All Consuming - Financial Litigation Insights, Volume 2, Issue 5

Biden Administration May Undo Certain Trump-Era Mortgage Rules -

"Consumer advocates believe the rules may promote the sort of risky borrowing that led to the financial crisis in 2008."

Why this is important: The General QM ("Qualified Mortgage") Rule is designed to ensure lenders make a reasonable good faith effort to determine a borrower's ability to repay a loan prior to lending in exchange for certain protections accorded to lenders from consumer claims. In December, the Trump administration changed the General QM Rule effective July 1, 2021, by replacing Appendix Q and the 43 percent debt-to-income ratio with a price-based definition that afforded more flexibility. Further, it created a Seasoned QM Rule effective March 1, 2021, that provided a method by which a loan that did not meet the General QM Rule at its inception may nonetheless achieve Qualified Mortgage status where the borrower makes timely mortgage payments during a "seasoning" period of 36 months. Recently, Biden's Consumer Financial Protection Bureau indicated that it is considering whether to revisit these Trump era changes. The effective dates for these provisions have been pushed back in the interim. Consumer groups generally oppose the Seasoned QM Rule, arguing that it encourages risky lending, and when these "seasoned" QM loans are bundled and sold on secondary markets, we risk a repeat of the 2008-2010 subprime mortgage crisis. The Biden administration appears to be listening, and the Seasoned QM rule may be amended or scrapped.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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