What is a “Seasoned” QM Loan

Lenders approve qualified mortgages (QM), knowing Fannie or Freddie will buy them – but they could buy “seasoned QM loans” if lenders hold them for a period of time.

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking (NPRM) to create a new category of “seasoned qualified “mortgages. CFPB says the new loan category should encourage innovation and help ensure access to responsible affordability in the mortgage credit market.

A seasoned loan under the proposal is held by lenders for a while. During that time, the buyers prove that they can handle it and, under the proposed lending criteria, Fannie Mae or Freddie Mac will then buy the loan, just as it does now for qualified mortgages (QM). CFPB is calling them a Seasoned QM. In general, the new loan category would lower the risk for banks to approve less qualified borrowers.

Seasoned QMs under the proposal would have to be first-lien, fixed-rate transactions that have met certain performance requirements over a 36-month seasoning period. They’d have to be held in the lender’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees, and meet some underwriting requirements.

To be a Seasoned QM, the proposal also requires the creditor to consider and verify the consumer’s debt-to-income ratio (DTI) or residual income at origination.

To become a Seasoned QM, a loan could have no more than two 30-day delinquencies and no delinquencies of 60 or more days at the end of the seasoning period. A disaster or pandemic-related national emergency, under certain conditions, would not necessarily disqualify a loan from becoming a Seasoned QM if the consumer receives a temporary payment accommodation.

“Today’s proposal continues the (CFPB’s) work to encourage safe and responsible innovation in the mortgage origination market,” says CFPB Director Kathleen L. Kraninger. “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.”

The announcement follows two NPRMs from June. The first proposes to amend the General QM definition in Regulation Z to replace the debt-to-income limit with a price-based approach.

The second NPRM proposes to amend Regulation Z to extend a temporary QM definition known as the Government-Sponsored Enterprise Patch to expire upon the effective date of the final rule proposed in the first NPRM.


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