The Division of Banks recently amended Mass. Regs. Code tit. 209, ch. 53, which chapter imposes restrictions on the refinancing of a home loan within 60 months with a new home loan. Particularly, it requires creditors to determine whether the refinancing is in the borrower’s interest.
Currently, Ibid. § 53.04(1) holds that certain types of loans are considered to be automatically within the borrower’s interest (e.g. FHA or VA loans). The amendments add to this list Qualified Mortgages (QMs), as well as a new definition of what a “Qualified Mortgage” is.
According to new Ibid. § 53.02, a QM is defined as “a covered transaction pursuant to 12 CFR § 1026.43(b)(1) which meets the specifications of 12 CFR § 1026.43(e)(1)(i).”
While it is easy to jump to the conclusion that this definition encompasses all QMs, as defined under Federal Regulation Z, 12 CFR § 1026.43(e)(1)(i) does carve out an exception for certain covered transactions, as follows:
“A creditor or assignee of a qualified mortgage, as defined in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, complies with the repayment ability requirements of paragraph (c) of this section.”
By referring solely to this subsection, Massachusetts’ definition of a Qualified Mortgage excludes a higher-priced covered transaction (HPCT). This was the Division’s intent, as they explained it:
“The amendments also clarify that the exemption under the Borrower’s Interest regulation applies to all Qualified Mortgages which are eligible for safe harbor consideration under the Truth in Lending Act, including the small creditor exemption, provided that the Qualified Mortgage is not higher cost.” (http://www.mass.gov/ocabr/banking-and-finance/laws-and-regulations/dob-regulations/historical-info/209cmr53finalamend.html)
While a HPCT is substantially similar to a higher-priced mortgage loan (HPML) under Regulation Z, there is a subtle difference between the two. A HPCT is one of the following loans:
- A first-lien transaction with an APR exceeding the APOR by 1.5%, except for:
- A small creditor portfolio QM loan under Subsection 43(e)(5);
- A temporary balloon-payment QM loan under Subsection 43(e)(6); or
- A balloon-payment QM made by certain creditors under Subsection 43(f).
- A first-lien transaction, which is also one of the three exempt transactions under Criterion #1, with an APR exceed the APOR by 3.5%.
- A subordinate-lien transaction with an APR exceeding the APOR by 3.5% (see 12 CFR § 1026.43[b]).
While a HPML is one of the following:
- A conforming first-lien transaction with an APR exceeding the APOR by 1.5%;
- A “jumbo” first-lien transaction with an APR exceeding the APOR by 2.5%; or
- A subordinate-lien transaction with an APR exceeding the APOR by 3.5% (see Ibid. § 1026.35[a]).
Under Massachusetts’ definition, a QM could include a “jumbo” HPML, if it’s either a small creditor portfolio or balloon-payment QM under the Federal definition of a HPCT. Also, a conforming first-lien HPML which has an APR which is 2% over the APOR and has a qualifying balloon-payment is not considered a HPCT and, as such, is considered a QM.
The first section of Cx5771 contains a checklist of the loan types which are automatically considered to be in the borrower’s interest. We will be including an entry for QMs, due to the new amendments.
However, currently there is no data being passed to our system to distinguish a HPCT from other types of transactions. Due both to how close this type of loan is to a HPML and how rare it is, we will be configuring the QM entry on Cx5771 to check when:
- “Qualified Mortgage Indicator” equals “Yes”; and
- “HPML – Federal” equals “No.”
Generally, information is sent to us through one of our third-party vendors (InterthinX) to set these two fields. For those clients who do not use InterthinX’s services, we will be setting up a global optional prompt to have these two fields filled out when they are either missing or empty, and when the following conditions apply:
- “Loan Purpose” equals either “CashOutOther” or “NoCashOutOther”;
- “Package Type” equals “Initials”; and
- “Property State” equals “Massachusetts”.
Clients will also have the option to map these fields on a loan-to-loan basis, for those transactions which they believe are a QM and meet the Federal definition of a HPML, but not for a HPCT (and thus, are a QM under Massachusetts law).
For “lights out” clients, we will begin working with our LOS partners to get them to pass QM and HPML data as soon as possible. Account Managers will also be in contact with clients who use Cx5771 in a package other than Initials, to see if they would like custom prompts to be set up for them.
This change will take effect immediately. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.
August 1, 2014