The win for Lenders
What is the big win for lenders making a Qualified Mortgage (QM)?
A lender that fellows the rules of a QM loan have greater protection from law suits. This provision of QM is called “safe harbor”.
In theory, under the Consumer Financial Protection Bureau’s final mortgage rules, low-priced loans that meet all the criteria of QM are supposed to be largely immune from consumer lawsuits.
Lenders that make Qualified Mortgages get certain legal protections even if the loans default. For QMs that are not “higher-priced,” lenders get a “safe harbor.” This means that the lender complies with the Ability-to-Repay rule if the loan meets the QM definition.
If a loan meets the QM requirements, and is a first lien loan which has an interest rate that does not exceed the average prime offer rate (“APOR”) for comparable transactions by 1.5% or more (or 3.5% or more for subordinate lien loans), it is a QM Safe Harbor Loan. This creates an incentive for lenders to make QM Safe Harbor Loans.
Here are more of the general characteristics of a Qualified Mortgage Loan
• Regular periodic payments that are substantially equal, subject to interest rate adjustments
• No negative amortization
• No deferral of principal
• No balloon payments
• Points and fees may not be excessive (those exceeding 3% of the total loan amount on a loan exceeding $100,000)
• Term cannot exceed 30 years
• Underwritten based on the maximum interest rate during the first five years
• Based on verified current or reasonable expected income or assets and current debt obligations, alimony and child support
• Monthly debt to income (“DTI”) ratio may not exceed 43%
Lenders are given a big benefit by the Consumer Financial Protection Bureau to meet qualified mortgage standards. The safe harbor provision is a big advantage to these loans and therefore consumers who meet this standard. Therefore they should get a lower priced loan. How much lower is going to be priced by each lender.
This is where mortgage brokers will have a big advantage. As each lender gives different value to QM safe harbor there will be wider spreads in loan interest rates and fees. In other words, one lender may think the QM safe harbor is worth ¼ of a percentage lower on a QM loan when another will think it is worth ½ percentage point. This could mean a much lower monthly payment and save tens of thousands of dollars on the total repayment cost.
But on the other hand, loans that do not meet the QM standards are going to be harder to get and cost more in terms of interest rates and loan fees. And a mortgage broker is the best way to find the best lender with the lowest cost and rates.
Or you can fill out our secure loan application at: Express Real Estate Loan