QM loans that have demonstrated sustained and timely mortgage payment histories could have a meaningful impact on improving access to credit for creditworthy consumers whose loans fall outside the other QM definitions.

See

85 FR 41716 (July 10, 2020).

S&P Global Ratings,

Non-QM's Meteoric Rise is Leading the Private-Label RMBS Comeback

(Sept. 20, 2019),

https://www.spglobal.com/ratings/en/research/articles/190920-non-qm-s-meteoric-rise-is-leading-the-private-label-rmbs-comeback-11159125.

Alternative income documentation includes alternative sources of income verification (

e.g.,

bank statements), which vary from traditional income underwriting forms/documents such as W-2 forms, paystubs, and tax returns. The variation is due to the use of non-traditional sources of documentation, such as for self-employed consumers.

The Bureau proposed to adopt a Seasoned QM definition primarily to encourage creditors to originate more responsible, affordable loans that are not QMs at consummation, and to ensure that responsible, affordable credit is not lost because of legal uncertainty in non-QM status. The Bureau also stated that a Seasoned QM definition could provide incentives for making additional rebuttable presumption QM loans. As explained in the proposal, while the GSEs purchase rebuttable presumption QM loans, and nearly half of manufactured housing originations are rebuttable presumption QM loans, large

banks tend to originate only safe harbor QM loans. A Seasoned QM definition may provide an additional incentive for large banks to originate rebuttable presumption QM loans that may not be eligible for sale to the GSEs and therefore may not otherwise have been made.

The proposal explained that based on feedback from external stakeholders, the Bureau expected that a Seasoned QM definition may encourage creditors to originate more responsible, affordable loans that are not QMs at consummation, and ensure that creditors do not decide not to make responsible, affordable loans because of legal uncertainty in non-QM status. Comments on the ANPR suggested that allowing performing loans to season into QM status would provide creditors with clarity and certainty by ensuring that creditors would not have to litigate their ATR compliance long after consummation when an extensive record of on-time payments demonstrates that compliance and when default is more likely due to a change in the consumer's circumstances. Not only would allowing performing loans to season into QM status clarify a creditor's litigation risk, but external feedback suggested this could help provide certainty for secondary market participants that might otherwise be unable or unwilling to accept the litigation risk associated with assignee liability for either rebuttable presumption QM or non-QM loans.

The proposal acknowledged that creditors may be uncertain about whether certain loans fall within the existing QM definitions. For example, the U.S. Department of Housing and Urban Development (HUD), the VA, and the USDA have each promulgated QM definitions pursuant to their authority under TILA section 129C(b)(3)(B)(ii), and they have largely set their QM criteria based on eligibility criteria they apply in their respective mortgage insurance or guarantee programs. The proposal noted that a creditor may be uncertain about whether a State court would interpret and apply those criteria to a particular loan in a consumer's TILA section 130(k)

foreclosure defense, if the loan's QM status were ever challenged, in the same way the agency would in administering its mortgage insurance or guarantee program. As discussed in the proposal, to the extent that there is ambiguity as to whether a given loan is eligible for a QM safe harbor through other QM definitions, a Seasoned QM definition will provide additional legal certainty by providing an alternative basis for a conclusive presumption of ATR compliance after the required seasoning period.

15 U.S.C. 1640(k).

As discussed in the proposal, to the extent that additional legal certainty provided by a Seasoned QM definition makes creditors more comfortable extending these types of loans in the future, such an effect would not only promote continued access to responsible and affordable credit, but could result in increased access to such credit. While the rationale in the proposal was primarily focused on the non-agency and non-QM markets, the proposal noted that the agency (

i.e.,

GSE and government-insured) mortgage markets in the wake of the 2008 recession can serve as a useful illustration of the chilling effect legal risk and compliance uncertainty can have on origination markets. Access to responsible mortgage credit remained tight for years after the crisis, even in the agency mortgage market in which creditors typically do not bear the credit risk of default.

100

While there is no doubt that the size and scale of the 2008 crisis impacted creditors' willingness to take on credit risk, creditors also imposed additional, more stringent borrowing requirements due to their concerns that they could be forced to repurchase loans as a result of subsequent assertions of non-compliance. This occurred even though creditors believed the loans complied with FHA requirements for mortgage insurance and GSE standards for sale into the secondary markets without the more stringent borrowing requirements. Following GSE and FHA reforms, the proposal noted that access to responsible mortgage credit for GSE and government-insured loans has begun to rebound, with some of the biggest banks considering a return to FHA lending.

101

Similarly, the Bureau noted in the proposal that creditors may originate loans they believe to be QMs at origination, but to the extent any lingering ambiguity remains, the added compliance certainty provided by the Seasoned QM definition could further incentivize creditors to originate these loans at scale.

100

Jim Parrot & Mark Zandi,

Opening the Credit Box,

Moody's Analytics & the Urban Inst. (Sept. 30, 2013),

https://www.urban.org/sites/default/files/publication/24001/412910-Opening-the-Credit-Box.PDF.

As an illustration of the tight underwriting requirements, in 2013, the average credit score in the agency market was over 750. This is 50 points higher than the average credit score across all loans at the time, and 50 points higher than the average score among those who purchased homes a decade prior, implying that mortgage origination markets may have over-corrected relative to the economic fundamentals at the time.

101

JPMorgan mulls return to FHA-backed mortgages after era of fines,

Am. Banker (Feb. 5, 2020),

https://www.americanbanker.com/articles/jpmorgan-mulls-return-to-fha-backed-mortgages-after-era-of-fines.

In addition, the Bureau preliminarily concluded in the proposal that, along with a possible increase in non-QM originations, a Seasoned QM definition might also encourage meaningful innovation and lending to broader groups of creditworthy consumers, especially those with less traditional credit profiles. As described in the proposal, the Bureau anticipates that innovations in technology and diversification of the overall economy will lead to changes in the composition of the job market and labor force, and the Bureau intends for the ATR/QM Rule to remain sufficiently flexible to accommodate and encourage developments in mortgage underwriting to reflect these changes. New technology allows creditors to assess financial information that may not be readily apparent through a traditional credit report, such as a consumer's ability to consistently make on-time rent payments. The use of new tools could broaden homeownership to consumers who may have lacked credit histories with major credit reporting bureaus and so may have been less likely to obtain mortgages at an affordable price or obtain a mortgage at all. Additionally, technology platforms have led to rapid growth in the “gig economy,” through which workers earn income by providing services such as ride-sharing and home delivery and through the ability to earn income on assets such as a home. Some workers participate in the gig economy for their sole source of income, while others may do so to supplement their income from more traditional employment. Creditors' methods of assessing consumers' ability to repay mortgages evolve to accommodate these changes, but creditors may be left with some uncertainty as to whether these methods constitute, or can be part of, a reasonable determination of a consumer's ability to repay under the ATR/QM Rule. Accordingly, the Bureau preliminarily concluded in the proposal that allowing an alternative pathway to a QM safe harbor may encourage creditors to lend to consumers with less traditional credit profiles at an affordable price based on an individualized determination of a consumer's ability to repay.

The proposal acknowledged that the extent to which a Seasoned QM definition may increase access to credit would be a function of the size of the eligible loan population that could benefit: The more loans that would be

eligible to become Seasoned QMs, the more loans might be made that would not otherwise be made. In determining the length of time that is the appropriate seasoning period, the Bureau considered the rate at which loans terminate, to assess the potential population of loans that would be eligible to benefit from a Seasoned QM definition and thus potentially affect access to credit. Based on the data and analysis presented in part VII of the proposal, the Bureau preliminarily concluded that the majority of eligible non-QM and rebuttable presumption mortgage loans would remain active and thus be eligible to benefit from the seasoning period, across the economic cycle.

B. Considerations Related to Ability To Repay Discussed in the Proposal

The Bureau proposed to introduce an alternative pathway to a QM safe harbor for a new category of Seasoned QMs because it preliminarily concluded that, when coupled with certain other factors, successful loan performance over a number of years appears to indicate with sufficient certainty creditor compliance with the ATR requirements at consummation.

The proposal first noted that the current ATR/QM Rule provides that loan performance can be a factor in evaluating a creditor's ATR determination. Specifically, it provides that evidence that a creditor's ATR determination was reasonable and in good faith may include the fact that the consumer demonstrated actual ability to repay the loan by making timely payments, without modification or accommodation, for a significant period of time after consummation.

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It explains further that the longer a consumer successfully makes timely payments after consummation or recast,

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the less likely it is that the creditor's determination of ability to repay was unreasonable or not in good faith. The current ATR/QM Rule also distinguishes between a failure to repay that can be evidence that a consumer lacked the ability to repay at loan consummation, versus a failure to repay due to a subsequent change in the consumer's circumstances that the creditor could not have reasonably anticipated at consummation. Specifically, it states that a change in the consumer's circumstances after consummation (for example, a significant reduction in income due to a job loss or a significant obligation arising from a major medical expense) that cannot be reasonably anticipated from the consumer's application or the records used to determine repayment ability is not relevant to determining a creditor's compliance with the ATR/QM Rule.

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Thus, the existing regulatory framework supports the relevance of loan performance, particularly during the initial period following consummation, in evaluating a creditor's ATR determination at consummation.

102

Comment 43(c)(1)-1.ii.A.

103

Section 1026.43(b)(11) provides a definition of recast.

104

Comment 43(c)(1)-2.

Second, the proposal explained that an approach that takes loan performance into consideration in evaluating ATR compliance is consistent with the Bureau's prior analyses of repayment ability. Because the affordability of a given mortgage will vary from consumer to consumer based upon a range of factors, there is no single recognized metric, or set of metrics, that can directly measure whether the terms of mortgage loans are within consumers' ability to repay.

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The Bureau's Assessment Report concluded that early borrower distress was an appropriate proxy for the lack of the consumer's ability to repay at consummation across a wide pool of loans. Likewise, in the General QM Proposal and General QM Final Rule, the Bureau focused on an analysis of delinquency rates in the first few years to evaluate whether a loan's price, as measured by the spread of APR over APOR (herein referred to as the loan's rate spread), may be an appropriate measure of whether a loan should be presumed to comply with the ATR provisions. The incorporation of loan performance requirements in a Seasoned QM definition in turn reflects the Bureau's view that across a wide pool of loans, early distress supports an inference that consumers lacked the ability to repay at consummation.

105

Assessment Report,

supra

note 47, at 83.

As discussed in the proposal, in general, the earlier a delinquency occurs, the more likely it is due to a lack of ability to repay at consummation than a change in circumstances after consummation that the creditor could not have reasonably anticipated from the consumer's application or the records used to determine repayment ability. However, there is neither an exact period of time after which all delinquencies can be attributed to a lack of ability to repay at consummation, nor an exact period after which no delinquencies can be attributed to a lack of ability to repay at consummation. The Bureau proposed a seasoning period of 36 months based on a range of policy considerations, rather than any singular measure of delinquency, as discussed in the section-by-section analysis of § 1026.43(e)(7)(iv)(C). The Bureau preliminarily decided in the proposal to grant a safe harbor to these loans because 36 months of loan performance, combined with the product restrictions and underwriting requirements as defined in the proposal, appeared to indicate with sufficient certainty creditor compliance with the ATR requirements at consummation. The Bureau acknowledged that some meaningful percentage of non-QM loans may end up delinquent in later years. But, given the increasing likelihood that intervening events meaningfully contributed to such delinquencies, the proposal noted the Bureau does not view delinquency at that point in the lifecycle of a loan product as undermining the presumption of creditor compliance with the ATR requirements at consummation.

The proposal also explained that the current practices of market participants with respect to remedies for deficiencies in underwriting practices also support the Bureau's adoption of a seasoning period to evaluate a creditor's ATR determination. Each GSE generally provides creditors relief from its enforcement with respect to representations and warranties a creditor must make to the GSE regarding its underwriting of a loan. The GSEs generally provide creditors that relief after the first 36 monthly payments if the consumer had no more than two 30-day delinquencies.

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Similarly, the master policies of mortgage insurers generally provide that the mortgage insurer will not issue a rescission with respect to certain representations and warranties the originating lender made if the consumer had no more than two 30-day delinquencies in the 36 months following the consumer's first payment, among other requirements.

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These practices, which extend to a significant portion of covered transactions, suggest that the GSEs and mortgage insurers have concluded, based on their experience, that after 36 months of loan performance, a default should not be attributed to underwriting, but rather a change in the consumer's circumstances that the creditor could not have reasonably anticipated from the consumer's application or the records.

106

Fed. Hous. Fin. Agency,

Representation and Warranty Framework, https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Representation-and-Warranty-Framework.aspx

(last visited Nov. 30, 2020).

107

Fannie Mae,

Amended and Restated GSE Rescission Relief Principles for Implementation of Master Policy Requirement #28 (Rescission Relief/Incontestability)

(Sept. 10, 2018),

https://singlefamily.fanniemae.com/media/16331/display.

Based on these considerations, the Bureau preliminarily concluded in the proposal that a consumer's timely payments for 36 months, in combination with compliance with the product restrictions and underwriting and portfolio requirements in the proposal, indicate that the consumer had the ability to repay the loan at consummation, such that granting of safe harbor QM status to the loan is warranted subject to certain limitations. As discussed in the proposal, the Bureau focused on loans that would be eligible to be Seasoned QMs and that have an interest rate spread in excess of 150 basis points, and therefore would be outside the safe harbor threshold in the General QM Proposal and General QM Final Rule. These non-QMs and rebuttable presumption QMs are the population whose ATR compliance presumption status would be affected by becoming Seasoned QMs. The proposal noted that two-thirds (66 percent) of loans that experience a disqualifying event (

i.e.,

an event that would prevent a loan from becoming a Seasoned QM under the proposed criteria described in the section-by-section analysis of § 1026.43(e)(7)) do so within 36 months, and the rate at which loans disqualify diminishes beyond 36 months. The proposal explained that this may suggest that a failure to repay that occurs more than three years after consummation can generally be attributed to causes other than the consumer's ability to repay at loan consummation, such as a subsequent job loss or other change in the consumer's circumstances that could not reasonably be anticipated from the records used to determine repayment ability. Furthermore, while the proposal acknowledged that it is possible that a consumer could continue making on-time payments for some period of time despite lacking the ability to repay, such as by forgoing payments on other obligations, the Bureau noted that it believes it is unlikely that a consumer could continue doing so for more than three years following consummation, especially in the absence of circumstances that would be disqualifying under the proposal (such as a 60-day delinquency), as explained below in part VI.

Notwithstanding this evidence and these considerations, the proposal acknowledged that a consumer might lack an ability to repay at loan consummation and yet still make timely payments for three years. For example, a consumer could at consummation lack the ability to make a fully amortizing mortgage payment but manage to make interest-only payments in the first three years. The proposal noted that the prospect that at consummation a consumer may lack the ability to repay a loan yet still make timely payments for three years, as well as the potential benefits that a Seasoned QM definition might offer in terms of fostering access to responsible, affordable mortgage credit, would tend to vary depending on the loan characteristics. To address this, the proposal limited the Seasoned QM definition to first-lien, fixed-rate covered transactions that are held in the originating creditor's portfolio (with specified exceptions), satisfy the existing product-feature requirements and limits on points and fees under the General QM loan definition, and meet the underwriting requirements applicable to Small Creditor QMs.

C. Comments in Support of a Seasoned QM Definition

Numerous industry commenters supported the Bureau's proposal to create a pathway to a QM safe harbor for loans that demonstrate a satisfactory performance history, subject to certain product feature restrictions and underwriting requirements. Commenters who supported the Seasoned QM definition generally supported the Bureau's rationale for the proposal, which is described in parts V.A and V.B above. With respect to encouraging responsible innovation and expansion in the non-QM market, commenters supporting the proposal generally agreed that a Seasoned QM definition would provide an important incentive for industry to originate loans that are considered non-QMs at origination, while appropriately balancing access to credit with meaningful consumer protections. With respect to ability to repay, these commenters also generally agreed that a borrower's demonstrated ability to make three years of mortgage payments indicates that the creditor made a reasonable, good faith determination of the borrower's ability to repay at consummation and should therefore warrant a conclusive presumption of compliance.

Individual financial institutions as well as industry trade associations argued that a Seasoned QM definition would increase access to credit without undermining protections for consumers. Some of these commenters stated that a Seasoned QM definition would reduce non-QM litigation exposure and reward responsible underwriting. While industry commenters offered varying assessments of the extent to which this reduction in compliance uncertainty and litigation exposure would increase access to credit, many industry commenters indicated that the proposal would encourage origination of more loans that may be considered non-QM or rebuttable presumption QM at origination without weakening the rule's ability to protect consumers from unaffordable mortgage loans.

Several industry commenters agreed that the proposal would provide a meaningful incentive for creditors to use innovative underwriting techniques to increase access to credit and reduce the costs of credit for the substantial share of the broader population who may lack traditional credit profiles or income sources and therefore struggle to qualify for mortgage credit through GSE and government mortgage programs. These commenters also noted that because these borrowers are more likely to fall outside the GSE and government underwriting guidelines, their loans are also more likely to be higher priced and therefore fall outside of the Bureau's price-based thresholds for determining General QM status. An industry trade association noted that market data show creditors have a lower willingness to originate non-QM and rebuttable presumption QM loans. Examples provided by commenters of these credit-worthy borrowers who have limited credit history include younger consumers without a long credit history, elderly borrowers who have paid down their debts and pay their expenses with cash, and other consumers who may have used more informal means of borrowing in the past. Examples provided of borrowers with non-traditional income include those with income sources that are not reported on W-2 forms who have difficulty qualifying under standard underwriting guidelines due to variable amount and timing of their income, such as “gig economy” workers, seasonal employees, and self-employed borrowers.

Three industry commenters supported the proposal but suggested that its impact on access to credit may be marginal. One of these commenters described the proposal as a “modest, but useful step” that would bring incremental improvement. Generally, these commenters expressed concern that the risk of litigation would remain because the Seasoned QM definition would not confer safe harbor status at consummation. These commenters indicated that some creditors would be less willing to originate additional loans even if the proposal were finalized, and even if the borrower has the requisite ability to repay based on prudent underwriting practices, given that these loans would lack a QM safe harbor at consummation.

Several commenters stated that access to credit would increase because the proposal would increase marketability to the secondary market of loans that are originated as non-QM or rebuttable presumption QM loans but season into a QM safe harbor, thereby increasing the ability of creditors to access secondary market liquidity to originate new loans. These commenters noted that the secondary market for non-QM loans is less liquid due to litigation and compliance risks as well as the costs of additional due diligence that many secondary market investors require prior to purchase. According to these commenters, eliminating assignee liability and litigation risks related to the ATR/QM Rule for Seasoned QMs that are sold in the secondary market would improve the marketability of these loans and reduce the transaction costs associated with buying and selling Seasoned QMs. These commenters stated that this would have the effect of increasing the number of market participants, in both the primary and secondary markets.

Commenters in support of the proposal also agreed with the Bureau's rationale for proposing a conclusive presumption of compliance with the ATR/QM Rule after three years of demonstrated loan performance. These commenters stated that if a borrower makes timely payments for an extended period of time, any subsequent default cannot reasonably be attributed to a creditor's underwriting or ATR determination at consummation. Some commenters noted that because the legal standard for the ATR/QM Rule requires a creditor to make its ATR determination at consummation, subsequent defaults due to economic disruptions or a change in life circumstances that cannot be attributed to an underwriting or ATR deficiency at the time of consummation.

While these commenters agreed that performance over time is sufficient evidence of a creditor's ATR determination at consummation, they had varying opinions on the necessity of some of the additional consumer protections in the proposal, as discussed in greater detail in part VI below. While industry commenters generally supported maintaining the statutory product restrictions (such as the exclusion for loans with interest-only or negative amortization features, balloon payments, or terms that exceed 30 years), they expressed a range of views on whether ARMs and subordinate-lien loans should be eligible to season into QM status. They also expressed varying opinions on whether the proposed portfolio requirement is a necessary consumer protection or overly restrictive.

D. Comments in Opposition to a Seasoned QM Definition

A number of consumer advocates and other non-profit organizations as well as an academic commenter opposed the Bureau's proposed Seasoned QM definition. These commenters generally expressed concerns over the evidentiary support for the proposed Seasoned QM definition, the Bureau's legal authority, the concept that demonstrated loan performance over an extended period of time can warrant a conclusive presumption of compliance with the ATR/QM Rule, and the impact on minority borrowers. Most of these commenters stated that if the Bureau were to finalize a Seasoned QM definition, the Bureau should retain the underwriting requirements, product restrictions, portfolio requirement, and other consumer protections included in the proposal. A joint comment from a number of non-profit organizations suggested that if the Bureau were to finalize a Seasoned QM definition, the final rule should incorporate a two-tiered approach, such that non-QM loans at consummation could only season into rebuttable presumption QM loans and only loans originated as rebuttable presumption QM loans could season into safe harbor QM loans.

Nearly all commenters that opposed the Seasoned QM definition questioned the Bureau's legal authority to issue a rule that would limit a consumer's private right of action and foreclosure defense for violations of the ATR/QM Rule after three years. Commenters asserted that TILA's statutory requirements allow borrowers to raise a violation of the ATR/QM rule as a defense at any time in response to a foreclosure, and that Congress intended that these claims not be cut off. In addition, they maintained that, by extending the general one-year statute of limitations under TILA to three years for ability-to-repay claims, Congress recognized that it could take consumers a minimum of three years to recognize the right to bring an action against a creditor. Finally, commenters asserted that the performance requirements in the final rule are beyond the Bureau's authority to define QMs because Congress intended to limit the definition of QM to only those conditions that could be determined at or prior to the consummation of a loan. These commenters suggested that the Bureau's proposal is contrary to Congressional intent and exceeds the Bureau's authority.

Many of these commenters also asserted that the Bureau did not provide enough evidentiary support and data analysis demonstrating that Seasoned QMs are the types of high-quality, low-cost loans for which Congress intended the Bureau to exercise its exemption authority. Commenters stated that the proposal could afford a QM safe harbor and a release from risk retention requirements to loans that are higher cost, have high DTIs, and have limited income documentation. These commenters asserted that the analysis in part VII of the proposal demonstrated that a meaningful percentage of loans suffer a disqualifying event after three years and that the proposal's three-year seasoning period is arbitrary. They also maintained that the Bureau's objective to increase access to credit and innovation in the mortgage market is not a sufficient justification absent a clearer explanation of how the proposal advances the statutory objective of affordable and responsible mortgage lending.

One consumer advocate commenter argued that the proposal could have unanticipated disparate impacts on borrowers of color and would likely burden these borrowers with higher mortgage costs without affording them the underwriting and assessment protections that the Dodd-Frank Act sought to provide. The commenter pointed to historical evidence that minority borrowers have been steered into predatory, higher-priced mortgage products, and that the foreclosure crisis preceding the Dodd-Frank Act resulted in a significant loss in housing wealth among minority homeowners. The commenter stated that the proposal would target vulnerable consumers and remove their statutorily provided life-of-loan defense to foreclosure.

Several consumer advocates also stated that the proposal could restrict remedies for high cost loans under the Home Ownership and Equity Protection Act of 1994 (HOEPA).

108

They asserted that the Bureau has not made the necessary case to restrict remedies under HOEPA for violations of HOEPA's ability-to-repay requirements.

108

Public Law 103-325, tit. I, subtit. B, 108 Stat. 2190 (1994).

Commenters also argued that loan performance should not be equated with ability to repay. They pointed to survey data and anecdotal evidence that many consumers take extraordinary measures to pay an unaffordable mortgage, such as drawing down retirement accounts, foregoing food, medicine, and utilities, or borrowing from relatives and friends. One consumer advocate commenter

cited its survey of housing counselors and attorneys, which showed that 70 percent of respondents reported that their clients had forgone or decreased essential expenses in order to make payments for the first three years. Several commenters also asserted that the proposal is inconsistent with the statutory mandate that ability to repay is determined at origination, and that a change in circumstance (

e.g.,

winning the lottery) whereby a borrower is able to pay a loan that was unaffordable at origination should not relieve creditors of their obligation to conduct a prudent ability-to-repay evaluation at origination. Several consumer advocates also expressed concern that the Seasoned QM definition may restrict the ability of the Bureau and other agencies to conduct supervisory examinations beyond the three-year seasoning period when the loan obtains QM safe harbor status.

Several commenters also questioned the Bureau's use of the GSE representation and warranty framework as a model for the proposal's three-year seasoning period. They stated that the FHFA and GSE analysis is based on an investor's view of the aggregate financial impact on the GSEs' portfolios, as opposed to Congress's objective in enacting the ATR mandate to protect individual consumers from harm. They also noted that the GSE representation and warranty framework includes life-of-loan exclusions for more material defects such as misstatements, misrepresentations, and omissions. Lastly, the commenters pointed out that the GSEs perform post-purchase quality control checks and audits shortly after acquiring the loans and before loans have defaulted, to ensure they are able to require creditors to repurchase defective loans within the three-year sunset. These commenters asserted that the proposal lacked similar quality control checks and exceptions for misconduct and fraud.

Several commenters maintained that the proposal's assessment of the litigation risks associated with originating non-QM loans and the impact on cost of credit are unproven and inconsistent with the Bureau's findings in the January 2013 Final Rule. They noted that Congress has balanced the interest of consumers and creditors over the years, as evidenced by the limitations that TILA's general rules of liability place on possible litigation exposure. They also pointed out that there are practical limitations on litigation exposure for non-compliance with ability-to-repay violations, such as access to a limited supply of legal services and public interest attorneys.

E. The Final Rule

The Bureau is creating a Seasoned QM definition in this final rule because it concludes that providing a pathway to a QM safe harbor for performing non-QM and rebuttable presumption QM loans at consummation will maintain or expand access to responsible and affordable mortgage credit for loans that were originated in compliance with the ATR/QM Rule. The Bureau observed in the January 2013 Final Rule that increased legal certainty may benefit consumers if, as a result, creditors are encouraged to make loans that satisfy the statutory QM criteria, and further, that increased legal certainty may result in loans with a lower cost than would be charged in a context of legal uncertainty.

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Consistent with that earlier finding, the Bureau finds here that the increased compliance certainty and reduction in litigation risk associated with providing a conclusive presumption of compliance for Seasoned QMs will encourage creditors to lend to consumers whose loans may fall outside of the QM safe harbor at consummation but who nonetheless have the ability to repay. In particular, the Bureau concludes that there are a significant number of creditworthy consumers who are unable to readily obtain mortgage financing because they fall outside of the GSE and government lending guidelines, particularly those with non-traditional credit or income sources and self-employed borrowers. The Bureau also concludes that if combined with certain other factors, successful loan performance over a number of years indicates sufficient certainty to presume that loans were originated in compliance with the ATR/QM Rule.

109

78 FR 6408, 6507 (Jan. 30, 2013).

This final rule provides a conclusive presumption of compliance for loans that are originated as non-QM or rebuttable presumption QM loans, that meet certain performance criteria and portfolio requirements over the seasoning period of at least 36 months, and that satisfy certain product restrictions, points-and-fees limits, and underwriting requirements. Specifically, the Seasoned QM definition is limited to fixed-rate, first-lien mortgages that also satisfy the product-feature requirements and limits on points and fees under the General QM loan definition. Under the final rule, creditors are required to consider the consumer's DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and verify the consumer's income or assets other than the value of the dwelling and the consumer's debts, using the same consider and verify requirements established for General QMs in the General QM Final Rule. The final rule generally requires the original creditor or purchasing institution to hold the loan in portfolio until the end of the seasoning period, except that it permits a single whole-loan transfer, as further described in the section-by-section analysis of § 1026.43(e)(7)(iii) below.

The Bureau adopts a Seasoned QM definition because it concludes that the definition strikes the best balance between the competing consumer protection and access-to-credit considerations described herein. Specifically, the Bureau concludes that, if coupled with other consumer protections, a seasoning period of at least 36 months provides a sufficient length of time to conclusively presume that a creditor reasonably determined a consumer's ability to repay at the time of consummation, while promoting continued access to credit and incentivizing creditors to make certain loans that may not have otherwise been made in the absence of potentially greater ability-to-repay compliance certainty.

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As discussed in further detail in the section-by-section analysis of § 1026.43(e)(7)(ii), the Bureau concludes that, for loans that meet the eligibility requirements to season into a QM safe harbor, it is reasonable to attribute any subsequent default after the 36-month seasoning period to a change in economic conditions or consumer circumstances that a creditor could not reasonably have anticipated from the consumer's application or the records used to determine repayment ability rather than to a failure by the creditor to make a reasonable

determination of ability to repay at consummation.

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This final rule, like the Assessment Report and the General QM Final Rule, reflects a shared underlying rationale that early payment difficulties indicate higher likelihood that the consumer may have lacked ability to repay at origination, and that delinquencies occurring soon after consummation are more likely indicative of a consumer's lack of ability to repay than later-in-time delinquencies. The Assessment Report and the General QM Final Rule measure early distress as whether a consumer was ever 60 days or more past due within the first two years after origination. The performance requirements for Seasoned QMs reflect the Bureau's consideration of this measure of early distress, but also its view of what requirements strike the best balance between facilitating responsible access to the credit in question while assuring protection of the consumer interests covered by ATR requirements. Similarly, the Bureau recognizes that the definition of delinquency and performance requirements in § 1026.43(e)(7) differ in some respects from the measure of early distress used in the Assessment Report, but concludes that this final rule's definition and performance requirements further the specific purposes of this final rule for the reasons explained in the section-by-section analyses of § 1026.43(e)(7)(ii) and (iv)(A) below.

The Bureau concludes that the Seasoned QM definition will maintain or expand access to credit for non-QM and rebuttable presumption QM loans that otherwise may not have been made due to perceived litigation or compliance risks, even if the creditor has confidence that it could originate the loan in compliance with the ATR requirements. Indeed, many industry commenters specifically indicated in their comments that they anticipated that the proposal would do so. The Bureau concludes that the Seasoned QM definition will also facilitate innovation in underwriting in the non-QM market to better serve consumers with non-traditional credit profiles, allow for more flexibility to adapt to future changes in the work force and technology, and better support emerging research and technologies into alternative mechanisms to assess a consumer's ability to repay, such as cash flow underwriting. Several commenters noted that the impacts on access to credit are uncertain or unproven given these loans would be consummated without a conclusive presumption of compliance, and that therefore uncertainty and legal risk will persist with respect to these loans. The Bureau acknowledges that not every creditor may seek to expand their product offerings as a result of this final rule, but the Bureau nonetheless concludes the final rule will further its policy objectives, as many industry commenters indicated in their comments.

Furthermore, the Bureau concludes that the objective of increasing access to responsible non-QM lending is of particular importance in light of recent contractions in that segment of the market. As described in the proposal, the non-QM market has been further reduced by the recent economic disruptions associated with the COVID-19 pandemic, with most mortgage credit now available in the form of loans that obtain QM status at consummation. During periods of economic stress, investors seek safer assets such as cash and government-backed securities. Because non-QM loans are generally perceived as riskier by investors in part for the reasons discussed in the proposal, the decreases in originations related to the pandemic were particularly acute in the non-QM sector of the mortgage market. While the non-QM market has begun to recover, recent events have illustrated how investors' perception of risk—including uncertainty over compliance and litigation risk—can exacerbate the impacts on access to credit, particularly during periods of economic distress. The Bureau concludes that the Seasoned QM definition in this final rule should help counteract these impacts.

The Bureau acknowledges the concerns expressed by some commenters that the Seasoned QM definition will limit a consumer's foreclosure-related defense by recoupment or set off for alleged violations of the ATR requirements after three years under TILA section 130(k).

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These commenters suggested that availability of this defense indicates that Congress contemplated that consumers would default later than the ability-to-repay three-year statute of limitations period, and intended for consumers who defaulted at any point to be able to raise the creditor's failure to reasonably determine ability to repay as a defense against foreclosure.

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One academic commenter indicated that under the proposal, loans could season during pending litigation, cutting off affirmative claims filed within the statute of limitations period. Acknowledging this possibility, the Bureau nonetheless concludes that the final rule should not be revised to prevent that possibility in all cases. The reasoning underlying this final rule—that satisfaction of the seasoning requirements for the duration of the seasoning period demonstrates that the creditor made a reasonable determination of the consumer's ability to repay at consummation—is not any less applicable when litigation is initiated during the seasoning period, but the consumer continues making on-time payments for the remainder of the seasoning period. The mere filing of the lawsuit itself does not indicate the creditor failed to make a reasonable determination of ability to repay at consummation. Accordingly, the Bureau does not believe there is a good reason to create and administer potentially complex rules managing the effects that various court or litigant actions should have on the seasoning period.

The Bureau disagrees with this understanding of TILA section 130(k) and its implications regarding the scope of the Bureau's authority to define a QM. TILA section 130(k) authorizes a consumer to assert a violation of the ATR requirements in section 129C(a) as a defense in the event of judicial or nonjudicial foreclosure, without regard for the time limit on a private action for damages for such a violation. With TILA section 130(k), Congress provided consumers with a degree of relief from the finality generally associated with a statute of limitations period so that they may assert a violation of TILA section 129C(a) as a matter of defense by recoupment or set off in connection with judicial or nonjudicial foreclosure. TILA section 130(k) thus conditions a consumer's actual right to obtain recoupment or set off on a finding that a creditor in fact violated TILA section 129C(a). But, on this matter of substantive law, TILA section 129C(b)(1) expressly provides that a creditor may presume its compliance with TILA section 129C(a) with respect to any mortgage that falls within the definition of a QM. TILA section 129C(b)(2) and (3) grant the Bureau broad authority to revise, add to, or subtract from the criteria defining a QM for purposes of presuming compliance with TILA section 129C(a). Consistent with that authority, the final rule concludes that—if coupled with certain product restrictions and other factors—successful loan performance over a number of years indicates with sufficient certainty creditor compliance with TILA section 129C(a).

Consequently, creditors of loans satisfying the final rule's requirements may lawfully invoke the loan's status to show that there is no “violation” for the purposes of TILA section 130(k), just as creditors properly originating loans under other QM categories have been able to do since the effective date of the January 2013 Final Rule. Consumers in turn may respond with evidence and argument establishing that a loan in fact does not satisfy the final rule's requirements to qualify as a Seasoned QM. But the Bureau does not read TILA section 130(k) to preserve for consumers a right to assert a violation of TILA section 129C(a) when the Bureau has determined as a matter of substantive law to conclusively presume the loan's compliance with TILA section 129C(a).

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This regulatory regime, under which QM status may affect a consumer's ability to raise a defense to foreclosure under TILA section130(k), is precisely what Congress intended and the introduction of a Seasoned QM category in no way alters that regime.

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Likewise, the Bureau disagrees with commenters who suggest that the final rule is a statute of limitations or statute of repose. In contrast to statutes of limitations or repose—which limit liability based solely on the passage of time measured

after

a certain event occurs—the performance requirements in the final rule are based on a series of events, periodic payments, that must occur before a loan can season. Moreover, whereas a statute of limitations or repose cuts off a consumer's right to raise a claim for reasons unrelated to the merits of a claim, the performance requirements in the final rule are probative of the merits of a section 129C(a) violation.

The Bureau also disagrees with the concerns expressed by some commenters that the performance requirements in the final rule are beyond the Bureau's authority to define QMs because Congress intended to limit the definition of QM to only those conditions that could be determined before a loan is consummated. These commenters specifically point to the statutory QM provisions, which they argue are conditions directly related to underwriting that can be met prior to

consummation, unlike the performance requirements in the final rule.

The Bureau concludes that nothing in the text of TILA section 129C(b) prevents the Bureau from creating categories of QMs that are based on conditions that can be observed after a loan is consummated. The Bureau instead believes that QM conditions that are indicative of creditor compliance with the ATR requirements at consummation, regardless of when they are satisfied, are consistent with the text and structure of TILA section 129C(b). Congress only required that additional QM conditions be necessary or proper to ensure responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C or necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C. And although some of the statutory QM conditions focus on underwriting,

113

most of these statutory conditions instead focus on prohibiting risky product features that may be probative of a creditor's non-compliance with the ATR requirements, such as interest-only loans, or loan terms that exceed 30 years.

114

The final rule goes beyond these statutory QM conditions with performance requirements and restrictions on creditors that, like the statutory product restrictions, are probative of whether a consumer was offered and received a loan on terms that the creditor reasonably determined reflected the consumer's ability to repay the loan. The Bureau does not believe that Congress intended to allow certain QM conditions that provide prospective evidence of creditor compliance with the ATR requirements but prohibit conditions that instead provide retrospective evidence of the same.

115

Thus, while a creditor undoubtedly must determine a consumer's ability to repay at consummation, there is no indication that Congress intended to preclude or limit the Bureau's authority to defer its decision on the merits of presuming such compliance until the occurrence of later-in-time events.

113

15 U.S.C. 1639c(b)(2)(A)(iii) through (v).

114

15 U.S.C. 1639c(b)(2)(A)(i) through (ii), (vii) through (viii);

see

78 FR 6408, 6503-04 (Jan. 30, 2013).

115

See

78 FR 6408, 6462 (Jan. 30, 2013).

Commenters' insistence that QM status be determined at consummation is an approach the Bureau could have taken in the final rule. But the Bureau concludes that it has as much authority under TILA to grant QM status at consummation and to later withdraw it based on later-in-time events, on the one hand, as it does to condition the same presumption on the occurrence of post-consummation events, so long as the later-in-time event is probative of or related to creditor compliance with the ATR requirements at consummation.

116

The Bureau further concludes that the wait-and-see approach adopted in this final rule is the most reasonable approach in this context. As already noted above, consumer distress during the first three years of a loan supports an inference that consumers lacked the ability to repay at consummation. By withholding the presumption during the first three years of a loan, the final rule ensures that consumers are afforded greater consumer protections by being able to assert their rights without being forced to first default on their loan. The final rule also ensures that creditors benefit from the presumption only once there is enough evidence that the creditor made a reasonable ATR determination at consummation. The Bureau thus concludes that creating a new category of QMs for seasoned loans that meet the statutory QM requirements and other appropriate criteria is consistent with the Bureau's authority under and the purposes of TILA sections 129B and 129C.

116

For example, if justified by the merits, the final rule could have mimicked the QM category adopted by Congress in EGRRCPA and granted QM status to all covered loans at consummation with the caveat that the loan could lose QM status if a borrower fails the performance requirements. 15 U.S.C. 1639c(b)(2)(F)(ii)(I)(aa), (iii).

The Bureau recognizes the concerns expressed by many consumer advocate commenters that loan performance does not always equate to ability to repay and that consumers may take extraordinary measures to make payments on their mortgage. The Bureau acknowledged in the proposal that it is possible that a consumer could continue making on-time payments for some period of time despite lacking the ability to repay by foregoing payments on other obligations, and that a meaningful percentage of non-QM loans may end up delinquent in later years. However, as discussed in part VIII below, in general, the later a delinquency occurs, the less likely it is due to a lack of ability to repay at consummation rather than a change in circumstance after consummation that the creditor could not have reasonably anticipated from the consumer's application or the records at consummation.

117

As illustrated in Figure 3 in part VIII below, the Bureau estimates that nearly two-thirds of loans that experience delinquencies that would prevent a loan from becoming a Seasoned QM under the final rule do so within 36 months, and the rate at which loans disqualify diminishes beyond 36 months.

Furthermore, the Bureau finds that the final rule's inclusion of additional consumer protections mitigates the risks cited by commenters that a consumer lacks ability to repay but is nonetheless able to make timely payments for at least 36 months. As discussed further in the section-by-section analysis of § 1026.43(e)(7)(i)(A) and (B), this final rule's product restrictions prohibit loan features such as adjustable rates, interest-only payments, and negative amortization that can lead to sharp payment increases shortly after consummation, and limits Seasoned QM status to first-lien loans. The final rule also generally requires the creditor or first purchaser to hold the loan in portfolio until the end of the seasoning period. As discussed in the section-by-section analysis of § 1026.43(e)(7)(iii), this requirement gives creditors a greater incentive to make responsible and affordable loans at consummation by ensuring that the creditor or first purchaser of the loan bears the risk if the loan defaults during the seasoning period.

Lastly, the final rule maintains the requirement that a creditor consider the consumer's DTI ratio or residual income, income or assets other than the value of the dwelling, and debts and verify the consumer's income or assets other than the value of the dwelling and the consumer's debts. As discussed in the section-by-section analysis of § 1026.43(e)(7)(i)(B), this final rule aligns the Seasoned QM consider and verify requirements with that of the General QM Final Rule, which will help to ensure that loans for which the creditor has not made a good faith determination of the consumer's ability to repay do not season into a QM safe harbor.

A number of commenters expressed concern that the Bureau lacks the evidentiary support and data analysis to demonstrate that Seasoned QMs are safe and high-quality loan products. These concerns are addressed in greater detail in part VIII below. The Bureau concludes that the delinquency and foreclosure analysis presented in part VIII, combined with the consumer protections discussed above, provides sufficient support to presume compliance with the ATR requirements when a loan performs over a seasoning period of at least 36 months and meets the other requirements in this final rule.

Some consumer advocate commenters expressed concern about the potential effects of this final rule given that minority homeowners historically have had higher-priced mortgage products relative to White consumers with similar credit characteristics. These commenters stated that this final rule could result in unanticipated disparate

impacts on borrowers of color if they lose their set off or recoupment rights after three years. The Bureau recognizes that some creditors may violate Federal fair lending laws by charging certain borrowers higher prices on the basis of race or national origin compared to non-Hispanic White borrowers with similar credit characteristics, and the Bureau affirms its commitment to consistent, efficient, and effective enforcement of Federal fair lending laws.

118

The Bureau further emphasizes that the QM criteria, including the Seasoned QM definition added by this final rule, do not create an inference or presumption that a loan satisfying the QM criteria is compliant with any Federal, State, or local anti-discrimination laws that pertain to lending. A creditor has an independent obligation to comply with the Equal Credit Opportunity Act

119

and Regulation B,

120

and an effective way for a creditor to minimize and evaluate fair lending risks under these laws is by monitoring its policies and practices and implementing effective compliance management systems.

118

See, e.g.,

Consent Order,

U.S.

Bancorpsouth Bank,

No. 1:16-cv-00118, ECF No. 8 (N.D. Miss. July 25, 2016),

https://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpSouth-consent-order.pdf

(joint action for discriminatory mortgage lending practices including charging African-American customers more for certain mortgage loans than non-Hispanic White borrowers with similar loan qualifications).

119

15 U.S.C. 1691

et seq.

120

12 CFR part 1002.

This final rule's performance criteria, product restrictions, underwriting criteria, and portfolio requirements are designed to ensure that Seasoned QMs do not contain risky product features identified in TILA section 129C(b)(2) and that they are underwritten with appropriate attention to consumers' resources and obligations. Moreover, as discussed in the section-by-section analysis of § 1026.43(e)(7)(i)(E), this final rule also clarifies that the Seasoned QM definition does not extend to high-cost mortgages covered by HOEPA, thus excluding the highest cost loans on the market from eligibility for Seasoned QM status.

As discussed above, commenters expressed differing views on the utilization of the GSE representation and warranty framework as an analog or model for the Seasoned QM definition. Many industry commenters supported the Seasoned QM definition, citing consistency with the industry standards set by the GSE representation and warranty framework and the mortgage insurers' rescission relief policies. One consumer advocate commenter, on the other hand, pointed out several differences relative to the Seasoned QM definition and questioned the utility of the GSE model as a precedent, as described above. The Bureau acknowledges that the GSE framework may have been developed based on an aggregate analysis of the GSE portfolio to provide certainty for lenders by clarifying when a loan may be subject to repurchase. However, the GSE framework nonetheless illustrates a recognition based on experience by both GSEs and lenders that after 36 months of strong loan performance, a default should fairly be attributed to a change in consumer's circumstances that the creditor could not have reasonably anticipated from the consumer's application or the records at consummation or other cause besides that of the lender's underwriting. The FHFA's stated purpose for the framework is to “provide more certainty for lenders, facilitate greater liquidity to the primary market, and help increase access to credit without compromising safety and soundness.”

121

Furthermore, although commenters are correct that the GSE representation and warranty framework includes life-of-loan exclusions for more material defects, this final rule includes many important and consumer-protective loan-level requirements, some of which are not required under the GSE framework, such as the portfolio requirement and exclusion for adjustable-rate mortgages.

121

Fed. Hous. Fin. Agency,

Representation and Warranty Framework, https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Representation-and-Warranty-Framework.aspx

(last visited Nov. 30, 2020).

The Bureau also acknowledges that the GSEs have developed a robust post-purchase quality control and audit framework to identify loan defects typically within a few months of consummation and well within the 36-month representation and warranty relief sunset. However, the Bureau concludes that this final rule's portfolio requirement provides similar incentives for creditors to originate loans with ability to repay. That is, if a financial institution purchases a loan from a creditor that it is required to hold in portfolio for 36 months, that purchaser has similar incentives to perform loan-level due diligence as the GSEs given the purchaser, like the GSEs, bears the credit risk of default. The prospect of being able to sell the loan only if it passes that due diligence creates a strong incentive for the creditor to employ rigorous underwriting at consummation akin to post-purchase quality control and audit under the GSE representation and warranty framework. In fact, given the size and scale of the GSEs' credit risk transfer programs whereby much of the risk of default for a large portion of the GSEs' guaranteed portfolio is syndicated to private market participants,

122

purchasers that are required to hold the loan in portfolio for 36 months may have an even greater incentive to ensure the loans they purchase will perform well than the GSEs do. Moreover, like the GSEs, financial institutions have similar remedies to require the originating creditor to repurchase loans that were consummated with defects, including a lack of ability to repay. For these reasons, the Bureau has decided to base its adoption of a 36-month seasoning period in part on the 36-month representation and warranty sunset for GSE loans.

122

Fed. Hous. Fin. Agency,

Credit Risk Transfer, https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Credit-Risk-Transfer.aspx

(last visited Nov. 30, 2020).

Some consumer groups suggested that the Bureau's concern regarding potential and perceived litigation risks associated with originating non-QM loans and their impact on access to credit is inconsistent with the Bureau's findings in the January 2013 Final Rule and unproven. However, as discussed in the proposal, the analysis that the Bureau subsequently published in the Assessment Report found that some of the observed effect of the January 2013 Final Rule on access to credit was likely driven by creditors' interest in avoiding litigation or other risks associated with non-QM status, rather than by creditors' determinations that consumers were unlikely to repay the loan based on traditional indicators of creditworthiness.

123

Many industry commenters also reaffirmed the impact of compliance uncertainty and litigation risk on creditors' willingness to originate non-QM and rebuttable presumption QM loans as well as the secondary market's willingness to purchase them. They asserted that the conclusive presumption of compliance for a Seasoned QM after 36 months would result in higher secondary market liquidity for these loans as investors are extended the liability protections that QM status provides. Based on its Assessment Report, external feedback to the Bureau, and the comments, the Bureau has concluded that many secondary market investors are unable or unwilling to accept the litigation risk associated with assignee liability particularly with respect to non-QM loans, which has in turn contributed to the relative scarcity of non-QM loans.

123

See

Assessment Report,

supra

note 47, at 118, 147, 150.

VI. Section-by-Section Analysis

1026.43 Minimum Standards for Transactions Secured by a Dwelling

43(e) Qualified Mortgages

43(e)(1) Safe Harbor and Presumption of Compliance

Section 1026.43(e)(1) currently provides that a creditor that makes a QM loan receives either a conclusive or rebuttable presumption of compliance with the repayment ability requirements of § 1026.43(c), depending on whether the loan is a higher-priced covered transaction. Section 1026.43(e)(1)(i) currently provides that a creditor that makes a QM loan that is not a higher-priced covered transaction is entitled to a safe harbor from liability under the ATR provisions. The Bureau proposed to add § 1026.43(e)(1)(i)(B), identifying Seasoned QMs as a separate category of QMs for which a creditor receives a conclusive presumption of compliance with ATR requirements, regardless of whether the loan is a higher-priced covered transaction. The proposal would have redesignated current § 1026.43(e)(1)(i) as § 1026.43(e)(1)(i)(A). To conform with these changes, the Bureau proposed to revise comment 43(e)(1)-1 to add a reference to proposed § 1026.43(e)(7). The Bureau also proposed to make a technical correction to comment 43(e)(1)-1 to add references to § 1026.43(e)(5) and (6). The Bureau further proposed to remove the first sentence of comment 43(e)(1)(i)-1, which would have been duplicative of regulatory text, and to redesignate that comment as comment 43(e)(1)(i)(A)-1. For the reasons discussed below, the Bureau is finalizing the amendments to § 1026.43(e)(1) and related commentary as proposed, with minor technical changes to the proposed commentary.

The Bureau's Proposal

TILA section 129C(b) provides that loans that meet certain requirements are “qualified mortgages” and that creditors making QMs “may presume” that such loans have met the ATR requirements. As discussed above, TILA does not specify whether the presumption of compliance means that the creditor receives a conclusive presumption or a rebuttable presumption of compliance with the ATR provisions. The Bureau concluded in the January 2013 Final Rule that the statutory language is ambiguous and does not mandate either interpretation and that the presumptions should be tailored to promote the policy goals of the statute.

124

In the January 2013 Final Rule, the Bureau interpreted TILA to provide for a rebuttable presumption of compliance with the ATR provisions but used its adjustment and exception authority under TILA to establish a conclusive presumption of compliance for loans that are not “higher-priced covered transactions.”

125

124

78 FR 6408, 6511 (Jan. 30, 2013).

125

Id.

at 6514.

In the January 2013 Final Rule, the Bureau identified several reasons why the performance of QMs that are not higher-priced loans could suggest consumers have the ability to repay and should receive a safe harbor.

126

The Bureau noted that the QM requirements would ensure that the loans do not contain certain risky product features and are underwritten with careful attention to consumers' DTI ratios.

127

The Bureau also noted that a safe harbor would provide greater legal certainty for creditors and secondary market participants and might promote enhanced competition and expand access to credit.

128

The Bureau noted that it was not possible to define by a bright-line rule a class of mortgages for which each consumer would have the ability to repay.

129

126

Id.

at 6511.

127

Id.

128

Id.

129

Id.

In the Seasoned QM Proposal, the Bureau preliminarily concluded that, in conjunction with the QM statutory and other requirements in proposed § 1026.43(e)(7), a loan's satisfaction of portfolio and seasoning requirements provides sufficient grounds for supporting a conclusive presumption that the creditor made a reasonable determination that the consumer had the ability to repay, in compliance with the ATR requirements. The Bureau also preliminarily concluded that satisfaction of the seasoning requirements—in particular, the fact that the consumer made timely payments for the duration of the seasoning period—supports the inference that the consumer was offered and received a loan on terms that the creditor reasonably determined reflected the consumer's ability to repay the loan. The Bureau noted that proposed § 1026.43(e)(7) would require creditors to comply with TILA requirements applicable to QMs and minimum underwriting requirements. The Bureau also noted that the proposed requirements would ensure that the loans do not contain risky product features identified in TILA section 129C(b)(2), the loans are underwritten with attention to consumers' resources and obligations, and the conclusive presumption would be available to creditors only after the loans have performed for a substantial period of time.

In the proposal, the Bureau stated that providing creditors with an alternative pathway to greater ATR compliance certainty for loans that satisfy the criteria set forth in proposed § 1026.43(e)(7) may result in greater access to responsible, affordable mortgage credit. For example, creditors may be more willing to maintain or expand access to credit to consumers with non-traditional income or a limited credit history, or to employ innovative methods of assessing financial information, as these loans could season into safe harbor QMs with satisfactory performance. In addition, the Bureau noted in the proposal that, similar to the Small Creditor QM definition and the pathway to QM status provided in EGRRCPA section 101, the Seasoned QM definition would include a requirement for the creditor to hold the loan in portfolio. Finally, in the proposal the Bureau preliminarily concluded that, in combination with the other Seasoned QM requirements in proposed § 1026.43(e)(7), the proposed portfolio requirement would provide an added layer of assurance that the Seasoned QM definition would encourage responsible non-QM lending and creditors would not make unaffordable loans.

The Bureau sought comment on all aspects of the proposal that would be applicable to determining whether, by meeting the requirements of § 1026.43(e)(7) for a particular loan, a creditor has demonstrated that the consumer had a reasonable ability to repay the loan according to its terms and the loan should be accorded safe harbor QM status. In addition, the Bureau sought comment on whether there are other approaches to providing QM status to seasoned loans that would better accomplish the Bureau's objectives.

Comments Received

The Bureau received a number of comments relating to the proposed amendments to § 1026.43(e)(1). As discussed in greater detail in part V above, industry commenters generally supported the proposed amendments to § 1026.43(e)(1), and consumer advocate commenters generally opposed the proposed amendments to § 1026.43(e)(1).

Industry commenters generally expressed support for the Bureau's preliminary conclusion that a loan's satisfaction of the proposed seasoning requirements provides sufficient

grounds for supporting a conclusive presumption that the creditor made a reasonable determination that the consumer had the ability to repay, in compliance with the ATR requirements. These commenters stated that the proposed amendments to § 1026.43(e)(1), and the proposal in general, retain consumer safety considerations and legal protections consistent with the existing ATR/QM Rule. Industry commenters agreed that providing safe harbor QM status to loans that season would incentivize responsible non-QM lending, while maintaining market stability. Several of these commenters noted that safe harbor QM status would provide legal certainty to loans that previously did not receive safe harbor QM status at consummation, and thereby remove risk associated with originating non-QM loans.

Consumer advocate commenters opposed the Bureau's proposal, cautioning that a seasoning period is not an adequate basis for determining compliance with the ATR requirements. They also suggested that ATR determinations should remain a case-by-case determination, because there may be situations in which borrowers remain current on their loan for 36 months but did not have an ability to repay the loan at consummation.

A joint comment from a number of consumer advocates and other non-profit organizations suggested that the Bureau adopt a two-tiered approach to seasoning instead of providing all loans that season with safe harbor QM status. A two-tiered approach would allow non-QM loans to season into rebuttable presumption QM loans, and loans that are originated as QMs under other QM categories to season into safe harbor QM loans, after meeting the requirements for seasoning.

Some commenters made suggestions to modify proposed § 1026.43(e)(7), which are discussed and addressed in the section-by-section analysis of § 1026.43(e)(7) below.

The Final Rule

For the reasons discussed above and, pursuant to its authority under TILA section 105(a) as discussed below, the Bureau is finalizing § 1026.43(e)(1) as proposed. As finalized, § 1026.43(e)(1) provides that loans meeting the Seasoned QM requirements in § 1026.43(e)(7) obtain a conclusive presumption of compliance with the repayment ability requirements of § 1026.43(c).

Since the January 2013 Final Rule, the Bureau has noted that a safe harbor provides greater legal certainty for creditors and secondary market participants and may promote enhanced competition and expand access to credit. As discussed in part V above, the Bureau concludes that a Seasoned QM definition will encourage creditors to originate more responsible, affordable loans that are not QMs at consummation, and to ensure that responsible, affordable credit is not lost because of legal uncertainty in non-QM status.

The Bureau declines to adopt the two-tiered approach that some commenters suggested that would provide only rebuttable presumption status to Seasoned QMs originated as non-QM loans. Adopting such a two-tiered approach would lessen the prospect of legal certainty for loans originated as non-QMs and could thereby undermine the final rule's primary objective, which is to promote continued and potentially increased access to responsible and affordable credit by incentivizing the origination of non-QM loans that otherwise may not be made. The Bureau recognizes that it has decided in the General QM Final Rule not to provide a similar safe harbor at consummation to General QMs priced 1.5 percentage points or more above APOR. That decision reflects a balancing of the relevant consumer protection and access-to-credit considerations in view of the Bureau's findings that (i) such loans have higher delinquency rates than lower-priced loans and (ii) it lacks sufficient evidence to suggest that having provided those loans with only a rebuttable presumption of ATR compliance since the January 2013 Final Rule took effect has resulted in a significant disruption of access to responsible, affordable mortgage credit. A balance of the same statutory considerations leads the Bureau to a different conclusion with respect to Seasoned QMs. The final rule's performance requirements will ensure that only loans with strong early performance receive the Seasoned QM safe harbor. When coupled with the final rule's other requirements, the Bureau concludes that loans meeting the Seasoned QM definition will have demonstrated that the creditor made a reasonable determination of the ability to repay, regardless of the loan's QM or non-QM status at origination. The Bureau also recognizes that the prospect of a safe harbor three years after origination will provide a stronger incentive to originate loans that will be non-QM for at least the first three years than the prospect of a rebuttable presumption three years after origination. In light of these considerations, the Bureau concludes that extending Seasoned QMs a safe harbor strikes the best balance between consumer protection and ensuring continued access to responsible, affordable credit. The Bureau is therefore finalizing the amendments to § 1026.43(e)(1) and related commentary as proposed, with minor technical changes to the proposed commentary.

Legal Authority

The Bureau is revising § 1026.43(e)(1) pursuant to its adjustment authority under TILA section 105(a) to establish a conclusive presumption of compliance for loans that meet the criteria in proposed § 1026.43(e)(7). The Bureau concludes that providing a safe harbor for seasoned loans is necessary and proper to facilitate compliance with and to effectuate the purposes of section 129C and TILA, including to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans. The Bureau also concludes that providing such a safe harbor is consistent with the Bureau's authority under TILA section 129C(b)(3)(B)(i) to prescribe regulations that revise, add to, or subtract from the criteria that define a QM upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of this section, necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections.

43(e)(2) Qualified Mortgage Defined—General

Section 1026.43(e)(2) sets out the general criteria for meeting the definition of a QM and provides exceptions for QMs covered by requirements set out in other specific paragraphs in § 1026.43(e). The Bureau proposed a conforming amendment to § 1026.43(e)(2) to include a reference to § 1026.43(e)(7), which sets out the requirements applicable to Seasoned QMs and is described in the section-by-section analysis below. The Bureau did not receive comments specifically relating to proposed § 1026.43(e)(2). To conform with the other amendments in this final rule, the Bureau is adopting the amendment to § 1026.43(e)(2) as proposed.

43(e)(7) Qualified Mortgage Defined—Seasoned Loans

The Bureau is adding § 1026.43(e)(7) to define a new category of QMs, Seasoned QMs, for covered transactions

that meet certain criteria. The Bureau concludes that providing creditors an alternative path to a QM safe harbor for these types of loans is likely to increase creditors' willingness to make these loans despite their ineligibility for a QM safe harbor at consummation. The Bureau recognizes that there is some risk that a consumer can lack an ability to repay at loan consummation yet manage to make timely payments for the seasoning period defined in § 1026.43(e)(7)(iv)(C) of this final rule. The Bureau concludes that such risk, as well as the potential benefits that a Seasoned QM might offer in terms of fostering access to responsible, affordable mortgage credit, would vary depending on the loan characteristics. To mitigate this risk, the Bureau is limiting Seasoned QMs to first-lien covered transactions that satisfy the other requirements in § 1026.43(e)(7), as explained below.

The Bureau concludes that adding a definition of Seasoned QM for covered transactions, as well as establishing the requirements for Seasoned QMs in § 1026.43(e)(7) discussed below, is consistent with the Bureau's authority under TILA section 129C(b)(3)(B)(i) to prescribe regulations that revise, add to, or subtract from the criteria that define a qualified mortgage upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C, necessary and appropriate to effectuate the purposes of TILA sections 129B and 129C, to prevent circumvention or evasion thereof, or to facilitate compliance with such sections. The Bureau finds that the provisions in § 1026.43(e)(7) establishing criteria to define a Seasoned QM are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with and appropriate to the purposes of TILA sections 129B and 129C, which include assuring that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loan and that responsible, affordable mortgage credit remains available to consumers. In particular, the Bureau has concluded that establishing a QM safe harbor pathway for seasoned loans is likely to increase creditors' willingness to make additional loans that do not qualify for a QM safe harbor at origination, or to make such loans with better pricing. The Bureau finds that limiting Seasoned QMs to covered transactions that meet the requirements in § 1026.43(e)(7) provides assurance that those loans that may qualify for Seasoned QM status after the seasoning period are made to creditworthy consumers.

In addition, TILA section 129C(b)(3)(A) provides the Bureau with authority to prescribe regulations to carry out the purposes of the qualified mortgage provisions—to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C. TILA section 105(a) also provides authority to the Bureau to prescribe regulations to carry out the purposes of TILA, including the purposes of the qualified mortgage provisions, and states that such regulations may contain such additional requirements, classifications, differentiations, or other provisions and may further provide for such adjustments and exceptions for all or any class of transactions that the Bureau judges are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. TILA section 129C(b)(2)(A)(vi) provides authority to the Bureau specifically to establish guidelines or regulations relating to ratios of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt, taking into account the income levels of the borrower and such other factors as the Bureau may determine are relevant and consistent with the purposes described in TILA section 129C(b)(3)(B)(i). Accordingly, the Bureau exercises its authority under TILA sections 105(a), 129C(b)(2)(A)(vi), (3)(A), and (3)(B)(i) to adopt § 1026.43(e)(7) for the reasons discussed above and below.

43(e)(7)(i) General

The Bureau proposed adding § 1026.43(e)(7) to define a new category of QMs for covered transactions that meet certain criteria. The Bureau proposed as initial criteria under § 1026.43(e)(7)(i) that Seasoned QM status would be available for first-lien covered transactions that meet certain additional requirements. Additional proposed requirements were set out generally in § 1026.43(e)(7)(i)(A) through (D) and included restrictions on product features and points and fees, as well as certain underwriting and performance requirements. The proposed criteria and related public comments are discussed below.

In its proposal the Bureau tentatively concluded that limiting Seasoned QMs to first-lien covered transactions that satisfy the other requirements in proposed § 1026.43(e)(7) recognizes both the risk of consumers lacking an ability to repay at consummation and the potential benefits of fostering access to responsible, affordable mortgage credit through a Seasoned QM category. This final rule adopts in the introductory text for § 1026.43(e)(7)(i) the requirement that a Seasoned QM be a first-lien covered transaction as proposed.

Comments Received

A significant number of industry commenters and industry trade associations requested that the Bureau extend Seasoned QM eligibility to subordinate liens that otherwise meet the criteria. Several of these commenters noted that closed-end subordinate liens are included within the broader scope of requirements in § 1026.43. One industry commenter stated that its subordinate liens have better repayment and lower delinquencies than the overall first-lien industry and noted that the demand for cash-out subordinate-lien loans may grow as consumers looking to equity as a source of funds in a future, higher-interest-rate environment also want to retain the advantage of current, historically low rates on the remaining balance of their first-lien mortgages. Although two industry commenters suggested generally that the Bureau could make extension of Seasoned QM eligibility to subordinate liens more acceptable by tailoring the performance requirements for subordinate liens, the commenters did not provide specific suggestions. Commenters supporting extension of Seasoned QM eligibility to subordinate liens stated that doing so would encourage innovation, reduce litigation risk, and expand access to credit. An industry commenter, without elaboration, expressly supported limiting Seasoned QMs to first-lien loans, while a consumer advocate commenter stated that, if a Seasoned QM definition is finalized, the loan characteristics included in the proposal to limit the scope of the definition should be retained, even though those characteristics would not adequately protect consumers.

The Final Rule

For the reasons stated below, the Bureau adopts in § 1026.43(e)(7)(i) the requirement that a Seasoned QM be a first-lien covered transaction, as proposed. The Bureau continues to recognize, as it did in the proposal, that the potential risks and benefits of a Seasoned QM category will tend to vary depending on loan characteristics. The Bureau is exercising its discretionary

authority to establish an additional way in which covered transactions can achieve qualified mortgage status under the ATR requirements of TILA and Regulation Z. However, it is not apparent that extending Seasoned QM eligibility to subordinate lien loans can be done in a manner that improves access to credit without introducing unnecessary complexity in application.

130

Subordinate-lien loans may be an example of loans with an elevated risk of showing timely payments even when a consumer lacks ability to repay. A consumer may make on-time payments on the second-lien loan but fail to make payments on the first-lien loan because the consumer is unable to afford the combination of the two periodic payments and the second-lien payment is often smaller than the first-lien payment.

131

In light of the significant changes being made in the General QM Final Rule, the Bureau concludes that limiting Seasoned QM status to first-lien transactions will provide an opportunity for the market to gain experience with how access to credit and consumer ability-to-repay protections will be affected by both the portfolio and performance criteria in the new Seasoned QM definition and the revised underwriting requirements and other criteria in the General QM Final Rule. This experience could help inform any future changes to the Seasoned QM criteria that may be in accordance with the purposes of TILA.

130

The Bureau currently has limited data to use in analyzing the interaction of first- and subordinate-lien loans and how that interaction affects the consumers' ability to repay those mortgages over time. As discussed in part VIII below, the primary data source relating to loan performance that the Bureau has relied upon in the Seasoned QM Proposal and this final rule is the National Mortgage Database (NMDB), which does not include subordinate-lien mortgages. The NMDB data include de-identified performance information for a nationally representative 5 percent sample of active first-lien mortgages.

See

Bureau of Consumer Fin. Prot.,

Sources and Uses of Data at the Bureau of Consumer Financial Protection

at 55-56 (Sept. 2018),

https://files.consumerfinance.gov/f/documents/bcfp_sources-uses-of-data.pdf;

Robert B. Avery

et al., National Mortgage Database Technical Report 1.2,

at 1 (Nat'l Mortg. Database, Bureau of Consumer Fin. Prot., and Fed. Housing Fin. Agency, Technical Report Series, 2017),

https://www.fhfa.gov/PolicyProgramsResearch/Programs/Documents/NMDB-Technical-Report_1.2_10302017.pdf.

131

For example, a 2012 New York Federal Reserve Bank study noted that among consumers who are seriously delinquent on their first-lien loans for more than a year and have a second-lien loan, about 20 to 30 percent of consumers are current on their second-lien loans. The authors suggested possible explanations for why some consumers remain current on their subordinate-lien loans even a year beyond a continuing delinquency on their first-lien loan, including that (1) consumers may choose to pay as many bills as possible each month so will prioritize smaller bills over first-lien mortgages with likely larger payments; and (2) consumers may strategically default on first-lien loans in order to qualify for targeted modification programs. Donghoon Lee

et al.,

Fed. Reserve Bank of New York,

A New Look at Second Liens

(Staff Report No. 569) (Aug. 2012),

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr569.pdf.

The Bureau notes, as it did in the proposal, that loans that satisfy another QM definition at consummation also could be Seasoned QMs, as long as the requirements of § 1026.43(e)(7) are met.

132

A loan that becomes a Seasoned QM after seasoning might have been eligible as a QM at consummation under the General QM, Small Creditor QM, or EGRRCPA QM definitions. Although the various QM categories may overlap, each QM category is based on a particular set of factors that support a presumption that the creditor at consummation complied with the ATR requirements, and each QM category imposes requirements of varying degrees of restrictiveness relative to others. For example, EGRRCPA section 101 provides a presumption of compliance starting at consummation and is available only to insured depository institutions and insured credit unions with assets below $10 billion who hold those loans in portfolio, except that transfer of the loans is permitted in certain limited circumstances. QM status under EGRRCPA section 101 is available to both fixed and variable rate mortgages, as well as subordinate-lien loans, and section 101 also does not impose any requirements on post-consummation loan performance. The Seasoned QM category established in this final rule, by contrast, is not limited by creditor size, and is available only for fixed-rate, first-lien loans that meet a portfolio requirement, and only after a seasoning period during which the loans must meet performance requirements. The Bureau concludes that the Seasoned QM category and the EGRRCPA QM category, therefore, identify unique and discrete factors that, for different reasons, support a presumption of creditor compliance with the ATR requirements. The Bureau similarly concludes that because each QM category is based on a distinct set of factors that support a presumption of compliance with ATR requirements, it is possible for some transactions to fall within the scope of multiple QM categories. Accordingly, the Bureau determines that it is appropriate to exercise its authority under TILA sections 105(a), 129C(b)(2)(A)(vi), (3)(A), and (3)(B)(i) to make the Seasoned QM definition available to any first-lien covered transaction that meets the requirements in § 1026.43(e)(7), including transactions that might be eligible at consummation for the General QM loan definition, the Small Creditor QM definition, or the EGRRCPA QM definition.

132

85 FR 53568, 53581-82 (Aug. 28, 2020).

43(e)(7)(i)(A)

The Bureau proposed to add § 1026.43(e)(7)(i)(A) which would limit the Seasoned QM definition to fixed-rate mortgages wi

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