HUD Proposed Rule re HUD Insured and Guaranteed Single Family Mortgages

Posted on Oct 7, 2013 in Community News, Public Information, Public Notice

Comments are due on October 30, 2013.

FR 5707–P–01 Qualified Mortgage Definition for HUD Insured and Guaranteed Single Family Mortgages

This Proposed Rule document was issued by the Department of Housing and Urban Development (HUD)

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 201, 203, 1005, and 1007

[Docket No. FR 5707-P-01]

RIN 2502-AJ18

Qualified Mortgage Definition for HUD Insured and Guaranteed Single Family Mortgages

Agency

Office of Secretary, HUD.

Action

Proposed rule.

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 Federal Reserve Board and is now the Consumer Financial Protection Bureau (CFPB), to issue a rule implementing these requirements. The CFPB has issued its rule implementing these requirements, referred to throughout this proposed rule as the CFPB final rule.

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 CFPB’s definition, without departing from HUD’s statutory missions. In this rulemaking, HUD proposes that any forward single family mortgage insured or guaranteed by HUD shall meet the criteria of a qualified mortgage, as defined in this rule, and HUD seeks comment on all components of its definition.

Dates

Comment Due Date: October 30, 2013.

Addresses

Interested persons are invited to submit comments regarding this rule to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title.

1. Submission of Comments by Mail. Comments may be submitted by mail tothe Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500.

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 between 8 a.m. and 5 p.m., weekdays, at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance 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. Copies of all comments submitted are available for inspection and downloading at www.regulations.gov.

For Further Information Contact

Michael P. Nixon, Office of Housing, Department of Housing and Urban Development, 451 7th Street SW., Room 9278, Washington, DC 20410; telephone number 202-402-5216, ext. 3094 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the Federal Relay Service at 800-877-8339 (this is a toll-free number).

 

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 CFPB, in accordance with statutory direction, has defined, through rulemaking, the term “qualified mortgage” for the broader single family mortgage market, HUD must define this term for use in its own single family insured or guaranteed mortgage programs.

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 CFPB in its definition of “qualified mortgage.”

 

B. Summary of the Major Provisions of the Regulatory Action

In defining “qualified mortgage” in its rulemaking, the CFPB established both a safe harbor and a rebuttable presumption of compliance for transactions that are qualified mortgages. The label of safe harbor qualified mortgage is applied to those mortgages that are not higher-priced covered transactions (that is the annual percentage rate does not exceed the average prime offer rate by 1.5 percent). These are considered to be the least risky loans and presumed to have conclusively met the ability-to-repay requirements of TILA. The label of rebuttable presumption qualified mortgage is applied to those mortgages that are higher-priced transactions.

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 CFPB final rule—a safe harbor qualified mortgage and a rebuttable presumption qualified mortgage.

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 CFPB in its regulation at 12 CFR 1026.43(e)(3), and that has an annual percentage rate for a first-lien mortgage relative to the average prime offer rate that is less than the sum of the annual mortgage insurance premium and 1.15 percentage points. HUD proposes to define a rebuttable presumption qualified mortgage as a single family 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 CFPB in its regulation at 12 CFR 1026.43(e)(3), but has an annual percentage rate that exceeds the average prime offer rate for a comparable mortgage, as of the date the interest rate is set, by more than the sum of the annual mortgage insurance premium and 1.15 percentage points for a first-lien mortgage.

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 CFPB’s points and fees limit at 12 CFR 1026.43(e)(3). The CFPB set a three percent points and fees limit for its definition of qualified mortgage and allowed for adjustments of this limit to facilitate the presumption of compliance for smaller loans.

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 CFPB’s definition, to the extent consistent with the National Housing Act. HUD specifically seeks comment on its proposed two categories.

 

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 CFPB final rule to safe harbor qualified mortgages under HUD’s proposed rule. A small number (about 7 percent) of Title II loans would continue to not qualify as qualified mortgages based on the points and fees limit, while the remaining Federal Housing Administration (FHA) loans (about 74 percent) would qualify for qualified mortgage status with a safe harbor presumption of compliance with the ability-to-repay requirements under both the CFPB final rule and HUD’s proposed rule. The Title II loans that would be nonqualified mortgages under the CFPB’s rule would remain non-qualified mortgages under the proposed rule. The difference is that HUD, through this rulemaking, will no longer insure loans with points and fees above the CFPB level for qualified mortgages, but expects that these loans will adapt to meet the points and fees limit. In addition, HUD classifies all Title I, Section 184 and Section 184A insured mortgages and guaranteed loans, which most likely would have been nonqualified mortgages under the CFPB final rule, as safe harbor qualified mortgages.

As a result of these reclassifications, lenders face lower costs of compliance under HUD’s qualified mortgage rule than under the CFPB final rule and therefore receive incentives to continue making these loans without having to pass on their increased compliance costs to borrowers. While borrowers benefit from not having to pay for the higher lender costs, they also face less opportunity to challenge the lender with regard to ability to repay. HUD expects that almost all borrowers will gain from the reduction in litigation and that the reduction of the interest rate will compensate for the loss of the option to more easily challenge a lender. As a result of the reclassification of some HUD loans, the maximum expected impact of the proposed rule would be an annual reduction of lender legal costs by $41 million.

. . .

 

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, USDA, and RHS—are to define qualified mortgages for their respective programs. As noted earlier, section 129C(b)(3)(B)(ii) authorizes the four Federal agencies, in defining qualified mortgages for their programs, to revise, add to, or subtract from the statutory criteria used to define a qualified mortgage. HUD proposes to provide a definition of qualified mortgage that is aligned, to the extent feasible, with the ability-to-repay criteria set out in TILA, given the statutory mandates and missions of HUD’s mortgage insurance and loan guarantee programs.

 

A. Scope of Coverage

Through FHA, HUD insures single family loans under the National Housing Act (12 U.S.C. 1701 et seq.). HUD guarantees section 184 loans for Indian housing under the Housing and Community Development Act of 1992 (12 U.S.C. 1715z-13a) (Section 184 guaranteed loans) and guarantees section 184A loans for Native Hawaiian housing under the Housing and Community Development Act of 1992 (1715z-13b) (Section 184A guaranteed loans). Although section 129C(b)(3)(B)(ii)(I) of TILA specifically references mortgages insured by HUD under the National Housing Act, HUD submits that Section 184 guaranteed loans and Section 184A guaranteed loans were intended to be covered. While Section 184 guaranteed loans and Section 184A guaranteed loans are authorized by the Housing and Community Development Act of 1992, their authorizing sections of the 1992 law are codified in the National Housing Act. They are codified at 12 U.S.C. 1715z-13a and 1715z-13b, respectively. In addition, the direction to all four Federal agencies in section 129C(b)(3)(B)(ii) is to prescribe regulations defining the “types” (plural) of loans they insure, guarantee, or administer that are qualified mortgages, and this proposed rule follows that direction. Mortgages insured under the National Housing Act are only one type of mortgage product and, therefore, subclause (I) covers only a portion of the overall scope of section 129C(b)(3)(B)(ii), creating some ambiguity as to its scope. HUD reads the reference to the National Housing Act as being exemplary, and not being an exclusive, limiting provision. The more limiting reading would undercut the intent present in the broader language directing agencies to make qualified mortgage determinations for the types, without qualification, of the loans they insure, guarantee, or administer. HUD, therefore, interprets the more general language of this provision to permit HUD to define types of mortgages besides those insured under the National Housing Act as qualified mortgages.

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. 1701 et seq.) present the largest volume of mortgages insured by HUD, through FHA. Under the National Housing Act, FHA is not only required to meet the housing needs of borrowers (12 U.S.C. 1708(a)(7)(B)), including low- and moderate-income borrowers; borrowers from underserved areas, central city areas, and rural areas; and minority borrowers (12 U.S.C. 1709(w)), but to ensure the financial soundness of the Mutual Mortgage Insurance Fund, and make programmatic or premium adjustments as necessary to reduce risk to the fund. See 12 U.S.C. 1708(a)(3) and (6). In addition, under the National Housing Act, FHA is charged with prohibiting acts or practices in connection with loans or extensions of credit for the purchase of a manufactured home that are unfair, deceptive, or otherwise not in the interests of the borrower (12 U.S.C. 1706f(d)), and to take administrative action (12 U.S.C. 1708(c)) or impose civil money penalties (12 U.S.C. 1735f-14) against participants who violate the requirements of FHA programs.

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 CFPB final rule but in a manner that will appropriately fit with the missions of the National Housing Act programs. HUD is proposing to maintain its existing regulatory structure for FHA-insured single family mortgage programs for purposes of defining qualified mortgages, but augment these programs with features of the statutory criteria as revised by the CFPB that are not inconsistent with the statutory parameters of the National Housing Act single family mortgage insurance programs or missions.

 

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 Title I Property Improvement Loan Insurance program (Title I), authorized by section 2 of the National Housing Act (12 U.S.C. 1703), HUD proposes to adopt the statutory points and fees structure for all of its FHA-insured single family mortgages, as this feature was implemented by the CFPB final rule. Further, similar to the CFPB final rule structure, this proposed rule would distinguish between two types of qualified mortgages: (1) A safe harbor qualified mortgage and (2) a rebuttable presumption qualified mortgage. For those HUD-insured loans subject to the points and fees structure, HUD would modify the APR limit used in the “higher-priced covered transaction” element as defined by the CFPB to distinguish between HUD’s safe harbor qualified mortgages and rebuttable presumption qualified mortgages.

. . .

 

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 CFPB final rule: “As enacted by the Dodd-Frank Act, TILA section 129C(a)(1) provides that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good-faith determination, based on verified and documented information, that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan according to its terms and all applicable taxes, insurance, and assessments.” (See 78 FR 6460.)

 

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 CFPB’s requirements, including that a mortgage have regular periodic payments, that the mortgage does not exceed 30 years, and that lenders apply specific underwriting requirements. (19) HUD is proposing to continue to use its existing underwriting and income verification requirements. HUD is proposing to not adopt the CFPB’s 43 percent total monthly debt-to-income ratio requirement, in order to remain consistent with HUD’s mission with respect to underserved borrowers. HUD does not expect its loan volume to increase as a result of its decision not to adopt the CFPB’s 43 percent total monthly debt-to-income ratio requirement.

 

E. Higher-Priced Covered Transactions

The fact that the CFPB final rule provides a separate definition of “higher-priced covered transaction” may potentially create issues in that some HUD safe harbor qualified mortgages would also be higher-priced covered transactions as defined by the CFPB. To the extent that there are requirements not related to qualified mortgages that apply to higher-priced covered transactions, such requirements would apply to mortgages that meet the higher-priced covered transaction definition regardless of whether they are safe harbor or rebuttable presumption. For example, the calculation of certain maximum payments with respect to loans with balloon payments under 12 CFR 1026.43(c)(5)(ii)(A) of the CFPB’s regulations is not expected to have any impact on mortgages insured under the National Housing Act. Apart from this requirement, HUD, however, is currently not aware of other possible overlaps of CFPB requirements.

. . .

 

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 periodmay 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 January 10, 2014, to decrease the risk of disruption to HUD’s mortgage programs and avoid jeopardizing the availability of an important source of affordable home financing for first-time homebuyers and minority homebuyers, including Native Americans and Native Hawaiians. If HUD’s rule is not effective by this date, these mortgages will be subject to the CFPB’s definition of qualified mortgage, a definition that is not focused on, to the extent that HUD’s definition is required to be, the populations that the HUD programs have a mission to serve. Specifically, CFPB’s definition would result in a lower share of safe harbor qualified mortgages for FHA and would negatively affect borrowers with greater than 43 percent total monthly debt-to-income ratios. Further, the lack of a HUD rule on qualified mortgages would create uncertainty among FHA lenders. Delay in the implementation of this rule would increase the risk of disruption or delay in the availability of homeownership or home improvement financing for vulnerable groups of consumers, especially those who utilize the Title I, Section 184, and Section 184A programs.

As discussed in the preamble, section 129C(b)(3)(B)(ii) of TILA charges HUD, VA, USDA, and RHS to prescribe their own rules, in consultation with the CFPB, defining the types of loans that these agencies insure, guarantee, or administer, as applicable, that are qualified mortgages. The statutory charge to these four agencies to issue their own definitions of qualified mortgage for their financing programs reflects a statutory view that these agencies are in the best position to define “qualified mortgage” for their loan products, consistent with the purposes of sections 129B and 129C of TILA, and within the statutory parameters of the programs and the mission of each agency.

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 CFPB final rule (nor did any of the other three Federal agencies). Similar to the statutory authority provided to the four Federal agencies, the CFPB was also authorized, in prescribing its rule defining qualified mortgage, to revise, add to, or subtract from, the statutory criteria defining qualified mortgage, factoring into HUD’s decision to be prudent and wait for the CFPB final rule. HUD determined it was important to wait for the CFPB final rule defining qualified mortgage, with HUD’s objective to be as consistent as feasible with the CFPB’s definition, which closely tracks the statutory definition, while remaining attentive to HUD’s mission and the statutorily required features of the various types of insured mortgage products.

Although the CFPB published its final rule in the Federal Register on January 30, 2013, at 78 FR 6408 (effective as of January 10, 2014, one year from the date of the CFPB’s posting of the rule on its Web site), the CFPB published on that same date, at 78 FR 6622, a proposed rule that submitted for public comment certain amendments to the CFPB final rule. These amendments included additional exemptions from the ability-to-repay requirements, and one such exemption was for the four Federal agencies’ refinance programs. See 78 FR 6623. By final rule issued on May 29, 2013, and published on June 12, 2013, at 78 FR 35430, the CFPB determined that the Federal agencies’ refinance programs would not be exempt from the ability-to-repay requirements.

With CFPB having made its determinations on ability to pay/qualified mortgage requirements, as provided in its January 30 and June 12, 2013, final rules, it is necessary, in order to avoid disruptions in meeting the housing needs of borrowers that HUD is charged to serve, for HUD to issue for effect as quickly as possible its own rule on “qualified mortgage” so that HUD’s rule is in place on or before January 10, 2014, the date the CFPB final rule becomes effective. It was important for HUD to wait and see the scope of the CFPB’s amendments, which were finalized in the June 12, 2013, rule because HUD must not only take into consideration the statutory criteria and purposes for defining a qualified mortgage as set out in the Dodd-Frank Act and the regulatory criteria as promulgated in the CFPB’s rules, but must take into consideration the purposes and provisions of the programs HUD administers. Unlike the CFPB, HUD’s definition is not designed for the general lending market but for the lenders who participate in HUD’s mortgage insurance and guarantee programs and the borrowers who utilize mortgages under HUD’s programs, and, as previously noted, the Dodd-Frank Act, is clear that HUD’s definition of “qualified mortgage” is to govern HUD programs.

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 CFPB final rule.

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 January 10, 2014, is a step that HUD must take to avoid unnecessarily disrupting the mortgage market, and seriously jeopardizing the security and certainty that HUD’s mortgage insurance and loan guarantee programs provide in the housing market.

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.

. . .

 

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:

§ 201.7

Qualified Mortgage.

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:

§ 203.19

Qualified Mortgage.

(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 Consumer Financial Protection Bureau (CFPB) from time to time in accordance with the CFPB’s regulations at 12 CFR 1026.35, pertaining to prohibited acts or practices in connection with higher-priced mortgage loans.

(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. 1701 et seq.), except for Home Equity Conversion Mortgages under section 255 of the National Housing Act (12 U.S.C. 1715z-20) and mortgages under section 2 of Title I of the National Housing Act (12 U.S.C. 1703), the total points and fees payable in connection with a loan used to secure a dwelling shall not exceed the CFPB’s limit on points and fees for qualified mortgage regulations at 12 CFR 1026.43(e)(3), or successor regulation.

(2) Rebuttable presumption qualified mortgage. (i) A single family mortgage insured under the National Housing Act (12 U.S.C. 1701 et seq.), except for Home Equity Conversion Mortgages under section 255 of the National Housing Act (12 U.S.C. 1715z-20) and mortgages under section 2 of Title I of the National Housing Act (12 U.S.C. 1703), that has an annual percentage rate that exceeds the average prime offer rate for a comparable mortgage, as of the date the interest rate is set, by more than the combined annual mortgage insurance premium and 1.15 percentage points for a first-lien mortgage is a rebuttable presumption qualified mortgage that is presumed to comply with the ability to repay requirements in 15 U.S.C. 1639c(a).

(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. 1701 et seq.), except for Home Equity Conversion Mortgages under section 255 of the National Housing Act (12 U.S.C. 1715z-20), that has an annual percentage rate that does not exceed the average prime offer rate for a comparable mortgage, as of the date the interest rate is set, by more than the combined annual mortgage insurance premium and 1.15 percentage points for a first-lien mortgage is a safe harbor qualified mortgage that meets the ability to repay requirements in 15 U.S.C. 1639c(a).

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:

§ 1005.120

Qualified Mortgage.

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:

§ 1007.80

Qualified Mortgage.

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: September 20, 2013.

Shaun Donovan,

Secretary.

[FR Doc. 2013-23472 Filed 9-27-13; 8:45 am]

BILLING CODE 4210-67-P