Qualified Mortgage Definition for HUD Insured and Guaranteed Single Family Mortgages
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Proposed rule.
CFR Part: "24 CFR Parts 201, 203, 1005, and 1007"
RIN Number: "RIN 2502-AJ18"
Citation: "78 FR 59890"
Document Number: "Docket No. FR 5707-P-01"
"Proposed Rules"
SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) created new section 129C in the Truth-in-Lending Act (TILA), which establishes minimum standards for considering a consumer's repayment ability for creditors originating certain closed-end, dwelling-secured mortgages, and generally prohibits a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good-faith determination of a consumer's ability to repay the loan according to its terms. Section 129C provides lenders more certainty about meeting the ability-to-repay requirements when lenders make "qualified mortgages," which are presumed to meet the requirements. Section 129C authorizes the agency with responsibility for compliance with TILA, which was initially the
   The Dodd-Frank Act also charges HUD and three other Federal agencies with prescribing regulations defining the types of loans that these Federal agencies insure, guarantee, or administer, as applicable, that are qualified mortgages. Through this proposed rule, HUD submits for public comment its definition of "qualified mortgage" for the types of loans that HUD insures, guarantees, or administers that aligns with the statutory ability-to-repay criteria of TILA and the regulatory criteria of the
   DATES: Comment Due Date:
   ADDRESSES: Interested persons are invited to submit comments regarding this rule to the Regulations Division,
   1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division,
   2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the www.regulations.gov Web site can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically.
   Note: To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the proposed rule.
   No Facsimile Comments. Facsimile (fax) comments are not acceptable.
   Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying
   FOR FURTHER INFORMATION CONTACT:
   SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
   This rulemaking commences the process by which HUD will meet its charge under TILA, as amended by the Dodd-Frank Act, to define, in regulation, the term "qualified mortgage" for the single family residential mortgages and loans that HUD insures, guarantees, or otherwise administers. While the
   The statutory purpose of defining "qualified mortgage," whether for the conventional mortgage market or for specific Federal programs, as specified in the Dodd-Frank Act, is to identify single family residential mortgages that take into consideration a borrower's ability to repay the loans and provide certain protections for the lender from liability. During the years preceding the mortgage crisis, too many mortgages were made to borrowers without regard to their ability to repay the loan and included risky features such as "no doc" loans or "interest only" loans. As a result, many homeowners defaulted on these loans and faced foreclosure, causing a collapse in the housing market in 2008 and leading to the Nation's most serious financial crisis since the Great Depression.
   In developing a proposed definition of qualified mortgage, HUD reviewed its mortgage insurance and loan guarantee programs and determined that all of the single family residential mortgage and loan products offered under HUD programs are qualified mortgages; that is, they exclude risky features and are designed so that the borrower can repay the loan. However, for certain of its mortgage products, HUD proposes qualified mortgage standards similar to those established by the
B. Summary of the Major Provisions of the Regulatory Action
   In defining "qualified mortgage" in its rulemaking, the
   HUD proposes to designate Title I (home improvement loans), Section 184 (Indian housing loans), and Section 184A (Native Hawaiian housing loans) insured mortgages and guaranteed loans covered by this rulemaking to be safe harbor qualified mortgages and HUD proposes no changes to the underwriting requirements of these mortgage and loan products. However, for its largest volume of mortgage products, those insured under Title II of the National Housing Act, HUD proposes two categories of qualified mortgages similar to the two categories created in the
   The rulemaking proposes to define safe harbor qualified mortgage as a mortgage insured under Title II of the National Housing Act (with the exception of reverse mortgages insured under section 255 of this act) that meets the points and fees limit adopted by the
   HUD requires that all loans be insured under Title II of the National Housing Act in order to be either a rebuttable presumption or safe harbor qualified mortgage, and that they meet the
   As more fully discussed later in this preamble, HUD's proposal to establish two categories of qualified mortgages for the majority of National Housing Act mortgages is to maintain consistency with the TILA statutory criteria defining qualified mortgage, as well as the
C. Costs and Benefits
   The impacts of HUD's proposed rule are relatively small. HUD's proposed rule in effect reclassifies a sizeable group (about 19 percent) of Title II loans insured under the National Housing Act from rebuttable presumption qualified mortgages under the
   As a result of these reclassifications, lenders face lower costs of compliance under HUD's qualified mortgage rule than under the
II. Background
   New section 129C(a) of TILA, added by section 1411 of subtitle B of Title XIV of the Dodd-Frank Act (Pub. L. 111-203, 124
   Section 129C(b)(2)(A) defines qualified mortgage as a mortgage that meets the following requirements: (i) The transaction must have regular periodic payments; (ii) the terms of the mortgage must not result in a balloon payment; (iii) the income and financial resources of the mortgagor are verified and documented; (iv) for a fixed rate loan, the underwriting process fully amortizes the loan over the loan term; (v) for an adjustable rate loan, the underwriting is based on the maximum rate permitted under the loan during the first 5 years and includes a payment schedule that fully amortizes the loan over the loan term; (vi) the transaction must comply with any regulations established by the
   FOOTNOTE 1 Section 129C also provides for a reverse mortgage to be a qualified mortgage if the mortgage meets the
   New section 129C(b)(3)(B)(ii), also added by section 1412, requires that HUD, the
   FOOTNOTE 2 Rulemaking authority under TILA has since been transferred to the
   The Federal Reserve Board published a proposed rule on
   The CFPB's regulations at 12 CFR 1026.43(e)(2) adopt in part the statutory qualified mortgage definition, and require that a mortgage meet 6 general requirements: (i) The transaction must have regular periodic payments; /3/ (ii) the mortgage must not exceed 30 years; /4/ (iii) the points and fees paid in connection with a loan greater than or equal to
   FOOTNOTE 3 129C(b)(2)(A)(i). END FOOTNOTE
   FOOTNOTE 4 129C(b)(2)(A)(viii). END FOOTNOTE
   FOOTNOTE 5 129C(b)(2)(A)(vii) (limiting total points and fees payable in connection with the loan to 3 percent of the total loan amount). END FOOTNOTE
   FOOTNOTE 6 129C(b)(2)(A)(iv)-(v). END FOOTNOTE
   FOOTNOTE 7 129C(b)(2)(A)(iii). END FOOTNOTE
   FOOTNOTE 8 129C(b)(2)(A)(vi) (directing compliance "with any guidelines or regulations established by the Board relating to ratios of total monthly debt to total monthly income or alternative measures . . ."). END FOOTNOTE
   The limit on points and fees is defined in 12 CFR 1026.43(e)(3) and the definition of points and fees is set out at 12 CFR 1026.32(b)(1). The total amount of points and fees for loans greater than or equal to
   The CFPB final rule creates both a safe harbor and a rebuttable presumption of compliance for transactions that are "qualified mortgages." Section 129C(b) of TILA provides a presumption that a qualified mortgage has met the ability-to-repay requirements. However, as the
   FOOTNOTE 9 See 78 FR 6506. END FOOTNOTE
   FOOTNOTE 10 The title of section 129C(b) refers to both a "safe harbor and rebuttable presumption," and there are references to both safe harbors and rebuttable presumptions in other provisions of the Act. The authority to revise the definition of "qualified mortgage" at 129C(b)(3)(B) is titled "revision of safe harbor criteria." See also 76 FR 27390, 27452-55 (
   FOOTNOTE 11 See 78 FR 6506-6513 for the
   A "qualified mortgage" falls into the safe harbor category and is conclusively presumed to have met the ability-to-repay requirements if it is not a "higher-priced covered transaction." The safe harbor presumption was established to limit ability to repay challenges on mortgages that are considered to be the least risky. /12/ Consumers can only challenge loans in this category by showing that the loans do not meet the definition of a "qualified mortgage." A "qualified mortgage" that is a higher-priced covered transaction has only a rebuttable presumption of compliance with the ability-to-repay requirement, even though each element of the "qualified mortgage" definition is met. See 12 CFR 1026.43(e)(1)(ii)(B). A "higher-priced covered transaction" is a transaction that has an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien covered transaction.
   FOOTNOTE 12 See 78 FR 6506. END FOOTNOTE
   The CFPB final rule also temporarily grants "qualified mortgage" status to loans that satisfy certain underwriting standards. See 12 CFR 1026.43(e)(4). Loans in this category must satisfy the underwriting requirements of, and are therefore eligible to be purchased, guaranteed or insured by, one of the following: The government-sponsored enterprises (GSEs) (i.e.,
III. This Proposed Rule
   As required by section 129C(b)(3)(B)(ii) of TILA, through this rulemaking, HUD proposes to prescribe the regulations for the types of loans that HUD insures, guarantees, or administers, and which HUD has determined are qualified mortgages, under the definition proposed in this rulemaking. Section 129C(b)(3)(B)(ii) makes clear and explicit that the four Federal agencies--HUD, VA,
A. Scope of Coverage
   Through FHA, HUD insures single family loans under the National Housing Act (12 U.S.C.
   Accordingly, this proposed rule would define "qualified mortgage" for FHA-insured single family mortgages, section 184 guaranteed loans, and section 184A guaranteed loans.
B. National Housing Act Single Family Mortgage Programs
   Of the insured/guaranteed loan programs covered by this rule, single family loans insured under the National Housing Act (12 U.S.C.
   Given the broad missions to meet the housing needs of borrowers and to ensure the financial soundness of its programs, HUD is proposing to adopt a definition of qualified mortgage that adheres to the statutory criteria and the
   In this rulemaking, HUD proposes to define all FHA-insured single family mortgages to be qualified mortgages, except for reverse mortgages insured under HUD's Home Equity Conversion Mortgage (HECM) program (section 255 of the National Housing Act (12 U.S.C. 1715z-20)), which are exempt from the ability-to-repay requirements. /13/ Additionally, except for mortgages insured under the
   FOOTNOTE 13 Similar to action taken by the
   All National Housing Act single family mortgages, except for HECMs, are defined as qualified mortgages by HUD. HUD is proposing to add a new
   FOOTNOTE 14 All single family mortgages insured by FHA under the National Housing Act are governed by regulations in 24 CFR part 203 except for property improvement and manufactured home loans under Title I and the Home Equity Conversion Mortgage (HECM) program. END FOOTNOTE
   FOOTNOTE 15 See 78 FR 6506-6513 for the
   FHA streamlined refinancing. This proposed rule would require FHA streamlined refinances to comply with HUD's qualified mortgage rule. Section 129C(a)(5) of TILA grants HUD the authority to exempt streamlined refinancing from the income verification requirements of section 129C(a)(4) as long as such refinances meet certain requirements, including that the consumer is not 30 days or more past due on the prior existing residential mortgage loan, the loan does not increase the principal balance, the points and fees do not exceed 3 percent, and the new interest rate on the refinanced loan is lower than the current rate. HUD does not consider it necessary to exercise this authority under section 129C(a)(5) because HUD's qualified mortgage definition results in an exemption similar to the one contemplated under section 129C(a)(5) but consistent with HUD's mission to help existing FHA homeowners refinance. Specifically, HUD's qualified mortgage rule would require streamlined refinances to meet the points and fees requirements and HUD requirements for FHA-streamlined refinances. HUD requirements only exempt lenders from verifying income if the loan is originated consistent with the FHA-streamlined refinancing requirements, which means that the mortgage must be current, that the loan is designed to lower the monthly principal and interest payment, and that the loan involves no cash back to the borrower except for minor adjustments. /16/
   FOOTNOTE 16 Handbook 4155.1, Ch. 6, Sec. C (Mortgage Credit Analysis for
   Requiring streamlined refinances to be "qualified mortgages" will also subject them to the APR threshold requirement for being either a rebuttable presumption or safe harbor qualified mortgage. Given the unique nature of streamlined refinances, this proposed rule would modify the
   Title I program. Loans insured under the Title I program would be safe harbor qualified mortgages, with no specific points and fees limits and with no APR limits. The Title I program insures loans to finance the light or moderate rehabilitation of properties, as well as the construction of nonresidential buildings on the property. This program may be used to insure such loans for up to 20 years on either single or multifamily properties. The maximum loan amount is
   Points and fees limitation. HUD's proposed "qualified mortgage" definition adopts the
   The three percent points and fees limit is one of the statutory criteria used to define a qualified mortgage, and the
   FOOTNOTE 17 HUD's upfront mortgage insurance premium (UFMIP) is not included in the points and fees. END FOOTNOTE
   This approach also isolates points and fees as an independent factor and would allow HUD to focus on its existing requirements while it considers whether adjustments are necessary as HUD's experience with the effects of qualified mortgages develops.
   Specific solicitation of comment. HUD is aware of the considerable comment on the issue of the three percent points and fees limitation (which is the limitation in the statute), including specific elements of the points and fees, received in response to the proposed rule that preceded
   Two subsets of FHA-insured qualified mortgages. This rulemaking proposes to establish two subsets of FHA-insured "qualified mortgages": a "rebuttable presumption qualified mortgage" and a "safe harbor qualified mortgage." As noted earlier in this preamble, with the exception of HECMs, the proposed rule would require all FHA-insured single family mortgages to meet either the "rebuttable presumption qualified mortgage" or "safe harbor qualified mortgage" definition. HUD reads the "for purposes of paragraph [129(b)(2)(A) of TILA]" to include the basic purpose served by a qualified mortgages; namely, to provide mortgagees the presumption that a loan that is a qualified mortgage meets the ability to repay requirements of TILA section 129C(a). The proposed rule also states the degree to which each subset of FHA-insured qualified mortgages addresses its purpose of providing a presumption of compliance with the ability to repay requirements.
   Rebuttable presumption qualified mortgage. A "rebuttable presumption qualified mortgage" would be defined as a single family mortgage that is insured under the National Housing Act, except for loans insured under Title I or HECMs, which would include the requirement that it does not exceed the
   Safe harbor qualified mortgage. A "safe harbor qualified mortgage" would be defined as one that is either (1) a mortgage insured under the National Housing Act, except for a mortgage insured under Title I or a HECM, and that meets the requirements of the National Housing Act, including the points and fees limit, and that has an APR for a first-lien mortgage relative to the APOR that is less than the combined annual mortgage insurance premium and 1.15 percentage points; or (2) a mortgage insured under Title I. A mortgagee that meets the requirements for a safe harbor qualified mortgage is deemed to meet the ability-to-repay requirements in 15 U.S.C. 1639c(a).
   HUD's proposed categorizations of safe harbor and rebuttable presumption are similar, but not identical to those of the
   APR (Annual Percentage Rate) relative to APOR (Average Prime Offer Rate). Similar to the
   FOOTNOTE 18 APOR does not include private mortgage insurance (PMI). END FOOTNOTE
   Title I single family mortgages are specialized products that require further study to determine additional parameters for distinguishing the rebuttable presumption and safe harbor qualified mortgages. As referenced above, HUD proposes to designate them as safe harbor qualified mortgages so as not to interfere with current lending practices until appropriate parameters to distinguish between safe harbor and rebuttable presumption mortgages under Title I can be determined.
   HUD's purpose in establishing two categories of qualified mortgages for the bulk of loans it insures is to maintain consistency with the TILA statutory criteria defining qualified mortgage, as well as the
   HUD's "safe harbor qualified mortgage" would provide a different APR relative to APOR threshold than the
   Specific solicitation of comment. HUD seeks comment on whether lenders participating in its mortgage insurance and loan guarantee programs would lower the APR relative to the APOR such that it is always less than the combined annual mortgage insurance premium and 1.15 percentage points, so that the lender is originating only safe harbor qualified mortgages. Specifically, would lenders always opt for the safe harbor qualified mortgage and never make a rebuttable presumption qualified mortgage? If so, HUD welcomes comments on views on the effect that this incentive may have on lenders, borrowers, and the broader economy.
   Safe harbor versus rebuttable presumption mortgage--differences in liability protection. FHA-approved lenders that originate a safe harbor mortgage operate with greater legal protections than those that issue rebuttable presumption mortgages, but the latter group is not without legal protections.
   For an FHA-approved lender that originates a safe harbor qualified mortgage, the mortgage is conclusively presumed to comply with the ability to repay requirements. Meeting the qualified mortgage criteria and underwriting requirements and pricing of the loan at a prime rate are sufficient to ensure that the lender made a reasonable and good-faith determination that the borrower will be able to repay the loan. If a borrower brings a claim that the FHA-approved lender did not make a reasonable and good-faith determination of the borrower's ability to repay the FHA-insured mortgage, and the court finds that the originated mortgage was a safe harbor qualified mortgage, as defined by HUD, then that finding by the court conclusively establishes that the lender complied with the ability-to-repay requirements and the consumer's claim is denied.
   For an FHA-approved lender that originates a rebuttable presumption mortgage, the mortgage is presumed to comply with the ability-to-repay requirements. If a borrower brings a claim that the FHA-approved lender did not make a reasonable and good-faith determination of the borrower's ability to repay the FHA-insured mortgage, and the court finds that the originated mortgage was a rebuttable presumption qualified mortgage, as defined by HUD, then the borrower may rebut the presumption. Therefore, the lender should exert greater care in underwriting the loan than would be true in the absence of any liability for extending a loan which the borrower cannot afford to repay. For the borrower to prevail on its claim against a lender that originates a rebuttable presumption, the borrower must prove that the lender did not make a reasonable and good-faith effort in evaluating the borrower's ability to repay the FHA-insured mortgage in accordance with HUD requirements.
   For either type of mortgage, however, documentation of the borrower's ability to repay will be important in demonstrating compliance with the ability-to-repay requirements. As stated in the preamble to the
C. Native American and Native Hawaiian Loan Guarantee Programs
   Similar to Title I loans, HUD's Section 184 and Section 184A guaranteed loans create a very unique subset of loans for HUD and require additional study to determine the appropriate parameters for distinguishing rebuttable presumption and safe harbor qualified mortgages. HUD proposes to designate them as safe harbor qualified mortgages, with no APR limit, and with no points and fees limit, so as not to interfere with current lending practices until appropriate parameters to distinguish between safe harbor and rebuttable presumption mortgages can be determined. The pertinent regulatory provisions designating these loans safe harbor qualified mortgages are included in parts 1005 and 1007 of this title.
D. Existing HUD Requirements
   There are also provisions among HUD's requirements at 24 CFR part 203 that already apply to mortgages insured under the National Housing Act and are consistent with section 129C(b)(2)(B) of TILA and the
   FOOTNOTE 19 See 24 CFR 203.1, 203.17(c)-(d), 203.33, 203.34; Handbook 4155.1 (Mortgage Credit Analysis for
E. Higher-Priced Covered Transactions
   The fact that the
F. HUD's Proposed Rule Is Consistent With Sections 129B and 129C of TILA
   In prescribing by rule the types of loans HUD insures that are qualified mortgages for purposes of TILA section 129C(b)(2)(A), HUD is required to consult with the
   FOOTNOTE 20 The purpose of 129B and 129C of TILA is to assure that consumers are offered and receive residential mortgages on loan terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive. 15 U.S.C.1639b(a)(2). END FOOTNOTE
   HUD, therefore, finds that defining the loans it insures and guarantees as qualified mortgages in terms of its existing requirements for all lenders participating in its programs, coupled with the requirements adapted here, will provide a wide range of mortgagors access to residential mortgages on loan terms that reasonably reflect their ability to repay while protecting such mortgagors from unfair lending practices, consistent with the purpose of sections 129B and 129C of TILA, as stated in section 129B(a)(2).
   In defining "qualified mortgage" in this way, HUD is stating that its insured single family mortgages and guaranteed residential loans meet TILA's ability-to-repay requirements. In essence, HUD is proposing not to insure a single family mortgage or guarantee a single family residential loan that is not a qualified mortgage, as defined by HUD. When HUD's definition is issued in final and becomes effective, following review and consideration of public comment, HUD's definition will replace the
   As addressed in the following section, HUD has determined that it is important for its definition to govern its programs, consistent with statutory intent and the statutory mandate to HUD and the other three Federal agencies to issue their own definitions of qualified mortgage. The
IV. Justification for Shortened Public Comment Period
   For HUD rules issued for public comment, it is HUD's policy to afford the public "not less than 60 days for submission of comments." See 24 CFR 10.1. In cases in which HUD determines that a shorter public comment period may be appropriate, it is also HUD's policy to provide an explanation of why the public comment period has been abbreviated. For the reasons provided in this section of the preamble, HUD believes that this proposed rule merits an abbreviated public comment period.
   HUD's rule needs to be issued and effective by
   As discussed in the preamble, section 129C(b)(3)(B)(ii) of TILA charges HUD, VA,
   For HUD to responsibly and effectively carry out its rulemaking mandate under the Dodd-Frank Act, HUD did not issue its own qualified mortgage rule in advance of the
   Although the
   With CFPB having made its determinations on ability to pay/qualified mortgage requirements, as provided in its
   As discussed in this preamble, HUD maintains for its mortgage insurance and loan guarantee programs the regulatory framework now in place. HUD's proposed definition of "qualified mortgage" presents some additions to the requirements under which these programs are governed, to the extent feasible to better align them with the TILA purposes and the
   HUD's mortgage insurance and loan guarantee programs play a central role in the housing market and act as a stabilizing force during times of economic distress, facilitating mortgage financing during periods of severe constriction in conventional markets. Having HUD's qualified mortgage rule in place and effective by
   For these reasons, HUD has determined that an abbreviated comment period is appropriate for this proposed rule. Because the comment period is an abbreviated one, HUD will consider comments that are submitted after the comment period has closed.
V. Findings and Certifications
Executive Order 12866, Regulatory Planning and Review
   
   As already discussed in the preamble, this rulemaking would remove the application of the
   Under HUD's qualified mortgage rule, lenders face lower costs of compliance than under the
   If HUD had proposed a limit in excess of the
   To estimate the size of the reduction in cost to FHA lenders, HUD notes that the
   FOOTNOTE 21 Regulatory impact analysis by the
   As discussed above, HUD would make all Title I, Section 184, and Section 184A insured mortgages and guaranteed loans safe harbor qualified mortgages. Under the
   Under the
   The Title II loans that would be nonqualified mortgages under the
   The primary impact on FHA loans (excluding Title I) is the reclassification of 19 percent of FHA's non-Title I loans from rebuttable presumption to safe harbor under the proposed rule. HUD estimates the number of loans insured in FY 2013 under the Title I program to be 1,180,000 with an aggregate loan amount of
   Figure 1 in HUD's accompanying economic analysis illustrates the characteristics of the loan categories for FHA-insured loans under this proposed rule. A full economic analysis of the costs and benefits and possible impacts of this rulemaking is available on www.regulations.gov.
   Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at 202-708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at 800-877-8339 (this is a toll-free number).
Regulatory Flexibility Act
   The Regulatory Flexibility Act (RFA) (5 U.S.C.
   As provided in this rulemaking, HUD proposes no change to the current requirements governing its Title I loans, its Section 184 and 184A guaranteed loans, and HECM loans. Therefore, there is no impact on either lenders or prospective borrowers under these programs.
   With respect to FHA-insured single family mortgages (except for Title I and HECMs), FHA proposes to adopt the points and fees limitation, similar to the structure provided in the
   With these few exceptions, HUD retains its existing requirements for the majority of its FHA-insured single family mortgages, thereby creating minimal impact on its programs. As also noted earlier in this preamble, there are provisions among HUD's requirements at 24 CFR part 203 that are consistent with section 129C(b)(2)(B) of TILA and the
   Specific underwriting guidance, including factors for consideration, are found in HUD Handbook 4151.1, Mortgage Credit Analysis for
   The one area where HUD's past practice differs from this rulemaking is in the area of points and fees. HUD has chosen to follow the CFPB's cap of 3-percent on points and fees combined, whereas previously points and fees would be individually negotiated. As to points, generally this refers to points charged against interest, so that a higher up-front payment results in a lower interest rate or vice-versa. Origination points and fees, although there is no firm cap for HUD-insured mortgages, are currently limited to reasonable and customary amounts not to exceed the actual costs of specific items and reasonable and customary charges as may be approved by the
   As the market adopts the
   As an insurer or guarantor of a loan, it is equally important to note that HUD has long had ability-to-repay requirements. As an insurer or guarantor of a loan, it is important for HUD to have its lenders ensure, to the best of their ability and consistent with HUD requirements, that a borrower is capable of repaying a mortgage or loan insured or guaranteed by HUD. If the borrower defaults and is unable to continue to make payments, HUD must pay the lender's claim. To this point, HUD's insurance and loan guarantee programs are statutorily exempt from the credit risk retention requirements of section 15G of the Securities and Exchange Act of 1934, as added by the Dodd-Frank Act. The statute provides that qualified residential mortgages are exempt from credit risk retention requirements and included HUD as one of the four Federal agencies to define what is meant by a qualified residential mortgage. HUD's handbook 4155.1 (Mortgage Credit Analysis for
   However, with the
   For the reasons provided above and in this preamble overall, the undersigned certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities. Notwithstanding HUD's determination that this proposed rule would not have a significant effect on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rulemaking that will meet HUD's objectives as described in the preamble to this proposed rule.
Environmental Impact
   A Finding of No Significant Impact (FONSI) with respect to the environment has been made in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The FONSI is available for public inspection
Executive Order 13132, Federalism
   Executive Order 13132 (entitled "Federalism") prohibits an agency from publishing any rule that has federalism implications if the rule either (i) imposes substantial direct compliance costs on state and local governments and is not required by statute, or (ii) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule would not have federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
   Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and on the private sector. This proposed rule would not impose any Federal mandates on any state, local, or tribal governments, or on the private sector, within the meaning of the UMRA.
Catalog of Federal Domestic Assistance
   The Catalog of Federal Domestic Assistance number for
<p>List of Subjects
   24 CFR Part 201
   Claims, Health facilities, Historic preservation, Home improvement, Loan programs--housing and community development, Manufactured homes, Mortgage insurance, Reporting and recording requirements.
   24 CFR Part 203
   Hawaiian Natives, Home improvement, Indians--lands, Loan programs--housing and community development, Mortgage insurance, Reporting and recordkeeping requirements, Solar energy.
   24 CFR Part 1005
   Indians, Loan programs--Indians, Reporting and recordkeeping requirements.
   24 CFR Part 1007
   Loan programs--Native Hawaiians, Native Hawaiians, Reporting and recordkeeping requirements.
   Accordingly, for the reasons stated above, HUD proposes to amend 24 CFR parts 201, 203, 1005 and 1007 as follows:
PART 201--TITLE I PROPERTY IMPROVEMENT AND MANUFACTURED HOME LOANS
   1. The authority citation for part 201 is amended to read as follows:
   Authority: 12 U.S.C. 1703; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
   2. Section 201.7 is added to read as follows:
   A mortgage insured under section 2 of title I of the National Housing Act (12 U.S.C. 1703) is a safe harbor qualified mortgage that meets the ability to repay requirements in 15 U.S.C. 1639c(a).
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
   3. The authority citation for part 203 is amended to read as follows:
   Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, 1715u, and 1717z-21; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
   4. Section 203.19 is added to read as follows:
   (a) Definitions. As used in this section:
   (1) Average prime offer rate means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to mortgagors by a representative sample of mortgagees for mortgage transactions that have low-risk pricing characteristics as published by the
   (2) Annual percentage rate is the measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the mortgagor to the amount and timing of payments made and is the rate required to be disclosed by the mortgagee under 12 CFR 1026.18, pertaining to disclosure of finance charges for mortgages.
   (b) Qualified Mortgage --(1) Limit. For a single family mortgage to be insured under the National Housing Act (12 U.S.C.
   (2) Rebuttable presumption qualified mortgage. (i) A single family mortgage insured under the National Housing Act (12 U.S.C.
   (ii) To rebut the presumption of compliance, it must be proven that the mortgage exceeded the points and fees limit in paragraph (b)(1) of this section or that, despite the mortgage being insured under the National Housing Act, the mortgagee did not make a reasonable and good-faith determination of the mortgagor's repayment ability at the time of consummation, by failing to consider the mortgagor's income, debt obligations, alimony, child support, monthly payment on any simultaneous loans, and monthly payment (including mortgage-related obligations) on the mortgage, as applicable to the type of mortgage, when underwriting the mortgage in accordance with HUD requirements.
   (3) Safe harbor qualified mortgage. (i) A mortgage that is insured under section 2, Title I of the National Housing Act (12 U.S.C. 1703) is a safe harbor qualified mortgage that meets the ability to repay requirements in 15 U.S.C. 1639c(a); and
   (ii) A single family mortgage insured under the National Housing Act (12 U.S.C.
PART 1005--LOAN GUARANTEES FOR INDIAN HOUSING
   5. The authority citation for part 1005 is amended to read as follows:
   Authority: 12 U.S.C. 1715z-13a; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
   6. Section 1005.120 is added to read as follows:
   A mortgage guaranteed under section 184 of the Housing and Community Development Act of 1992 (12 U.S.C. 1715z-13a) is a safe harbor qualified mortgage that meets the ability-to-repay requirements in 15 U.S.C. 1639c(a).
PART 1007--SECTION 184A LOAN GUARANTEES FOR NATIVE HAWAIIAN HOUSING
   7. The authority citation for part 1007 is amended to read as follows:
   Authority: 12 U.S.C. 1715z-13b; 15 U.S.C. 1639c; 42 U.S.C. 3535(d).
   8. Section 1007.80 is added to read as follows:
   A mortgage guaranteed under section 184A of the Housing and Community Development Act of 1992 (1715z-13b) is a safe harbor qualified mortgage that meets the ability-to-repay requirements in 15 U.S.C. 1639c(a).
   Dated:
Secretary.
[FR Doc. 2013-23472 Filed 9-27-13;
BILLING CODE 4210-67-P
Copyright: | (c) 2013 Federal Information & News Dispatch, Inc. |
Wordcount: | 13668 |
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