Special Alert: HUD Adopts Its Own QM Rule
Buckley Sandler Special AlertClinton R. Rockwell, Jeremiah S. Buckley, Joseph M. Kolar, John P. Kromer, Joseph J. Reilly, Benjamin K. Olson, Jeffrey P. Naimon
On December 11, 2013, the Department of Housing and Urban Development (“HUD”) issued a final rule defining what constitutes a “qualified mortgage” (“QM”) for purposes of loans insured by the Federal Housing Administration (“FHA”). With limited clarifications and adjustments, the rule tracks the proposal issued by HUD in September. This final rule, which applies to all case numbers assigned on or after January 10, 2014, replaces the temporary QM definition for FHA loans established by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) in its Ability-to-Repay/Qualified Mortgage Rule (“ATR/QM Rule”).
Loans that qualify as QMs provide lenders with some legal protection against borrower lawsuits under the Truth in Lending Act (“TILA”) alleging the lender did not sufficiently consider the borrower’s ability to repay the loan. Under HUD’s final rule, most FHA loans will qualify for the QM safe harbor if they have Annual Percentage Rates (“APRs”) that are no more than 2.5 percentage points over the Average Prime Offer Rate (“APOR”) for a comparable transaction (as opposed 1.5 percentage points over APOR in the CFPB’s ATR/QM Rule).
Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other Buckley Sandler attorney with whom you have consulted in the past.