October 31, 2014
This week we learned that the final QRM rules were published in the Federal Register as required under the Dodd-Frank Financial Reform Act, and requires, in general, that when issuing asset-backed securities the issuer (i.e. Bank, Wall Street firm) will be required to retain a 5% interest in the assets that are securitized.
Under the rule the if a loan meets the Qualified Mortgage (QM) standards, it then also meets the QRM standards. This means that a loan may not allow "interest only" payments, cannot involve negative amortization and cannot have a term longer than 30 years.
Also, under the previously adopted QM rule, the borrower's total monthly installment debt service obligation may not exceed 43% of household income. This includes the mortgage payments to be made under the terms of the loan.
Then on October 30th, five other agencies, including the Federal Reserve, FDIC, CUNA (among others) published changes to amend their regulations regarding loans in special flood hazard areas. These proposed regulations are in response to requirements under the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).
The rule as proposed would establish requirements with respect to escrow of flood insurance payments and create an exemption for certain detached structures from mandatory insurance requirements. The new rules would cover residential improved real estate and mobile homes beginning with loans closing after January 1st, 2016.
Under the proposed regulations lenders will be required to offer to escrow flood insurance premiums and fees to existing borrowers who are required to have flood insurance as well. There is also an exemption for structures that are detached from primary residential structures and are not used as a residence.
We will be watching these spooktacular regulations and updating our courses and programs as necessary over the coming months. We encourage interested parties to locate the rules on the Federal Register and comment as appropriate.