Thursday, February 25, 2021

The New QM - Ability to Repay Requires understanding HPML Requirements

QM - What Changed?

  • Abandon Appendix Q 
  • Rate Threshold Determination for QM Status: 2.25%
  • Seasoned QM for performing loans > 36 months
  • 4 month either/or GSE status patch - use either old or new guidelines

What didn't change

  • Compensation limits
  • Loan type constraints
  • Transaction exemptions
  • Qualifying rate

At the core of the Qualified Mortgage (QM) rules is the issue of the borrower's ability to repay. One of the most significant effects of the Trump Administration's housing policy efforts was shepherding the GSEs (Fannie Mae and Freddie Mac) out of the business of providing government guarantees. The vast majority of QMs were made by virtue of an automatic waiver of QM rules for loans guaranteed by the government like Fannie and Freddie, but also FHA, VA, USDA. 

The deregulators conceived of a much simpler test for a qualified mortgage. Instead of a 43% DTI measurement, along with a myriad of guidelines for what could be used, they chose an agnostic indicator for QM status: the rate. If it's less than 2.25% over the Average Prime Offered Rate (APOR), it qualifies for presumption of rebuttable status. And it's so simple...

Sadly, nothing's that simple. It was a quick fix and the rate trigger crossed over some other regulations which add a layer of complexity, most notably the HPML Rules. 

Can't read the spreadsheet - link here

Qualified Mortgage Guidelines 3/1/2021

Table of Qualified Mortgage Guidelines

Current APOR see FFIEC (Based on Loan Type)

Rate Spread Calculator

General Qualified Mortgage - With HPML Kicker (below) - < than


Calculate Based on

Exempt :HELOC Reverse, Bridge, Construction, Land

Fully Indexed Rate (Balloons use balloon term, not payment)

ARMs Less than 5 Years use Worst case- highest possible rate

Prohibited Neg Am or I/O or terms >30 years

Points and Fees Limits: See HPML

HPML General Thresholds

1st mortgage


Non Agency (Jumbo)




HPML and Low Balance QM Thresholds

HMPL Appraisal Exemption


Appraisal Exemption Rule Link

Required on HPML 1.) Escrow 2.) 2 appraisals for flips (lender must pay)

Points, Fees and Rate Thresholds

Loan Amount >

Max Fee

QM Threshold

Mobile Home

2nd Lien


























Required ATR Standard Guidelines - Must consider

1. Income - current or reasonably expected income or assets .

Can consider seasonal or bonus income, rental income, commissions, interest payments, dividends, retirement benefits, trust income, public assistance payments, alimony, child support, and other sources of income. can also consider future income if verified it is using reasonably reliable third-party records. Further, can use assets like a savings account, amounts vested in a retirement account, stocks, bonds, certificates of deposit, and amounts available to the consumer from a trust fund.

2. Current employment status - if used

including full-time, part-time, seasonal, irregular, military, and self-employment.

3. monthly mortgage payment

calculate monthly mortgage payment using the introductory or fully indexed interest rate, whichever is higher, and monthly, fully amortizing payments

4. Payments on 2nd and other loans on home

5. Taxes and Insurance

property taxes, fees and special assessments, condo, coop, HOA, ground rent or lease, homeowners, flood and mortgage insurance premiums

6. Current debts, alimony, and child-support obligations.

include student loans, auto loans, revolving debt, and existing mortgages not being paid off at or before consummation. Can exclude an obligation is likely to be paid off soon

7. Debt-to-income (DTI) ratio or residual income.

The monthly DTI ratio or residual income must be calculated using the total of all of the mortgage and non-mortgage obligations listed above, compared to total monthly income.

8. "Consider" but non-prescribe particular credit history.

Credit history might include information about number and age of credit lines, payment history, judgments, collections, bankruptcies, and nontraditional credit references, such as rental payment history or utility payments.

Secondary marketing should have these changes well in hand, as there are different thresholds depending on whether the product offered is an ARM or Fixed rate. 

We have also updated free sample Ability to Repay policy