Email this page Print-Friendly PDF
Share
Print this page

Subscribe

To subscribe to receive Goodwin Procter alerts and publications click here

HUD Proposes Definition of Qualified Mortgage

Largely piggybacking off of the CFPB’s definition of qualified mortgage finalized in January 2013 (see January 10, 2013 Alert), HUD issuedproposed rule defining qualified mortgages.  The rule requires a loan to have regular periodic payments (i.e., no balloon payments), a maximum loan term of 30 years, a 3% cap on points and fees, and verification of the borrower’s ability to repay using documentation and the underwriting standards in the CFPB’s ability-to-repay rule.  HUD will not insure loans that do not meet these criteria. Similar to the CFPB’s ability-to-repay and qualified mortgage rules, the rule creates a safe harbor for loans that satisfy the definition of qualified mortgage and are not “higher-priced” as defined by the CFPB and a rebuttable presumption for loans that are higher priced, but otherwise meet the qualified mortgage standard.

While the rule excludes reverse mortgages from the qualified mortgage standard, Title I insured mortgages (i.e., manufactured housing and home improvement loans), Section 184 mortgages (i.e., Indian Home Loan Guarantee Program), and Section 184A mortgages (i.e., Native Hawaiian Housing Loan Guarantee Program) can be qualified mortgages. However, these latter three types of mortgage are not subject to the 3% cap on points and fees or the interest rate restrictions, and will be granted “safe harbor” status until HUD has an opportunity to fully examine the impact of restricting interest rates, points, and fees. Streamlined refinancing transactions, on the other hand, are fully subject to the new rule.

Comments must be received by October 30, 2013. HUD plans that the effective date of the rule will coincide with the CFPB’s ability-to-repay and qualified mortgage rules, on January 10, 2014.

© 2014 Goodwin Procter LLP. All rights reserved. This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP, Goodwin Procter (UK) LLP or their attorneys. Prior results do not guarantee similar outcome.

Goodwin Procter LLP is a limited liability partnership which operates in the United States and has a principal law office located at 53 State Street, Boston, MA 02109. Goodwin Procter (UK) LLP is a separate limited liability partnership registered in England and Wales with registered number OC362294. Its registered office is at Tower 42, 25 Old Broad Street, London EC2N 1HQ. A list of the names of the members of Goodwin Procter (UK) LLP is available for inspection at the registered office. Goodwin Procter (UK) LLP is authorized and regulated by the Solicitors Regulation Authority.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.