Calling all financial institutions that fall under the supervision of the Federal Deposit Insurance Corp. (FDIC): The FDIC has tweaked its technical assistance videos on the Ability-to-Repay/Qualified Mortgages (ATR/QM) rule.
The updated videos, which are part of the FDIC’s Community Banking Initiative, reflect changes in federal laws and regulations since the FDIC released the videos in 2014. Specifically, the updates reflect changes with respect to small creditors and operations in rural areas.
To qualify as a small creditor, institutions must meet two tests, one for assets and one for originations. According to the FDIC, most of its supervised institutions meet these two tests, so the special small-creditor QMs may be an important option.
In September 2015, the CFPB amended the definition of “small creditor,” but this did not affect the dollar amount of the asset threshold. But 2016 brought a new change: The combined assets of the creditor and its mortgage affiliates are considered, not just the creditor’s assets. For purposes of this asset test, mortgage affiliates are those that regularly extend covered transactions secured by first-liens. The commentary explains that “regularly extends” means making more than five covered transactions in a calendar year. The amendment also added a grace period to the lookback period for the asset test. For applications received before April 1 of any calendar year, the creditor may look to Dec. 31 of either of the two preceding calendar years.
For 2016, the assets threshold is $2.052 billion in assets as of Dec. 31, 2015. The threshold will be adjusted each year, so institutions should consult the CFPB’s website for the most current, applicable threshold.
The originations test provides that the creditor and its affiliates must have extended 2,000 or fewer covered transactions secured by first liens in the preceding year. This new limit applies only to loans transferred to another person, and does not include loans held in portfolio by the creditor and its affiliates. In other words, a bank that meets the asset test may only hold a limited number of mortgage loans in its portfolio up to the asset threshold without putting its designation as a small creditor at risk. In addition, as with the asset test, a creditor can only look back to originations in either of the two preceding calendar years for applications received before April 1 of any year.
For all covered transactions issued by small creditors, both first- and junior-lien loans, a safe harbor QM is considered one with less than a 3.5-percent annual percentage rate (APR) above the average prime offer rate (APOR). First-lien loans originated by creditors other than small creditors have a lower safe-harbor QM threshold: They are safe-harbor QMs if the APOR is less than 1.5 percent above APOR. First-lien loans originated by small creditors and any subordinate- lien loan with an APR of 3.5 percent above APOR are rebuttable-presumption QMs. First-lien QMs originated by creditors other than small creditors have a rebuttable presumption if the APR is 1.5 percent or more above APOR.
“Rural” is defined as any county that is not in a metropolitan statistical area (MSA) or in a micropolitan statistical area that is next to an MSA (terms based in part on U.S. Department of Agriculture-designated “urban influence codes”); a Census block that is not deemed “urban” as defined by the Census Bureau; or a county or census block designated by the CFPB as rural pursuant to the application process established under the Consumer Financial Protection Bureau’s March 3 final rule.
Small creditors that make any QM loans in small or rural areas may continue to write balloon loans that have QM status, but there are limitations on the balloon QM loan terms and features: It must have a fixed rate; it must be for a minimum of five years and a maximum of 30 years; the points-and-fees cap applies; and there must be substantial, equal, periodic payments calculated over a maximum, 30-year amortization. When underwriting the balloon loan, small creditors must underwrite to the maximum periodic payment, without taking the balloon payment into account.
The FDIC’s videos are designed specifically for community bank compliance officers, but the agency says the intention is to help anyone understand how to comply with the ATR/QM rule.