Regulators Address How QMs, Non-QMs Fit with Other Standards

Four federal financial regulators released a joint statement addressing concerns about how they will review Qualified Mortgages (QM) and non-QMs with respect to the Ability-to-Repay rule and the Community Reinvestment Act (CRA).

The Federal Reserve, FDIC, National Credit Union Administration, and Office of the Comptroller of the Currency emphasized in their statement that “institutions may originate both QMs and non-QMs, based on their business strategies and risk appetites.”

When assessing loans for safety and soundness, regulators will not make decisions “solely because of the loan’s status as a Qualified Mortgage or non-Qualified Mortgage loan,”

according to the Interagency Statement on Supervisory Approach for Qualified and non-Qualified Mortgage Loans.

While QM loans face several restrictions, including prohibitions on interest-only payments, negative amortization, and large balloon payments, the Ability-to-Repay rule does permit lenders to include some of these characteristics under certain circumstances.

However, some institutions may choose to work only within the realms of QM standards. Addressing concerns that originating only QM loans will interfere with a lender’s compliance with CRA, regulators stated, “the requirements of the bureau’s Ability-to-Repay rule andCRA are compatible.”

“Accordingly, the agencies that conduct CRA evaluations do not anticipate that institutions’ decision to originate only QMs, absent other factors, would adversely affect their CRA evaluations,” the agencies stated.

In October, the four regulators made similar clarifications regarding fair lending laws in the Interagency Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Standards Rule.

Both the Ability-to-Repay rule and the new Qualified Mortgage standards established by the Consumer Financial Protection Bureau (CFPB) go into effect January 10, 2014.


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