The U.S. Consumer Financial Protection Bureau is proposing a new category of high-quality loans, called seasoned qualified mortgages, that would protect lenders from legal liability for making risky loans, marking the regulator’s latest shake-up in the qualified mortgage space.
In a 130-page notice of proposed rulemaking issued on Tuesday, the CFPB said first-lien, fixed-rate loans that have been held on a creditor’s portfolio for 36 months could be eligible for the qualified mortgage status — the gold standard for home loans — if the loan has seen no more than two 30-day delinquencies and no delinquencies of 60 days or more.
Loans deferred because of the coronavirus pandemic or other national emergency would still be eligible to become seasoned qualified mortgages as long as certain conditions are met.
The CFPB said the proposed rule is meant to encourage innovation and increase affordability in the mortgage credit market.
“Our goal through our very deliberative rulemaking process is to protect, promote and preserve the financial well-being of American consumers while at the same time offering access to responsible, affordable mortgage credit,” said CFPB Director Kathleen Kraninger.
The proposal will be open for comments for 30 days following its publication in the Federal Register.
Earlier this year, the CFPB proposed a new rule around qualified mortgages that would replace the debt-to-income ratio limit of 43% with a price-based approach, measured by comparing a loan’s annual percentage rate to the average prime offer rate for a comparable transaction. The regulator said a price-based approach is a better indicator of a consumer’s ability to repay than debt-to-income alone.
The National Consumer Law Center, along with the National Fair Housing Alliance and several other advocacy groups, sent a letter to the CFPB asking the bureau to pause its consideration of the revision given the economic turmoil caused by COVID-19. The Community Mortgage Lenders of America has asked the CFPB for a transition period if the new rule is approved.