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[answered] ly costs of compliance with the safe harbor rule? Which loa


  • What are the requirements for a loan to qualify under the Qualified Mortgage safe harbor rules?
  • Why did the regulator find it desirable to provide a safe harbor?
  • What are the likely costs of compliance with the safe harbor rule?
  • Which loans are exempt from the Qualified Mortgage rule?
  • What incentives will the exemptions create?

What are the requirements for a loan to qualify under the Qualified Mortgage

 

safe harbor rules? Why did the regulator find it desirable to provide a safe harbor? What are the likely costs of compliance with the safe harbor rule? Which loans are exempt from the Qualified Mortgage rule? What incentives will the exemptions create? 1. Fannie/Freddie guarantee structure

 

In an SEC filing, Fannie helpfully provided a graphic illustration of how its

 

guarantees of residential mortgage-backed securities work. (Freddie has a similar

 

model): 2. Credit card debt and QM DTI ratio.

 

The projected monthly payment on credit card debt is counted toward debt for

 

purposes of determining whether QM's 43% debt-to-income ratio test is satisfied. At least that's true under the hot-off-the-presses 4/13 proposed reg revisions (pp.

 

78-79). The reg assumes a 5% monthly payment on credit card debt and other

 

revolving credit (including home equity lines of credit [HELOCs], which are

 

counted for first mortgage QM purposes, even though they themselves are exempt

 

from QM). 4. Projected Income for New Job.

 

a. Projected income is acceptable for qualifying purposes for a consumer

 

scheduled to start a new job within 60 days of loan closing if there is a

 

guaranteed, non-revocable contract for employment.

 

b. The creditor must verify that the consumer will have sufficient income

 

or cash reserves to support the mortgage payment and any other obligations

 

between loan closing and the start of employment. Examples of this type of

 

scenario are teachers whose contracts begin with the new school year, or

 

physicians beginning a residency after the loan closes.

 

c. The income does not qualify if the loan closes more than 60 days before

 

the consumer starts the new job.

 

III. CONSUMER LIABILITIES:RECURRING OBLIGATIONS

 

1. Types of Recurring Obligation. Recurring obligations include:

 

a. All installment loans;

 

b. Revolving charge accounts;

 

c. Real estate loans;

 

d. Alimony;

 

e. Child support; and

 

f. Other continuing obligations.

 

2. Debt to Income Ratio Computation for Recurring Obligations

 

a. The creditor must include the following when computing the debt to

 

income ratios for recurring obligations:

 

i. Monthly housing expense; and

 

ii. Additional recurring charges extending ten months or more, such as

 

a. Payments on installment accounts;

 

b. Child support or separate maintenance payments;

 

c. Revolving accounts; and

 

d. Alimony.

 

b. Debts lasting less than ten months must be included if the amount of the

 

debt affects the consumer?s ability to pay the mortgage during the months

 

immediately after loan closing, especially if the consumer will have limited

 

or no cash assets after loan closing. Note:

 

Monthly payments on revolving or open-ended accounts, regardless of the

 

balance, are counted as a liability for qualifying purposes even if the account

 

appears likely to be paid off within 10 months or less.

 

3. Revolving Account Monthly Payment Calculation. If the credit report

 

shows any revolving accounts with an outstanding balance but no specific

 

minimum monthly payment, the payment must be calculated as the greater

 

of:

 

a. 5 percent of the balance; or

 

b. $10.

 

Note: If the actual monthly payment is documented from the creditor or the

 

creditor obtains a copy of the current statement reflecting the monthly

 

payment, that amount may be used for qualifying purposes.

 

4. Reduction of Alimony Payment for Qualifying Ratio Calculation. Since

 

there are tax consequences of alimony payments, the creditor may choose to

 

treat the monthly alimony obligation as a reduction from the consumer?s

 

gross income when calculating the ratio, rather than treating it as a monthly

 

obligation.

 


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