Along with the “new” general QM definition came new rate spread thresholds. These differ based on the loan amount (adjusted annually), lien status and whether the loan is secured by a manufactured home. The good news is that the rate spreads are based on the Average Prime Offer Rate (APOR) like other rate spread tests out there. The bad news is, it’s difficult to keep all the different threshold tests and what they mean straight.
Say you have a $150,000 first-lien transaction with an APR that exceeds the APOR by 2%. This loan could qualify as a “new” general QM; however, it would still be both a higher-priced covered transaction and a higher-priced mortgage loan. And that’s just the start, you’d still need to ensure the points and fees don’t also make it a high-cost mortgage!
On a loan where the rate can change within the first five years of the first payment due date, there are also special rules for calculating the APR used to determine the rate spread and for determining whether it’s a higher-priced covered transaction. This APR calculation is different from how you calculate the APR for loan disclosure purposes.
Unfortunately, rate spreads aren’t all you have to worry about when originating loans that qualify under the “new” general QM definition. Want to learn more?
Diane joined Banker’s Compliance Consulting with over 10 years of compliance experience and over 15 years of experience within the financial industry. Diane is a Certified Regulatory Compliance Manager (CRCM) and has a Bachelor’s Degree in Sociology with a concentration in Criminal Justice. She is a graduate of the Schools of Banking Compliance School and has participated in various other training opportunities throughout her career. Diane understands firsthand the struggles banks face in building and maintaining successful compliance programs. Her experience and common sense approach to consumer compliance is a great asset to our clients.
Diane and her husband have two kids who keep them busy. She enjoys running and other sports and is a big Bugs Bunny fan! She’s a bit crazy in that she does enjoy reading some of these regulations and she’s a “crazy cat lady!” Her cat tales are hilarious!