Letter regarding the U.S. Department of Housing and Urban Development (HUD) proposed rule on QM

October 30, 2013

Regulations Division, Office of General Counsel
Department of Housing and Urban Development
451 7th Street SW., Room 10276
Washington, DC 20410-0500

RE:        Proposed Rule on QM

Dear Sir or Madame:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I am writing to you regarding the U.S. Department of Housing and Urban Development (HUD) proposed rule to define “qualified mortgage” (QM) for purposes of mortgages insured or guaranteed by HUD and the Federal Housing Administration (FHA). The proposed rule has been issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which requires the HUD to prescribe regulations defining “qualified mortgage.”

Under the proposed rule, all FHA-insured single-family mortgages would be qualified mortgages, except reverse mortgages insured under the HUD’s Home Equity Conversion Mortgage program. The proposed rule maintains the HUD’s fundamental current structure and requirements for FHA loans, including term limit, requirement of periodic payments, and prohibition against loans with negative amortization and interest-only features. In addition, the proposal would adopt the Consumer Financial Protection Bureau’s (CFPB) points and fees limit; however, the proposed definition of qualified mortgage does not include a debt-to-income minimum threshold.

The proposal would also differentiate between “safe harbor” QMs and “rebuttable presumption” QMs, similar to the CFPB’s QM rule. A key difference between the HUD’s proposal and the CFPB’s rule is the method used to determine whether a loan is a safe harbor or rebuttable presumption loan. HUD’s proposal would not only take into account the difference between the loan’s Annual Percentage Rate (APR) and the Average Prime Offer Rate (APOR), but also the annual mortgage insurance premium (MIP).

General Comments

NAFCU appreciates the HUD’s work to propose its QM rule in advance of the effective date of the CFPB’s rule. Absent the HUD’s prescription of a QM rule that applies to FHA loans, many FHA loans would not qualify for the CFPB’s safe harbor treatment because of the MIP. Further, a large number of FHA loans would be designated as higher-priced mortgage loans. The HUD’s proposal would prevent these occurrences; thus, we encourage the HUD to move forward with its proposal.

NAFCU, nonetheless, strongly urges the HUD to work with the CFPB to delay the effective dates of each of the two agencies’ respective QM rules. As we have communicated with the CFPB, the complexity of the CFPB’s QM rule in and of itself has caused significant compliance challenges and significant costs for credit unions. The challenges are compounded, however, by the fact that there are seven mortgage-related rules with which credit unions must comply by January, 2014. For credit unions, as non-profit cooperative entities that rely on retained earnings as their sole source for capital, delaying the effective dates of the rules is crucial.

All FHA QM Loans Should be Safe Harbor Loans

The HUD requests comments on whether its QM rule should distinguish between safe harbor FHA loans and rebuttable presumption FHA loans. NAFCU does not believe that it is either necessary or appropriate to make this distinction; all FHA-insured loans should be granted safe harbor protection.

Credit unions extend FHA loans despite the fact that operating a FHA-loan program requires the credit union to dedicate distinct resources which often exceed those resources required for conventional loan programs. If the HUD moves forward with the two-tiered approach, credit unions will have to incur greater additional costs unnecessarily and dedicate more resources to ensure compliance. These additional burdens are unnecessary as FHA loans are subject to well-established and strict underwriting and other requirements without regard to rates.

FHA-insured loans are made to borrowers who are unable to access the conventional mortgage market. As distinguishing between safe harbor and rebuttable presumption HUD QM loans will unnecessarily increase the cost of doing FHA loans and potentially lead many credit unions to exit the FHA market, we urge the HUD to extend safe harbor protection for all FHA loans.

If, however, the HUD moves forward with a two-tiered approach, we strongly recommend that the HUD changes the manner it would differentiate between safe harbor and rebuttable presumption loans. Under HUD’s proposal, the APR for a safe harbor loan may not exceed the combined MIP and 1.15 percent above the APOR. We strongly recommend that the HUD implements a simpler approach that is also consistent with the CFPB’s QM rule in order to minimize confusion and make it easier for both lenders and the FHA to oversee. In particular, we urge the HUD to establish a threshold determined by the combination of the maximum MIP in place when the loan is made combined with the CFPB’s threshold of the APR being no more than 150 basis points above the APOR. The second part (150 basis points above the APOR) is the threshold the CFPB uses to differentiate between safe harbor and rebuttable presumption loans. We emphasize that taking such an approach would especially be helpful for smaller lenders as the rule would be simpler and consequently less costly. It will negate the necessity for the HUD to change its QM rule every time the FHA changes its maximum allowable MIP.

Points and Fees

The HUD’s proposal would incorporate the CFPB QM definition’s points and fees cap and would include affiliate fees in the points and fees calculation. The issue of the inclusion of affiliate fees is very important to our members, and we urge the HUD to use its authority and exclude affiliate fees from the calculation of points and fees.

As we have explained to the CFPB, many credit unions have pooled their funds together to create Credit Union Services Organizations (CUSO) for the specific purpose of obtaining lower fees for their members. The approach that the HUD is taking would diminish the effectiveness of these arrangements. In practical terms, a credit union would be forced to offer a member either (1) services through non-affiliates that are more costly or, (2) in order to ensure a loan is below the maximum points and fees threshold, less flexibility for the borrower to use points to lower rates.

NAFCU appreciates the opportunity to provide comments. Should you have any questions or would like to discuss these issues further, please contact me by telephone at (703) 842-2268 or by email at


Tessema Tefferi
Senior Regulatory Affairs Counsel

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