In addition, a loan that is held in portfolio for three or more years receives the QM status so long as it is sold no more than a single time in the initial 36 months. The pricing-spread approach, while allowing for compensating factors, has proven problematic and needs refinement to prevent abuses of consumers. A rebuttable presumption is offered to loans that are priced between 150 and 225 basis points above the APOR. Nevertheless, concerns remain regarding the treatment of some lenders and also some of the standards in the rule itself.Ī revised QM rule was finalized in December of 2020 that kept the product requirements of the initial QM rule in place, eliminated the 43% DTI cap, and maintained the pricing spread of 150 basis points over average prime offer (APOR) to define the legal safe harbor of compliance. The QM rule includes the Ability to Repay (ATR) elements and a few other items deemed to make the loan 'safer' for consumers and is designed to capture most of the loans made in recent years. The rule implementing the statute went in to effect on January 2014. The principal way lenders are expected to comply with this standard is by making a 'Qualified Mortgage' or QM as it has become known, which provides the lender with more legal safety/clarity. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, no creditor may make a mortgage loan without making a reasonable and good faith determination that the borrower has the 'ability to repay' (ATR). A revised QM rule was finalized in December of 2020 that kept the product requirements of the initial QM rule in place, eliminated the 43% DTI cap, and maintained the pricing spread of 150 basis points over average prime offer (APOR) to define the legal safe harbor of compliance. However, responsibility for the rule transferred to the Consumer Financial Protection Bureau (CFPB) whose final rule was issued in January of 2013 and became effective in January of 2014.

The original QM rule proposal was issued by the Federal Reserve in the summer of 2011. Thus the QM rule is designed to protect consumers from risky loans whereas its sister rule, the Qualified Residential Mortgage (QRM) is a rule designed to protect investors in mortgage backed securities (MBS) by setting standards and requiring financial risk is retained by issuers of MBS. The QM is a loan that on its face would meet the ability to repay standards and have certain features associated with 'safe' lending. The QM comes from the 'ability to repay' anti-predatory lending provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Qualified Mortgage, or QM as it is known, is likely to shape the future of housing finance for years to come.

Qm loans definition