The Department of Housing and Urban Development on Monday proposed its own definition of a “qualified mortgage” that would be insured, guaranteed or administered by the department. HUD’s proposed definition would include single-family mortgages insured by the Federal Housing Administration.
HUD’s definition builds on the qualified mortgage rule put forward by the Consumer Financial Protection Bureau. In order to meet HUD’s definition, mortgages have to require periodic payments, limit upfront points and fees to no more than 3%, and be insured or guaranteed by FHA and HUD.
The proposed rule also established two different kinds of qualified mortgages, determined by the relationship of the annual percentage rate of the loan to the average prime offer rate. A “rebuttable presumption qualified mortgage” would have an APR greater than plus 115 basis points plus an ongoing mortgage insurance premium. Lenders of these mortgages are presumed to have determined that the borrower met the ability-to-repay standard, but borrowers are legally entitled to challenge that presumption.
A “Safe Harbor” qualified mortgage would have an APR equal or less than APOR plus 115 basis points and ongoing mortgage insurance premium. “Lenders originating these mortgages have the greatest legal certainty that they are complying with the Ability-to-Repay standard,” HUD said in a statement. Borrowers are still legally entitled to challenge the lender if they don’t believe the loan met “Safe Harbor” standards.
HUD is seeking public comment on its proposed qualified mortgage rule. Read the full rule HERE