QM FAQs

QM FAQs

1. When is the regulation effective?

A1. This regulation became effective on May 9, 2014, upon publication. In light of the needs of our stakeholders to provide direction to their staff and to discuss these changes with their investors, VA has decided to begin enforcement of these provisions on all loans for which applications are taken on or after June 1, 2014.

2. What is a Qualified Mortgage?

A2. VA defines qualified mortgage to mean any loan guaranteed, insured, or made by VA, with certain limitations on Interest Rate Reduction Refinance Loans (IRRRLs) discussed below. All VA origination loans that meet the QM requirements established in the VA QM rule will be deemed safe harbor Qualified mortgages. In order for an IRRRL to have safe harbor QM status it must meet the requirements of 38 CFR 36.4300(b)(2), as explained in A5, below.

3. What is the Ability to Repay (ATR)?

A3. In the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required that for residential mortgages, creditors must make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan according to its terms. Existing VA guidelines require creditors consider all ATR underwriting factors.

4. Is there a new process for originating new VA loans in order to meet ATR and QM requirements?

A4. VA has amended 38 CFR 36.4300 to designate all origination loans guaranteed or insured by VA as safe harbor qualified mortgages. As long as lenders follow VA's detailed credit underwriting guidelines the loan would meet the requirements and VA will guarantee the loan.

5. In the past, VA did not require credit underwriting for IRRRLs. ATR and QM indicate that a borrower must show that he/she can repay the refinanced loan. Does VA now require the lender to perform credit underwriting for IRRRLs?

A5. If the IRRRL meets the three listed requirements as provided in section 36.4300(b)(2), it will be considered a safe harbor qualified mortgage, and the lender is not required to perform credit underwriting: 1. The loan being refinanced was originated at least 6 months before the new loan's closing date, and the veteran has not been more than 30 days past due during the 6 months preceding the new loan's closing date; 2. The recoupment period for all allowable fees and charges (See 38 CFR 36.4313) financed as part of the loan or paid at closing does not exceed thirty six (36) months, except in cases in which the loan is being refinanced from an adjustable rate to a fixed rate mortgage or in which a fixed rate loan is being refinanced into another fixed rate loan of a shorter duration; and 3. The requirements related to exemption of income verification are satisfied.

6. Are there changes to the income verification requirements for IRRRLs?

A6. VA continues to exempt income verification pursuant to 38 CFR 36.4340(b)(2), as long as the following Dodd-Frank Act conditions are met:

1. The veteran is not 30 days or more past due on the loan being refinanced; 2. The proposed IRRRL does not increase the principal balance outstanding on the prior existing

residential mortgage loan, except to the extent of fees and charges allowed by VA; 3. Total points and fees (as defined in section 103(aa)(4) of TILA, other than bona fide third party

charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator) payable in connection with the proposed IRRRL do not exceed 3 percent of the total proposed principal amount; 4. The interest rate on the proposed IRRRL is lower than the interest rate on the loan being refinanced, unless the borrower is refinancing from an adjustable rate to a fixed-rate loan, under guidelines that VA has established; 5. The proposed IRRRL is subject to a payment schedule that will fully amortize the IRRRL in accordance with VA regulations; 6. The terms of the proposed IRRRL do not result in a balloon payment, as defined in TILA; and 7. Both the residential mortgage loan being refinanced and the proposed IRRRL satisfy all other VA requirements.

7. Will VA still guaranty the loan if the IRRRL does not meet the recoupment period of less than 36 months and the six month seasoning requirements?

A7. Yes, VA will guaranty the loan; however, the loan will be a rebuttable presumption qualified mortgages.

8. How do I submit comments?

A8. Written comments are to be submitted through ; by mail or hand-delivery to Director, Regulation Policy and Management (02REG), Department of Veterans Affairs, 810 Vermont Ave. NW., Room 1068, Washington, DC 20420; or by fax to (202) 273-9026. Comments should indicate that they are submitted in response to "RIN 2900-AO65--Loan Guaranty: Ability-to-Repay Standards and Qualified Mortgage Definition under the Truth in Lending Act." Copies of comments received will be available for public inspection in the Office of Regulation Policy and Management, Room 1068, between the hours of 8:00 a.m. and 4:30 p.m., Monday through Friday (except holidays). Please call (202) 461-4902 (this is not a toll-free number) for an appointment. In addition, during the comment period, comments may be viewed online through the Federal Docket Management System (FDMS) at . Comments must be received on or before June 9, 2014. All comments and questions previously submitted have been forwarded to this office and will be addressed in VA's final regulatory action.

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