86402 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

1As explained in more detail in part VI below, 

the final rule differs from the proposal in certain 

limited respects, including by adding a new 

exception to the portfolio requirement that allows 

loans to be transferred once during the seasoning 

period, excluding high-cost mortgages as defined in 

12 CFR 1026.32(a), and applying the same consider 

and verify requirements that will apply to General 

QM loans. 2 85 FR 67938 (Oct. 26, 2020). 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2020–0028] 

RIN 3170–AA98 

Qualified Mortgage Definition Under 

the Truth in Lending Act (Regulation 

Z): Seasoned QM Loan Definition 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule; official 

interpretation. 

SUMMARY: With certain exceptions, 

Regulation Z requires creditors to make 

a reasonable, good faith determination 

of a consumer’s ability to repay any 

residential mortgage loan, and loans that 

meet Regulation Z’s requirements for 

‘‘qualified mortgages’’ (QMs) obtain 

certain protections from liability. 

Regulation Z contains several categories 

of QMs, including the General QM 

category and a temporary category 

(Temporary GSE QMs) of loans that are 

eligible for purchase or guarantee by 

government-sponsored enterprises 

(GSEs) while they are operating under 

the conservatorship or receivership of 

the Federal Housing Finance Agency 

(FHFA). The Bureau of Consumer 

Financial Protection (Bureau) is issuing 

this final rule to create a new category 

of QMs (Seasoned QMs) for first-lien, 

fixed-rate covered transactions that have 

met certain performance requirements, 

are held in portfolio by the originating 

creditor or first purchaser for a 36- 

month period, comply with general 

restrictions on product features and 

points and fees, and meet certain 

underwriting requirements. The 

Bureau’s primary objective with this 

final rule is to ensure access to 

responsible, affordable mortgage credit 

by adding a Seasoned QM definition to 

the existing QM definitions. 

DATES: This final rule is effective on 

March 1, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Eliott C. Ponte or Ruth Van Veldhuizen, 

Counsels, or Joan Kayagil, Amanda 

Quester, or Jane Raso, Senior Counsels, 

Office of Regulations, at 202–435–7700. 

If you require this document in an 

alternative electronic format, please 

contact CFPB_Accessibility@cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule 

The Ability-to-Repay/Qualified 

Mortgage Rule (ATR/QM Rule) requires 

a creditor to make a reasonable, good 

faith determination of a consumer’s 

ability to repay a residential mortgage 

loan according to its terms. Loans that 

meet the ATR/QM Rule’s requirements 

for QMs obtain certain protections from 

liability. The Bureau issued a proposal 

in August 2020 to create a new category 

of QMs, Seasoned QMs. The Bureau is 

now finalizing the proposal largely as 

proposed.1 The final rule defines 

Seasoned QMs as first-lien, fixed-rate 

covered transactions that have met 

certain performance requirements over a 

seasoning period of at least 36 months, 

are held in portfolio until the end of the 

seasoning period by the originating 

creditor or first purchaser, comply with 

general restrictions on product features 

and points and fees, and meet certain 

underwriting requirements. 

The Bureau concludes that a 

Seasoned QM definition will 

complement existing QM definitions 

and help ensure access to responsible, 

affordable mortgage credit. One QM 

category defined in the ATR/QM Rule is 

the General QM category. General QMs 

must comply with the ATR/QM Rule’s 

prohibitions on certain loan features, its 

points-and-fees limits, and its 

underwriting requirements. Under the 

definition for General QMs currently in 

effect, the ratio of the consumer’s total 

monthly debt to total monthly income 

(DTI) must not exceed 43 percent. In a 

separate final rule released 

simultaneously with this final rule, the 

Bureau is amending the General QM 

loan definition to, among other things, 

replace the existing General QM loan 

definition that includes the 43 percent 

DTI limit with a price-based General 

QM loan definition (General QM Final 

Rule). 

A second, temporary category of QMs 

defined in the ATR/QM Rule is the 

Temporary GSE QM category, which 

consists of mortgages that (1) comply 

with the same loan-feature prohibitions 

and points-and-fees limits as General 

QMs and (2) are eligible to be purchased 

or guaranteed by the GSEs while under 

the conservatorship of the FHFA. The 

Temporary GSE QM loan definition was 

previously set to expire with respect to 

each GSE when that GSE ceases to 

operate under conservatorship or on 

January 10, 2021, whichever comes first. 

In a final rule issued on October 20, 

2020 and published in the Federal 

Register on October 26, 2020, the 

Bureau extended the Temporary GSE 

QM loan definition until the earlier of 

the mandatory compliance date of final 

amendments to the General QM loan 

definition or the date the GSEs cease to 

operate under conservatorship or 

receivership (Extension Final Rule).2

The Bureau is issuing this final rule 

to create a new category of QMs because 

it seeks to encourage safe and 

responsible innovation in the mortgage 

origination market, including for certain 

loans that are not QMs or are rebuttable 

presumption QMs under the existing 

QM categories. The Bureau presumes 

compliance with the ability-to-repay 

(ATR) requirements if such loans season 

in the manner set forth in this final rule. 

Under this final rule, a covered 

transaction receives a safe harbor from 

ATR liability at the end of a seasoning 

period of at least 36 months as a 

Seasoned QM if it satisfies certain 

product restrictions, points-and-fees 

limits, and underwriting requirements, 

and it meets performance and portfolio 

requirements during the seasoning 

period. Specifically, a covered 

transaction has to meet the following 

product restrictions to be eligible to 

become a Seasoned QM: 

1. The loan is secured by a first lien; 

2. The loan has a fixed rate, with 

regular, substantially equal periodic 

payments that are fully amortizing and 

no balloon payments; 

3. The loan term does not exceed 30 

years; and 

4. The loan is not a high-cost 

mortgage as defined in § 1026.32(a). 

In order to become a Seasoned QM, 

the loan’s total points and fees also must 

not exceed specified limits. 

For a loan to be eligible to become a 

Seasoned QM, this final rule requires 

that the creditor consider the 

consumer’s DTI ratio or residual 

income, income or assets other than the 

value of the dwelling, and debts and 

verify the consumer’s income or assets 

other than the value of the dwelling and 

the consumer’s debts, using the same 

consider and verify requirements 

established for General QMs in the 

General QM Final Rule. 

Under this final rule, a loan generally 

is eligible to season only if the creditor 

holds it in portfolio until the end of the 

seasoning period. There are several 

exceptions to this portfolio requirement 

that are similar to the exceptions to the 

Small Creditor QM portfolio 

requirement under the ATR/QM Rule. 

This final rule also includes an 

additional exception for a single transfer 

of a loan during the seasoning period. In 

the event of such a transfer, the final 

rule requires the purchaser to hold the 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86403 

3Public Law 111–203, 124 Stat. 1376 (2010). 

4 15 U.S.C. 1601 et seq. 

5 Dodd-Frank Act sections 1411–12, 1414, 124 

Stat. 2142–49; 15 U.S.C. 1639c. 

6 15 U.S.C. 1639b(a)(2). 

7 15 U.S.C. 1639c(a)(1). TILA section 103 defines 

‘‘residential mortgage loan’’ to mean, with some 

exceptions including open-end credit plans, ‘‘any 

consumer credit transaction that is secured by a 

mortgage, deed of trust, or other equivalent 

consensual security interest on a dwelling or on 

residential real property that includes a dwelling.’’ 

15 U.S.C. 1602(dd)(5). TILA section 129C also 

exempts certain residential mortgage loans from the 

ATR requirements. See, e.g., 15 U.S.C. 1639c(a)(8) 

(exempting reverse mortgages and temporary or 

bridge loans with a term of 12 months or less). 

8 15 U.S.C. 1639c(a)(3). 

9A creditor that violates this ATR requirement 

may be subject to government enforcement and 

private actions. Generally, the statute of limitations 

for a private action for damages for a violation of 

the ATR requirement is three years from the date 

of the occurrence of the violation. 15 U.S.C. 1640(e). 

TILA also provides that if a creditor, an assignee, 

other holder, or their agent initiates a foreclosure 

action, a consumer may assert a violation by the 

creditor of the ATR requirement as a matter of 

defense by recoupment or set off without regard for 

the time limit on a private action for damages. 15 

U.S.C. 1640(k). 

10 15 U.S.C. 1639c(b)(1). 

11 15 U.S.C. 1639c(b)(2)(A). 

12 78 FR 6408 (Jan. 30, 2013). 

13See 78 FR 35429 (June 12, 2013); 78 FR 44686 

(July 24, 2013); 78 FR 60382 (Oct. 1, 2013); 79 FR 

65300 (Nov. 3, 2014); 80 FR 59944 (Oct. 2, 2015); 

81 FR 16074 (Mar. 25, 2016); 85 FR 67938 (Oct. 26, 

2020). 

14 12 CFR 1026.43(c), (e). 

15 12 CFR 1026.43(e)(2)(i) through (iii). 

loan in portfolio after the transfer until 

the end of the seasoning period. 

In order to become a Seasoned QM, a 

loan must meet certain performance 

requirements at the end of the seasoning 

period. Specifically, seasoning is 

available only for covered transactions 

that have no more than two 

delinquencies of 30 or more days and no 

delinquencies of 60 or more days at the 

end of the seasoning period. Funds 

taken from escrow in connection with 

the covered transaction and funds paid 

on behalf of the consumer by the 

creditor, servicer, or assignee of the 

covered transaction (or any other person 

acting on their behalf) are not 

considered in assessing whether a 

periodic payment has been made or is 

delinquent for purposes of this final 

rule. Creditors can, however, generally 

accept deficient payments, within a 

payment tolerance of $50, on up to three 

occasions during the seasoning period 

without triggering a delinquency for 

purposes of this final rule. 

This final rule generally defines the 

seasoning period as a period of 36 

months beginning on the date on which 

the first periodic payment is due after 

consummation. Failure to make full 

contractual payments does not 

disqualify a loan from eligibility to 

become a Seasoned QM if the consumer 

is in a temporary payment 

accommodation extended in connection 

with a disaster or pandemic-related 

national emergency, as long as certain 

conditions are met. However, time spent 

in such a temporary accommodation 

does not count towards the 36-month 

seasoning period, and the seasoning 

period can only resume after the 

temporary accommodation if any 

delinquency is cured either pursuant to 

the loan’s original terms or through a 

qualifying change as defined in this 

final rule. This final rule defines a 

qualifying change as an agreement 

entered into during or after a temporary 

payment accommodation extended in 

connection with a disaster or pandemicrelated national emergency that ends 

any preexisting delinquency and meets 

certain other conditions to ensure the 

loan remains affordable (such as a 

restriction on increasing the amount of 

interest charged over the full term of the 

loan as a result of the agreement). 

This final rule will take effect 60 days 

after publication in the Federal 

Register, which aligns with the effective 

date provided in the General QM Final 

Rule. For this final rule, the revised 

regulations apply to covered 

transactions for which creditors receive 

an application on or after the effective 

date. 

II. Background 

A. Dodd-Frank Act Amendments to the 

Truth in Lending Act 

The Dodd-Frank Wall Street Reform 

and Consumer Protection Act (DoddFrank Act) 3 amended the Truth in 

Lending Act (TILA) 4 to establish, 

among other things, ATR requirements 

in connection with the origination of 

most residential mortgage loans.5 The 

amendments were intended ‘‘to assure 

that consumers are offered and receive 

residential mortgage loans on terms that 

reasonably reflect their ability to repay 

the loans and that are understandable 

and not unfair, deceptive or abusive.’’ 6

As amended, TILA prohibits a creditor 

from making a residential mortgage loan 

unless the creditor makes a reasonable 

and good faith determination based on 

verified and documented information 

that the consumer has a reasonable 

ability to repay the loan.7

TILA identifies the factors a creditor 

must consider in making a reasonable 

and good faith assessment of a 

consumer’s ability to repay. These 

factors are the consumer’s credit history, 

current and expected income, current 

obligations, DTI ratio or residual income 

after paying non-mortgage debt and 

mortgage-related obligations, 

employment status, and other financial 

resources other than equity in the 

dwelling or real property that secures 

the repayment of the loan.8 A creditor, 

however, may not be certain whether its 

ATR determination is reasonable in a 

particular case.9

TILA addresses this potential 

uncertainty by defining a category of 

loans—called QMs—for which a 

creditor ‘‘may presume that the loan has 

met’’ the ATR requirements.10 The 

statute generally defines a QM to mean 

any residential mortgage loan for which: 

• The loan does not have negative 

amortization, interest-only payments, or 

balloon payments; 

• The loan term does not exceed 30 

years; 

• The total points and fees generally 

do not exceed 3 percent of the loan 

amount; 

• The income and assets relied upon 

for repayment are verified and 

documented; 

• The underwriting uses a monthly 

payment based on the maximum rate 

during the first five years, uses a 

payment schedule that fully amortizes 

the loan over the loan term, and takes 

into account all mortgage-related 

obligations; and 

• The loan complies with any 

guidelines or regulations established by 

the Bureau relating to the ratio of total 

monthly debt to monthly income or 

alternative measures of ability to pay 

regular expenses after payment of total 

monthly debt.11

The ATR/QM Rule 

In January 2013, the Bureau issued a 

final rule amending Regulation Z to 

implement TILA’s ATR requirements 

(January 2013 Final Rule).12 The 

January 2013 Final Rule became 

effective on January 10, 2014, and the 

Bureau has amended it several times 

since January 2013.13 This final rule 

refers to the January 2013 Final Rule 

and later amendments to it collectively 

as the ATR/QM Rule. The ATR/QM 

Rule implements the statutory ATR 

provisions discussed above and defines 

several categories of QMs.14

1. General QMs 

One category of QMs defined by the 

ATR/QM Rule consists of General QMs. 

Under the definition for General QMs 

currently in effect, a loan is a General 

QM if: 

• The loan does not have negativeamortization, interest-only, or balloonpayment features, a term that exceeds 30 

years, or points and fees that exceed 

specified limits; 15

• The creditor underwrites the loan 

based on a fully amortizing schedule 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86404 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

16 12 CFR 1026.43(e)(2)(iv). 

17 12 CFR 1026.43(e)(2)(v). 

18 12 CFR 1026.43(e)(2)(vi). 

19 12 CFR 1026, appendix Q. 

20 85 FR 41716 (July 10, 2020). 

21 12 CFR 1026.43(e)(2)(i) through (iii). 

22 12 CFR 1026.43(e)(4). 

23 12 CFR 1026.43(e)(4)(iii)(B). The ATR/QM Rule 

created several additional categories of QMs. The 

first additional category consisted of mortgages 

eligible to be insured or guaranteed (as applicable) 

by the U.S. Department of Housing and Urban 

Development, the U.S. Department of Veterans 

Affairs, the U.S. Department of Agriculture, and the 

Rural Housing Service. 12 CFR 1026.43(e)(4)(ii)(B) 

through (E). This temporary category of QMs no 

longer exists because the relevant Federal agencies 

have since issued their own QM rules. See, e.g., 24 

CFR 203.19. Other categories of QMs provide more 

flexible standards for certain loans originated by 

certain small creditors. 12 CFR 1026.43(e)(5), (f); cf. 

12 CFR 1026.43(e)(6) (applicable only to covered 

transactions for which the application was received 

before April 1, 2016). 

24 85 FR 41448 (July 10, 2020). 

25 85 FR 67938 (Oct. 26, 2020). 

26 78 FR 35430 (June 12, 2013). 

27QMs are generally considered to be higher 

priced if they have an annual percentage rate (APR) 

that exceeds the applicable average prime offer rate 

(APOR) by at least 1.5 percentage points for firstlien loans and at least 3.5 percentage points for 

subordinate-lien loans. In contrast, Small Creditor 

QMs are only considered higher priced if the APR 

exceeds APOR by at least 3.5 percentage points for 

either a first- or subordinate-lien loan. 12 CFR 

1026.43(b)(4). The same is true for another QM 

definition that permits certain creditors operating in 

rural or underserved areas to originate QMs with a 

balloon payment provided that the loans meet 

certain other criteria (Balloon Payment QM loans). 

QMs that are higher priced enjoy only a rebuttable 

presumption of compliance with the ATR 

requirements, whereas QMs that are not higher 

priced enjoy a safe harbor. 

28 12 CFR 1026.43(e)(5)(i)(A). 

29 12 CFR 1026.43(e)(5)(ii), (f)(2). 

30 80 FR 59944 (Oct. 2, 2015). 

31As with Small Creditor QMs, Balloon Payment 

QMs must be held in portfolio for three years. In 

addition, Balloon Payment QMs may not have 

negative-amortization or interest-only features and 

must comply with the points-and-fees limits that 

apply to other QM loans. Also, Balloon Payment 

QMs must carry a fixed interest rate, payments 

other than the balloon must fully amortize the loan 

over 30 years or less, and the loan term must be at 

least five years. The creditor must also determine 

the consumer’s ability to make periodic payments 

other than the balloon and verify income and assets. 

12 CFR 1026.43(f). 

32 78 FR 35430, 35485 (June 12, 2013) (‘‘The 

Bureau believes that § 1026.43(e)(5) will preserve 

consumers’ access to credit and, because of the 

characteristics of small creditors and portfolio 

lending described above, the credit provided 

generally will be responsible and affordable.’’). 

33 Id. at 35486. 

using the maximum rate permitted 

during the first five years; 16

• The creditor considers and verifies 

the consumer’s income and debt 

obligations in accordance with 

appendix Q; 17 and 

• The consumer’s DTI ratio is no 

more than 43 percent, determined in 

accordance with appendix Q.18

Appendix Q contains standards for 

calculating and verifying debt and 

income for purposes of determining 

whether a mortgage satisfies the 43 

percent DTI limit for General QMs. 

Appendix Q addresses how to 

determine a consumer’s employmentrelated income (e.g., income from 

wages, commissions, and retirement 

plans); non-employment-related income 

(e.g., income from alimony and child 

support payments, investments, and 

property rentals); and liabilities, 

including recurring and contingent 

liabilities and projected obligations.19

On June 22, 2020, the Bureau 

proposed amendments to the General 

QM loan definition, which would, 

among other things, replace the General 

QM loan definition’s 43 percent DTI 

limit with a price-based approach and 

remove appendix Q.20 In addition to 

soliciting comment on the Bureau’s 

proposed price-based approach, the 

Bureau requested comment on certain 

alternative approaches that would retain 

a DTI limit but would raise it above the 

current limit of 43 percent and provide 

a more flexible set of standards for 

verifying debt and income in place of 

appendix Q. Simultaneously with 

issuing this final rule, the Bureau is 

issuing the General QM Final Rule, 

which is discussed in part II.D below. 

2. Temporary GSE QMs 

A second, temporary category of QMs 

defined by the ATR/QM Rule, 

Temporary GSE QMs, consists of 

mortgages that (1) comply with the 

ATR/QM Rule’s prohibitions on certain 

loan features and its limitations on 

points and fees; 21 and (2) are eligible to 

be purchased or guaranteed by either 

GSE while under the conservatorship of 

the FHFA.22 Regulation Z does not 

prescribe a DTI limit for Temporary GSE 

QMs. Thus, a loan can qualify as a 

Temporary GSE QM even if the DTI 

ratio exceeds 43 percent, as long as the 

DTI ratio meets the applicable GSE’s 

DTI requirements and other 

underwriting criteria, and the loan 

satisfies the other Temporary GSE QM 

requirements. In addition, income, debt, 

and DTI ratios for such loans generally 

are verified and calculated using GSE 

standards, rather than appendix Q. The 

January 2013 Final Rule provided that 

the Temporary GSE QM loan 

definition—also known as the GSE 

Patch—would expire with respect to 

each GSE when that GSE ceases to 

operate under conservatorship or on 

January 10, 2021, whichever comes 

first.23 On June 22, 2020, the Bureau 

proposed to extend the Temporary GSE 

QM category until the effective date of 

final amendments to the General QM 

loan definition or the date the GSEs 

cease to operate under conservatorship 

or receivership, whichever comes 

first.24 In a final rule issued on October 

20, 2020, the Bureau extended the 

Temporary GSE QM category until the 

earlier of the mandatory compliance 

date of final amendments to the General 

QM loan definition or the date the GSEs 

cease to operate under conservatorship 

or receivership.25

3. Small Creditor QMs 

In a May 2013 final rule, the Bureau 

amended the ATR/QM Rule to add, 

among other things, a new QM 

category—the Small Creditor QM—for 

covered transactions that are originated 

by creditors that meet certain size 

criteria and that satisfy certain other 

requirements.26 Those requirements 

include many that apply to General 

QMs, with some exceptions. 

Specifically, the threshold for 

determining whether Small Creditor 

QMs are higher-priced covered 

transactions, and thus qualify for the 

QM safe harbor or rebuttable 

presumption, is higher than the 

threshold for General QMs.27 Small 

Creditor QMs also are not subject to the 

General QM loan definition’s 43 percent 

DTI limit, and the creditor is not 

required to use appendix Q to calculate 

debt and income.28 In addition, Small 

Creditor QMs must be held in portfolio 

for three years (a requirement that does 

not apply to General QMs).29 The 

Bureau made several amendments to the 

Small Creditor QM provisions in 2015.30

These included: Amending the small 

creditor definition to increase the 

number of loans a small creditor can 

originate each year to 2,000; exempting 

from the 2,000-loan limit any loans held 

in the creditor’s portfolio; and revising 

the small creditor definition’s asset 

threshold to include the assets of any of 

the creditor’s affiliates.31

The Bureau created the Small Creditor 

QM category based on its determination 

that the characteristics of a small 

creditor—its small size, communitybased focus, and commitment to 

relationship lending—and the inherent 

incentives associated with portfolio 

lending together justify extending QM 

status to loans that do not meet all of the 

ordinary QM criteria.32 With respect to 

the role of portfolio lending, the Bureau 

stated that the discipline imposed when 

small creditors make loans that they 

will hold in portfolio is important to 

protect consumers’ interests and to 

prevent evasion of the ATR 

requirements.33 The Bureau noted that 

by retaining mortgage loans in portfolio, 

creditors retain the risk of delinquency 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86405 

34 Id. at 35437. 

35Public Law 115–174, 132 Stat. 1296 (2018). 

36EGRRCPA section 101, 15 U.S.C. 

1639c(b)(2)(F). 

37 85 FR 41716 (July 10, 2020). 38 78 FR 6408, 6511 (Jan. 30, 2013). 

39 Id. at 6507. 

40 Id. at 6511. 

41 Id. at 6514. 

42 12 CFR 1026.43(b)(4). 

43 12 CFR 1026.43(e)(1)(i). 

44 12 CFR 1026.43(e)(1)(ii). 

45 12 U.S.C. 5512(d). 

46 82 FR 25246 (June 1, 2017). 

or default on those loans, and as such 

the presence of portfolio lending within 

the small creditor market is an 

important influence on such creditors’ 

underwriting practices.34

C. Economic Growth, Regulatory Relief, 

and Consumer Protection Act 

The Economic Growth, Regulatory 

Relief, and Consumer Protection Act 

(EGRRCPA) was signed into law on May 

24, 2018.35 Section 101 of the EGRRCPA 

amended TILA to provide protection 

from liability for insured depository 

institutions and insured credit unions 

with assets below $10 billion with 

respect to certain ATR requirements 

regarding residential mortgage loans.36

Specifically, the protection from 

liability is available if a loan: (1) Is 

originated by and retained in portfolio 

by the institution, (2) complies with 

requirements regarding prepayment 

penalties and points and fees, and (3) 

does not have any negative amortization 

or interest-only features. Further, for the 

protection from liability to apply, the 

institution must consider and document 

the debt, income, and financial 

resources of the consumer. Section 101 

of the EGRRCPA also provides that the 

protection from liability is not available 

in the event of legal transfer except for 

transfers: (1) To another person by 

reason of bankruptcy or failure of a 

covered institution; (2) to a covered 

institution that retains the loan in 

portfolio; (3) in the event of a merger or 

acquisition as long as the loan is still 

retained in portfolio by the person to 

whom the loan is sold, assigned, or 

transferred; or (4) to a wholly owned 

subsidiary of a covered institution, 

provided that, after the sale, assignment, 

or transfer, the loan is considered to be 

an asset of the covered institution for 

regulatory accounting purposes. 

D. General QM Final Rule 

Simultaneously with this final rule, 

the Bureau is issuing a final rule to 

amend the General QM loan definition 

because retaining the existing General 

QM loan definition with the 43 percent 

DTI limit after the Temporary GSE QM 

loan definition expires would 

significantly reduce the size of the QM 

market and could significantly reduce 

access to responsible, affordable 

credit.37 Readers should refer to the 

General QM Final Rule for a full 

discussion of the amendments and the 

Bureau’s rationale for them. 

In the General QM Final Rule, the 

Bureau is establishing a price-based 

General QM loan definition to replace 

the DTI-based approach. Under the 

General QM Final Rule, a loan meets the 

General QM loan definition in 

§ 1026.43(e)(2) only if the annual 

percentage rate (APR) exceeds the 

average prime offer rate (APOR) for a 

comparable transaction by less than 2.25 

percentage points as of the date the 

interest rate is set. The General QM 

Final Rule provides higher thresholds 

for loans with smaller loan amounts, for 

certain manufactured housing loans, 

and for subordinate-lien transactions. It 

retains the existing product-feature and 

underwriting requirements and limits 

on points and fees. Although the 

General QM Final Rule removes the 43 

percent DTI limit from the General QM 

loan definition, the General QM Final 

Rule requires that the creditor consider 

the consumer’s monthly DTI ratio or 

residual income; current or reasonably 

expected income or assets other than the 

value of the dwelling (including any 

real property attached to the dwelling) 

that secures the loan; and debt 

obligations, alimony, and child support, 

and verify the consumer’s current or 

reasonably expected income or assets 

other than the value of the dwelling 

(including any real property attached to 

the dwelling) that secures the loan and 

the consumer’s current debt obligations, 

alimony, and child support. The 

General QM Final Rule removes 

appendix Q. To prevent uncertainty that 

may result from appendix Q’s removal, 

the General QM Final Rule clarifies the 

consider and verify requirements. The 

General QM Final Rule preserves the 

current threshold separating safe harbor 

from rebuttable presumption QMs, 

under which a loan is a safe harbor QM 

if its APR does not exceed APOR for a 

comparable transaction by 1.5 

percentage points or more as of the date 

the interest rate is set (or by 3.5 

percentage points or more for 

subordinate-lien transactions). 

E. Presumption of Compliance for 

Existing Categories of QMs Under the 

ATR/QM Rule 

In the January 2013 Final Rule, the 

Bureau considered whether QMs should 

receive a conclusive presumption (i.e., a 

safe harbor) or a rebuttable presumption 

of compliance with the ATR 

requirements.38 The statute does not 

specify whether the presumption of 

compliance means that the creditor 

receives a conclusive presumption or a 

rebuttable presumption of compliance 

with the ATR provisions. The Bureau 

noted that its analysis of the statutory 

construction and policy implications 

demonstrated that there are sound 

reasons for adopting either 

interpretation.39 The Bureau concluded 

that the statutory language is ambiguous 

and does not mandate either 

interpretation and that the 

presumptions should be tailored to 

promote the policy goals of the statute.40

The Bureau ultimately interpreted the 

statute to provide for a rebuttable 

presumption of compliance with the 

ATR requirements but used its 

adjustment authority to establish a 

conclusive presumption of compliance 

for loans that are not ‘‘higher priced.’’ 41

Under the ATR/QM Rule, a creditor 

that makes a QM is protected from 

liability presumptively or conclusively, 

depending on whether the loan is 

‘‘higher priced.’’ The ATR/QM Rule 

generally defines a ‘‘higher-priced’’ loan 

to mean a first-lien mortgage with an 

APR that exceeded APOR for a 

comparable transaction as of the date 

the interest rate was set by 1.5 or more 

percentage points; or a subordinate-lien 

mortgage with an APR that exceeded 

APOR for a comparable transaction as of 

the date the interest rate was set by 3.5 

or more percentage points.42 A creditor 

that makes a QM that is not ‘‘higher 

priced’’ is entitled to a conclusive 

presumption that it has complied with 

the ATR/QM Rule—i.e., the creditor 

receives a safe harbor from liability.43 A 

creditor that makes a loan that meets the 

standards for a QM but is ‘‘higher 

priced’’ is entitled to a rebuttable 

presumption that it has complied with 

the ATR/QM Rule.44

F. The Bureau’s Assessment of the ATR/ 

QM Rule 

Section 1022(d) of the Dodd-Frank 

Act requires the Bureau to assess each 

of its significant rules and orders and to 

publish a report of each assessment 

within five years of the effective date of 

the rule or order.45 In June 2017, the 

Bureau published a request for 

information in connection with its 

assessment of the ATR/QM Rule 

(Assessment RFI).46 These comments 

are summarized in general terms in part 

III below. 

In January 2019, the Bureau published 

its ATR/QM Rule Assessment Report 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86406 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

47Bureau of Consumer Fin. Prot., Ability to Repay 

and Qualified Mortgage Assessment Report (Jan. 

2019), https://files.consumerfinance.gov/f/ 

documents/cfpb_ability-to-repay-qualifiedmortgage_assessment-report.pdf (Assessment 

Report). 

48See, e.g., id. at 10, 194–96. 

49See, e.g., id. at 10–11, 117, 131–47. 

50 Id. at 188, 198. 

51 Id. at 191. 

52 Id. at 196. 

53 Id. 

54 Id. 

55 Id. 

56 Id. at 197. 

57 Id. at 196. 

58 Id. at 205. 

59 Id. 

60Brandon Ivey, Expanded Credit Lending Inches 

Up in Third Quarter, Inside Mortg. Fin. (Nov. 25, 

2020), https://www.insidemortgagefinance.com/ 

articles/219861-expanded-credit-lending-ticks-upin-3q-amid-slow-recovery (on file). 

61Public Law 116–136, 134 Stat. 281 (2020) 

(includes loans backed by the U.S. Department of 

Housing and Urban Development, the U.S. 

Department of Agriculture, the U.S. Department of 

Veterans Affairs, Fannie Mae, and Freddie Mac). 

62See, e.g., Fed. Hous. Fin. Agency, FHFA 

Extends Foreclosure and REO Eviction Moratoriums 

(Dec. 2, 2020), https://www.fhfa.gov/Media/ 

PublicAffairs/Pages/FHFA-Extends-Foreclosureand-REO-Eviction-Moratoriums-12022020.aspx; 

Press Release, U.S. Dep’t of Hous. & Urban Dev., 

FHA Extends Foreclosure And Eviction Moratorium 

For Homeowners Through Year End (Aug. 27, 

2020), https://www.hud.gov/press/press_releases_

media_advisories/HUD_No_20_134; Veterans 

Benefits Admin., Extended Foreclosure Moratorium 

for Borrowers Affected by COVID–19 (Aug. 24, 

2020), https://www.benefits.va.gov/HOMELOANS/ 

documents/circulars/26-20-30.pdf; Rural Dev., U.S. 

Dep’t of Agric., Extension of Foreclosure and 

Eviction Moratorium for Single Family Housing 

Direct Loans (Aug. 28, 2020), https://

content.govdelivery.com/accounts/USDARD/ 

bulletins/29c3a9e. 

63Press Release, Mortg. Bankers Ass’n, Share of 

Mortgage Loans in Forbearance Increases to 5.54% 

(Dec. 1, 2020), https://www.mba.org/2020-pressreleases/december/share-of-mortgage-loans-inforbearance-increases-to-554-percent. 

64The Bureau has consulted with agencies 

including the FHFA, the Board of Governors of the 

Federal Reserve System, the Federal Housing 

Administration, the Federal Deposit Insurance 

Corporation (FDIC), the Office of the Comptroller of 

the Currency (OCC), the Federal Trade Commission, 

the National Credit Union Administration, and the 

U.S. Department of the Treasury. 

(Assessment Report).47 The Assessment 

Report included findings about the 

effects of the ATR/QM Rule on the 

mortgage market generally, as well as 

specific findings about Temporary GSE 

QM originations. 

The Assessment Report found that the 

ATR/QM Rule did not eliminate access 

to credit for consumers with DTI ratios 

above 43 percent who qualify for loans 

eligible for purchase or guarantee by 

either of the GSEs, that is, Temporary 

GSE QMs.48 On the other hand, based 

on application-level data obtained from 

nine large creditors, the Assessment 

Report found that the ATR/QM Rule 

eliminated between 63 and 70 percent 

of home purchase loans with DTI ratios 

above 43 percent that were not 

Temporary GSE QMs.49

One main finding about Temporary 

GSE QMs was that such loans continued 

to represent ‘‘a large and persistent’’ 

share of originations in the conforming 

segment of the mortgage market, and a 

robust and sizable market to support 

non-QM lending has not emerged.50 As 

discussed, the GSEs’ share of the 

conventional, conforming purchasemortgage market was 69 percent in 2013 

before the ATR/QM Rule took effect, 

and the Assessment Report found a 

small increase in that share since the 

ATR/QM Rule’s effective date, reaching 

71 percent in 2017.51

The Assessment Report discussed 

several possible reasons for the 

continued prevalence of Temporary GSE 

QM originations, including the structure 

of the secondary market.52 If creditors 

adhere to the GSEs’ guidelines, they 

gain access to a robust, highly liquid 

secondary market.53 In contrast, while 

private-label securitizations have grown 

somewhat in recent years, they are still 

a fraction of their pre-crisis levels.54

There were less than $20 billion in new 

origination private-label securities (PLS) 

issuances in 2017, compared with $1 

trillion in 2005,55 and only 21 percent 

of new origination PLS issuances in 

2017 were non-QM issuances.56 To the 

extent that private-label securitizations 

have occurred since the ATR/QM Rule 

took effect in 2014, the majority of new 

origination PLS issuances have 

consisted of prime jumbo loans made to 

consumers with strong credit 

characteristics, and these securities 

include a small share of non-QM 

loans.57 The Assessment Report noted 

that the Temporary GSE QM loan 

definition may be inhibiting the growth 

of the non-QM market.58 However, the 

Assessment Report also noted that it is 

possible that this market might not exist 

even with a narrower Temporary GSE 

QM loan definition, if consumers were 

unwilling to pay the premium charged 

to cover the potential litigation risk 

associated with non-QM loans (which 

do not have a presumption of 

compliance with the ATR requirements) 

or if creditors were unwilling or lack the 

funding to make the loans as a result of 

the potential litigation risk.59

G. Effects of the COVID–19 Pandemic on 

Mortgage Markets 

The COVID–19 pandemic has had a 

significant effect on the U.S. economy. 

In the early months of the pandemic, 

economic activity contracted, millions 

of workers became unemployed, and 

mortgage markets were affected. In 

recent months, the unemployment rate 

has declined, and there has been a 

significant rebound in mortgage 

origination activity, buoyed by 

historically low interest rates and by an 

increasingly large share of government 

and GSE-backed loans. However, 

origination activity outside the 

government and GSE-backed origination 

channels has declined, and mortgagecredit availability for many 

consumers—including those who would 

be dependent on the non-QM market for 

financing—remains tight relative to prepandemic levels. While nearly all major 

non-QM creditors ceased making loans 

in March and April 2020, the market has 

begun to recover and many non-QM 

creditors—which largely depend on the 

ability to sell loans in the secondary 

market to fund new loans—have begun 

to resume originations, albeit with 

tighter underwriting requirements.60

In March 2020, Congress passed and 

the President signed into law the 

Coronavirus Aid, Relief, and Economic 

Security Act (CARES Act).61 The 

CARES Act provides additional 

protections for borrowers with federally 

backed mortgages, such as those whose 

mortgages are purchased or securitized 

by a GSE or insured or guaranteed by 

the Federal Housing Administration 

(FHA), U.S. Department of Veterans 

Affairs (VA), or U.S. Department of 

Agriculture (USDA). The CARES Act 

mandated a 60-day foreclosure 

moratorium for such mortgages, which 

has since been extended by the agencies 

until the end of 2020 or January 31, 

2021 in the case of the GSEs.62 The 

CARES Act also allows borrowers with 

federally backed mortgages to request 

up to 180 days of forbearance due to a 

COVID–19-related financial hardship, 

with an option to extend the forbearance 

period for an additional 180 days. While 

forbearance rates remain elevated at 

5.54 percent for the week ending 

November 22, 2020, they have 

decreased since reaching their high of 

8.55 percent on June 7, 2020.63

For further discussion of the effect of 

the COVID–19 pandemic on mortgage 

origination and servicing markets, see 

part II.D of the General QM Final Rule. 

III. Summary of the Rulemaking 

Process 

The Bureau has solicited and received 

substantial public and stakeholder input 

on issues related to the ATR/QM Rule 

generally and the substance of this final 

rule. In addition to the Bureau’s 

discussions with and communications 

from industry stakeholders, consumer 

advocates, other Federal agencies,64 and 

members of Congress, the Bureau issued 

requests for information (RFIs) in 2017 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86407 

65 84 FR 37155 (July 31, 2019). 66 82 FR 25246 (June 1, 2017). 67See Assessment Report, supra note 47, 

appendix B (summarizing comments received in 

response to the Assessment RFI). 

68See Bureau of Consumer Fin. Prot., Call for 

Evidence, https://www.consumerfinance.gov/policycompliance/notice-opportunities-comment/archiveclosed/call-for-evidence (last updated Apr. 17, 

2018). 

69 83 FR 10437 (Mar. 9, 2018). 

70 83 FR 12286 (Mar. 21, 2018). 

71 83 FR 12881 (Mar. 26, 2018). 

72 84 FR 37155 (July 31, 2019). 

73 Id. at 37160–62. 

74 85 FR 41716 (July 10, 2020). 

75The GSEs’ representation and warranty 

framework is discussed in greater detail in part V 

below. 

76U.S. Dep’t of the Treasury, Housing Reform 

Plan at 38 (Sept. 2019), https://home.treasury.gov/ 

system/files/136/Treasury-Housing-FinanceReform-Plan.pdf?mod=article_inline. 

and 2018, and in July 2019, it issued an 

advance notice of proposed rulemaking 

regarding the ATR/QM Rule (ANPR).65

The input from these RFIs and from the 

ANPR is briefly summarized in the 

General QM Final Rule and Extension 

Final Rule and below. The Bureau has 

also received substantial additional 

input through three ATR/QM 

rulemakings this year, as discussed 

below and in the General QM Final Rule 

and Extension Final Rule. 

A. The Requests for Information 

In June 2017, the Bureau published 

the Assessment RFI to gather 

information for its assessment of the 

ATR/QM Rule.66 In response to the 

Assessment RFI, the Bureau received 

approximately 480 comments from 

creditors, industry groups, consumer 

advocate groups, and individuals.67 The 

comments addressed a variety of topics, 

including the General QM loan 

definition and the 43 percent DTI limit; 

perceived problems with, and potential 

changes and alternatives to, appendix Q; 

and how the Bureau should address the 

expiration of the Temporary GSE QM 

loan definition. The comments 

expressed a range of ideas for 

addressing the expiration of the 

Temporary GSE QM loan definition. 

Some commenters recommended 

making the definition permanent or 

extending it for various periods of time. 

Other comments stated that the 

Temporary GSE QM loan definition 

should be eliminated or permitted to 

expire. 

Beginning in January 2018, the 

Bureau issued a general call for 

evidence seeking comment on its 

enforcement, supervision, rulemaking, 

market monitoring, and financial 

education activities.68 As part of the call 

for evidence, the Bureau published RFIs 

relating to, among other things, the 

Bureau’s rulemaking process,69 the 

Bureau’s adopted regulations and new 

rulemaking authorities,70 and the 

Bureau’s inherited regulations and 

inherited rulemaking authorities.71 In 

response to the call for evidence, the 

Bureau received comments on the ATR/ 

QM Rule from stakeholders, including 

consumer advocate groups and industry 

groups. The comments addressed a 

variety of topics, including the General 

QM loan definition, appendix Q, and 

the Temporary GSE QM loan definition. 

The comments also raised concerns 

about, among other things, the risks of 

allowing the Temporary GSE QM loan 

definition to expire without any changes 

to the General QM loan definition or 

appendix Q. The concerns raised in 

these comments were similar to those 

raised in response to the Assessment 

RFI. 

The Advance Notice of Proposed 

Rulemaking 

As noted above, on July 25, 2019, the 

Bureau issued an ANPR.72 The ANPR 

stated the Bureau’s tentative plans to 

allow the Temporary GSE QM loan 

definition to expire in January 2021 or 

after a short extension, if necessary, to 

facilitate a smooth and orderly 

transition away from the Temporary 

GSE QM loan definition. The Bureau 

also stated that it was considering 

whether to propose revisions to the 

General QM loan definition in light of 

the potential expiration of the 

Temporary GSE QM loan definition and 

requested comments on several topics 

related to the General QM loan 

definition, including: Whether and how 

the Bureau should revise the DTI limit 

in the General QM loan definition; 

whether the Bureau should supplement 

or replace the DTI limit with another 

method for directly measuring a 

consumer’s personal finances; whether 

the Bureau should revise appendix Q or 

replace it with other standards for 

calculating and verifying a consumer’s 

debt and income; and whether, instead 

of a DTI limit, the Bureau should adopt 

standards that do not directly measure 

a consumer’s personal finances.73 Of 

relevance to this final rule, the ANPR 

noted that some stakeholders had 

suggested that the Bureau amend the 

ATR/QM Rule so that a performing loan, 

whether or not it qualified as a QM at 

consummation, would convert to, or 

season into, a QM if it performed for 

some period of time. The Bureau also 

requested comment on how much time 

industry would need to change its 

practices in response to any revisions 

the Bureau makes to the General QM 

loan definition. 

The Bureau received 85 comments on 

the ANPR from businesses in the 

mortgage industry (including creditors 

and their trade associations), consumer 

advocate groups, elected officials, 

individuals, and research centers. The 

General QM Proposal contains an 

overview of these comments.74 Of the 85 

comments received, approximately 20 

comments discussed whether the 

Bureau should permit a mortgage that 

was not a QM at consummation to 

season into a QM on the ground that a 

loan’s performance over an extended 

period should be considered sufficient 

or conclusive evidence that the creditor 

adequately assessed a consumer’s ability 

to repay at consummation. The 

discussion below provides a more 

detailed overview of comment letters 

that supported a seasoning approach to 

QM status and those that opposed such 

an approach. 

1. Comments Supporting Seasoning 

As discussed in the General QM 

Proposal, commenters from the 

mortgage industry and its trade 

associations, as well as several research 

centers, recommended that a mortgage 

that is originated as a non-QM or 

rebuttable presumption QM should be 

eligible to season into a QM safe harbor 

loan if a consumer makes timely 

payments for a predetermined length of 

time. According to these commenters, if 

a loan defaults after performing for some 

period of time, such as three or five 

years, it is reasonable to conclude that 

the default was not caused by the 

creditor’s failure to reasonably 

determine the consumer had the ability 

to repay at the time of consummation. 

Rather, these commenters maintained 

that defaults in those cases are more 

likely to be caused by unexpected life 

events or other factors, such as general 

economic trends, rather than a creditor’s 

poor underwriting or failure to make an 

ATR determination at consummation. 

A few commenters pointed to the 

GSEs’ representation and warranty 

framework.75 Under this framework, 

after a loan meets certain payment 

requirements, the creditor obtains relief 

from the enforcement of representations 

and warranties it must make to a GSE 

regarding its underwriting. These 

commenters indicated that a creditor’s 

legal exposure to the ATR requirements 

should sunset in a similar way. In 

addition, several commenters noted that 

the 2019 U.S. Department of the 

Treasury Housing Reform Plan report 

also suggested consideration of a 

seasoning approach to QM safe harbor 

loan status.76 A few commenters 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86408 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

77Comment 43(c)(1)–1.ii.A (‘‘The following may 

be evidence that a creditor’s ability-to-repay 

determination was reasonable and in good faith: 1. 

The consumer demonstrated actual ability to repay 

the loan by making timely payments, without 

modification or accommodation, for a significant 

period of time after consummation or, for an 

adjustable-rate, interest-only, or negativeamortization mortgage, for a significant period of 

time after recast . . . .’’). 

asserted that allowing mortgages to 

season into QMs is consistent with 

comment 43(c)(1)–1.ii.A.1 in the current 

ATR/QM Rule.77 A comment letter 

jointly submitted by two research 

centers suggested that a seasoning 

approach to portfolio-held mortgages 

build on the EGRRCPA’s portfolio loan 

QM category. 

Further, a number of commenters 

stated that a seasoning approach to QM 

status would benefit the mortgage 

market. Among other things, they stated 

that it could reduce compliance burden. 

Additionally, commenters in support of 

seasoning suggested that seasoning 

could improve investor confidence by 

addressing the issue of assignee liability 

and litigation risk with non-QM loans 

and rebuttable presumption QM loans. 

These commenters stated that this, in 

turn, could enhance capital liquidity in 

the market, which could expand access 

to credit. Several commenters suggested 

that a seasoning rule should apply to 

loans even if they were originated before 

the adoption of the rule. 

Commenters supporting a seasoning 

approach offered differing views on the 

appropriate length of the seasoning 

period, varying from as brief as 12 

months following consummation to as 

long as five years following 

consummation. Some opposed any 

restrictions on loan features, while 

others supported some restrictions, such 

as limiting the seasoning approach to 

mortgages that follow the statutory QM 

product prohibitions or to fixed-rate 

mortgage products. Several commenters 

supporting a seasoning approach also 

supported or did not oppose a 

requirement for creditors to hold loans 

in portfolio until the conclusion of the 

seasoning period. For example, some 

research center commenters noted that 

keeping loans in portfolio demonstrates 

creditors’ acceptance of the default risk 

associated with the loan. 

Some research center commenters 

suggested graduated or step approaches. 

Under one such approach, for example, 

a non-QM loan would first have to 

season into a rebuttable presumption 

QM loan and then either stay in that 

category or be allowed to season into a 

QM safe harbor loan if it meets certain 

conditions. Commenters supporting 

seasoning generally acknowledged that 

delinquencies during the seasoning 

period should disqualify a loan from 

seasoning into a QM, but most did not 

offer specific suggestions regarding what 

it means for a loan to be performing. A 

comment letter from a research center 

suggested the Bureau use the Mortgage 

Bankers Association’s method for 

determining timely payments. 

Several commenters supporting a 

seasoning approach also addressed the 

possibility of creditors engaging in 

gaming to minimize defaults during the 

seasoning period. Two commenters 

asserted that the Bureau could require 

consumers to use their own funds to 

make monthly payments but did not 

provide any suggestions on how to 

determine whether the funds used are 

the consumer’s funds rather than the 

funds of another. A research center 

commenter suggested that a competitive 

guarantor market such as the one the 

U.S. Department of the Treasury 

envisions in the long term would serve 

as a check on gaming by creditors. The 

same commenter also argued that it 

would be hard for creditors to game a 

seasoning approach because they would 

not be able to easily time harmful 

mortgages to go delinquent only after a 

given period following consummation. 

Comments Opposing Seasoning 

Two coalitions of consumer advocate 

groups submitted separate comment 

letters opposing a seasoning approach to 

QM status. The General QM Proposal 

described some of their concerns, 

including the following: (1) A period of 

successful repayment is insufficient to 

presume conclusively that the creditor 

reasonably determined ability to repay 

at consummation; (2) creditors would 

engage in gaming to minimize defaults 

during the seasoning period; and (3) 

seasoning would inappropriately 

prevent consumers from raising lack of 

ability to repay as a defense to 

foreclosure. In addition, the consumer 

advocate groups asserted that, 

depending on the length of the 

seasoning period, seasoning could 

inappropriately prevent consumers from 

bringing affirmative claims against 

creditors for allegedly violating the ATR 

requirements. One coalition of 

consumer advocate groups stated that in 

providing a three-year statute of 

limitations for consumers to bring such 

claims, Congress had indicated that the 

seasoning period could not be less than 

three years for rebuttable presumption 

or non-QM loans. Another coalition of 

consumer advocate groups stated that 

the three-year statute of limitations may 

be extended if equitable tolling applies 

and, as such, consumers may pursue 

affirmative claims for alleged violations 

of the ATR requirements beyond the 

three-year period. Both coalitions of 

consumer advocate groups stated that 

non-QM loans and QM loans that only 

receive a rebuttable presumption of 

compliance with the ATR requirements 

at consummation should not be allowed 

to season into QM safe harbor loans 

because the right a consumer has to 

raise the lack of ability to repay as a 

defense to foreclosure is not subject to 

the three-year statute of limitations. 

The consumer advocate groups also 

stated that certain types of mortgages 

should never be allowed to season into 

QMs, including adjustable-rate 

mortgages (ARMs) and mortgages with 

product features that disqualify them 

from being a QM loan currently (e.g., 

interest-only and negative-amortization 

mortgages). With respect to adjustablerate mortgages, consumer advocate 

groups expressed concern stating that 

just because a consumer can remain 

current during an initial teaser-rate 

period or during a low-interest rate 

environment does not mean that the 

consumer has the ability to repay the 

loan when the interest rate rises. One 

coalition of consumer advocate groups 

noted that consumers may not have the 

ability to repay interest-only or 

negative-amortization mortgages after 

the teaser rate payment period ends and 

stated that payment shock from higher 

future payments is inherent in the 

structure of these mortgage products. 

In contrast to industry commenters 

who argued that allowing loans to 

season into QMs would promote access 

to credit and improve market liquidity, 

consumer advocate groups suggested 

that providing a QM seasoning 

definition would not benefit market 

liquidity and could hurt underserved 

communities. They asserted that a 

seasoning rule would prevent creditors 

from originating loans with certainty 

about who ultimately bears the credit 

and liquidity risk and what their 

litigation risk will eventually be. They 

further asserted that the uncertainty 

created by such risks has a greater, 

negative impact on independent 

mortgage bankers without large balance 

sheets that are an important source of 

credit for underserved communities. 

One coalition of consumer advocate 

groups also asserted that a heightened 

risk of put-backs with mortgages not 

originated as QMs would create 

significant liquidity and credit risks for 

creditors, particularly non-depository 

creditors important to fully serving the 

market. 

Lastly, the consumer advocate groups 

challenged the Bureau’s authority to 

amend the definition of QM to provide 

seasoning as a pathway to QM status, 

asserting that seasoning would facilitate, 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86409 

78 85 FR 41448 (July 10, 2020). 

79 85 FR 41716 (July 10, 2020). 

80 85 FR 67938 (Oct. 26, 2020). 

81 85 FR 53568 (Aug. 28, 2020). 

82 85 FR 60096 (Sept. 24, 2020). 

83The Bureau also received a number of 

comments in response to the General QM Proposal 

that relate to the Seasoned QM Proposal. The 

Bureau has considered those comments as well in 

adopting this final rule. 

84 12 U.S.C. 5581(a)(1)(A). 

85 Dodd-Frank Act section 1002(14), 12 U.S.C. 

5481(14) (defining ‘‘Federal consumer financial 

law’’ to include the ‘‘enumerated consumer laws’’ 

and the provisions of title X of the Dodd-Frank Act), 

Dodd-Frank Act section 1002(12)(O), 12 U.S.C. 

5481(12)(O) (defining ‘‘enumerated consumer laws’’ 

to include TILA). 86 15 U.S.C. 1604(a). 87 15 U.S.C. 1601(a). 88 15 U.S.C. 1639b(a)(2). 

89 15 U.S.C. 1639c(b)(2)(A). 

not prevent, circumvention or evasion 

of the statute’s ATR requirements. They 

stated that consumers can resort to 

extraordinary measures to stay current 

on mortgage payments to stay in their 

homes, such as foregoing spending on 

necessities; drawing down retirement 

accounts; borrowing money from family 

and friends; going without food, 

medicine, or utilities; or taking on other 

types of debt (such as credit card debt). 

These commenters stated that, as a 

result, even mortgages that were not 

affordable at consummation can perform 

for a long period of time. The consumer 

advocate groups further cited examples 

to show that mortgages can default due 

to unforeseen events. One coalition of 

consumer advocate groups noted that 

the timing of default often reflects 

broader economic conditions, given the 

procyclical nature of the mortgage 

market. 

Extension Proposal, General QM 

Proposal, and Ensuing Final Rules 

On June 22, 2020, the Bureau released 

the Extension Proposal, which would 

have extended the Temporary GSE QM 

loan definition to expire on the effective 

date of final amendments to the General 

QM loan definition or the date the GSEs 

cease to operate under conservatorship, 

whichever comes first.78 On the same 

date, the Bureau separately released the 

General QM Proposal, which proposed 

amendments to the General QM loan 

definition.79 In a final rule issued on 

October 20, 2020, the Bureau extended 

the Temporary GSE QM category until 

the earlier of the mandatory compliance 

date of final amendments to the General 

QM loan definition or the date the GSEs 

cease to operate under 

conservatorship.80 In another final rule 

issued simultaneously with this final 

rule, the Bureau is amending the 

General QM loan definition. The 

General QM Final Rule is discussed in 

part II.D above. 

Seasoned QM Proposal 

On August 18, 2020, the Bureau 

issued a proposed rule to create a new 

category of QMs, Seasoned QMs, for 

first-lien, fixed-rate covered transactions 

that have met certain performance 

requirements over a 36-month seasoning 

period, are held in portfolio until the 

end of the seasoning period, comply 

with general restrictions on product 

features and points and fees, and meet 

certain underwriting requirements 

(Seasoned QM Proposal). The Seasoned 

QM Proposal was published in the 

Federal Register on August 28, 2020, 

with a 30-day comment period.81 The 

comment period was later extended 

briefly and ended on October 1, 2020.82

Consumer advocate groups and an 

organization representing State 

regulators further asked the Bureau to 

provide an extension to the comment 

period of up to an additional 60 days. 

These commenters cited the complexity 

of the rule, the concurrent QM 

rulemakings, and the difficulties 

presented by the COVID–19 pandemic 

in support of their request. The Bureau 

concludes that the comment period 

(including the brief extension) provided 

interested stakeholders with sufficient 

opportunity to comment on the 

proposal. The Bureau has previously 

issued other rules of similar complexity 

pursuant to a 30-day comment period 

and concludes that the data and analysis 

supporting the proposal were relatively 

straightforward for commenters to 

understand and comment on. 

In response to the Seasoned QM 

Proposal, the Bureau received around 40 

comments from consumer advocate 

groups, industry participants, industry 

trade associations, other nonprofit 

organizations, a member of Congress, 

and others. As discussed in more detail 

below, the Bureau has considered these 

comments in adopting this final rule.83

IV. Legal Authority 

The Bureau is issuing this final rule 

pursuant to its authority under TILA 

and the Dodd-Frank Act. Section 1061 

of the Dodd-Frank Act transferred to the 

Bureau the ‘‘consumer financial 

protection functions’’ previously vested 

in certain other Federal agencies, 

including the Board of Governors of the 

Federal Reserve System (Board). The 

Dodd-Frank Act defines the term 

‘‘consumer financial protection 

function’’ to include ‘‘all authority to 

prescribe rules or issue orders or 

guidelines pursuant to any Federal 

consumer financial law, including 

performing appropriate functions to 

promulgate and review such rules, 

orders, and guidelines.’’ 84 Title X of the 

Dodd-Frank Act (including section 

1061), along with TILA and certain 

subtitles and provisions of title XIV of 

the Dodd-Frank Act, are Federal 

consumer financial laws.85

A. TILA 

TILA section 105(a). Section 105(a) of 

TILA directs the Bureau to prescribe 

regulations to carry out the purposes of 

TILA and states that such regulations 

may contain such additional 

requirements, classifications, 

differentiations, or other provisions and 

may further provide for such 

adjustments and exceptions for all or 

any class of transactions that the Bureau 

judges are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance 

therewith.86 A purpose of TILA is ‘‘to 

assure a meaningful disclosure of credit 

terms so that the consumer will be able 

to compare more readily the various 

credit terms available to him and avoid 

the uninformed use of credit.’’ 87

Additionally, a purpose of TILA 

sections 129B and 129C is to assure that 

consumers are offered and receive 

residential mortgage loans on terms that 

reasonably reflect their ability to repay 

the loans and that are understandable 

and not unfair, deceptive, or abusive.88

As discussed in the section-by-section 

analysis below, the Bureau is issuing 

certain provisions of this final rule 

pursuant to its rulemaking, adjustment, 

and exception authority under TILA 

section 105(a). 

TILA section 129C(b)(2)(A)(vi). TILA 

section 129C(b)(2)(A)(vi) provides the 

Bureau with authority to establish 

guidelines or regulations relating to 

ratios of total monthly debt to monthly 

income or alternative measures of 

ability to pay regular expenses after 

payment of total monthly debt, taking 

into account the income levels of the 

borrower and such other factors as the 

Bureau may determine relevant and 

consistent with the purposes described 

in TILA section 129C(b)(3)(B)(i).89 As 

discussed in the section-by-section 

analysis below, the Bureau is issuing 

certain provisions of this final rule 

pursuant to its authority under TILA 

section 129C(b)(2)(A)(vi). 

TILA section 129C(b)(3)(A) and (B)(i). 

TILA section 129C(b)(3)(B)(i) authorizes 

the Bureau to prescribe regulations that 

revise, add to, or subtract from the 

criteria that define a QM upon a finding 

that such regulations are necessary or 

proper to ensure that responsible, 

affordable mortgage credit remains 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86410 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

90 15 U.S.C. 1639c(b)(3)(B)(i). 

91 15 U.S.C. 1639c(b)(3)(A). 

92 12 U.S.C. 5512(b)(1). 

93See Assessment Report, supra note 47, at 11, 

118, 150. 

94 Id. at 118, 147, 150. 

95 Id. at 147. 

96 Id. at 118, 150. 

97See 85 FR 41716 (July 10, 2020). 

98S&P Global Ratings, Non-QM’s Meteoric Rise is 

Leading the Private-Label RMBS Comeback (Sept. 

20, 2019), https://www.spglobal.com/ratings/en/ 

research/articles/190920-non-qm-s-meteoric-rise-isleading-the-private-label-rmbs-comeback-11159125. 

Alternative income documentation includes 

alternative sources of income verification (e.g., bank 

statements), which vary from traditional income 

underwriting forms/documents such as W–2 forms, 

paystubs, and tax returns. The variation is due to 

the use of non-traditional sources of 

documentation, such as for self-employed 

consumers. 

available to consumers in a manner 

consistent with the purposes of TILA 

section 129C; or are necessary and 

appropriate to effectuate the purposes of 

TILA sections 129B and 129C, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance with 

such sections.90 In addition, TILA 

section 129C(b)(3)(A) directs the Bureau 

to prescribe regulations to carry out the 

purposes of TILA section 129C(b).91 As 

discussed in the section-by-section 

analysis below, the Bureau is issuing 

certain provisions of this final rule 

pursuant to its authority under TILA 

section 129C(b)(3)(B)(i). 

B. Dodd-Frank Act 

Dodd-Frank Act section 1022(b). 

Section 1022(b)(1) of the Dodd-Frank 

Act authorizes the Bureau to prescribe 

rules to enable the Bureau to administer 

and carry out the purposes and 

objectives of the Federal consumer 

financial laws, and to prevent evasions 

thereof.92 TILA and title X of the DoddFrank Act are Federal consumer 

financial laws. Accordingly, in this final 

rule, the Bureau is exercising its 

authority under Dodd-Frank Act section 

1022(b) to prescribe rules that carry out 

the purposes and objectives of TILA and 

title X and prevent evasion of those 

laws. 

V. Why the Bureau Is Issuing This Final 

Rule 

The Bureau is issuing this final rule 

to create an alternative pathway to a QM 

safe harbor to encourage safe and 

responsible innovation in the mortgage 

origination market, including for loans 

that may be originated as non-QM loans 

but meet certain underwriting 

conditions, product restrictions, and 

performance requirements. The Bureau 

is establishing this alternative definition 

because it concludes that many loans 

made to creditworthy consumers that do 

not fall within the existing QM loan 

definitions at consummation may be 

able to demonstrate through sustained 

loan performance compliance with the 

ATR requirements. 

A. Considerations Related to Access to 

Responsible, Affordable Credit 

Discussed in the Proposal 

As described in the proposal, a 

primary objective of the Seasoned QM 

alternative pathway to a QM safe harbor 

is to ensure the availability of 

responsible and affordable credit. 

Incentivizing the origination of non-QM 

loans that otherwise may not be made 

(or may be made at a significantly 

higher price) due to perceived litigation 

or other risks, even if a creditor has 

confidence that it can originate the loan 

in compliance with the ATR 

requirements, furthers the objective of 

ensuring the availability of responsible 

and affordable credit. The Bureau is 

concerned that, as discussed in the 

Assessment Report, the perceived risks 

associated with non-QM status at 

consummation may inhibit creditors’ 

willingness to make such loans and thus 

could limit access to responsible, 

affordable credit for certain 

creditworthy consumers.93 As noted in 

the proposal, an analysis of rejected 

applications in the Assessment Report 

suggested that the January 2013 Final 

Rule’s impact on access to credit among 

particular categories of consumers did 

not correlate with traditional indicators 

of creditworthiness, such as credit 

score, income, and down payment 

amount. Moreover, the Assessment 

Report also found that there was 

significant variation in the extent to 

which creditors have tightened credit 

for non-GSE eligible high DTI loans 

following the publication of the January 

2013 Final Rule. This variation and its 

persistence in the years following the 

ATR/QM Rule’s issuance suggest that 

creditors have not developed a common 

approach to measuring and predicting 

risk of noncompliance with the ATR/ 

QM Rule, as they have accomplished for 

other types of risks, such as prepayment 

and default.94 For instance, crosscreditor differences in both the level 

and the change in approval rates of high 

DTI applications are much larger than, 

for example, differences in approval 

rates by FICO category.95 The lack of 

uniformity is likely due in part to the 

difficulties associated with measuring 

and quantifying the litigation and 

compliance risk associated with 

originating non-QM loans. Thus, the 

Assessment Report concluded that some 

of the observed effect of the ATR/QM 

Rule on access to credit was likely 

driven by creditors’ interest in avoiding 

litigation or other risks associated with 

non-QM status, rather than by rejections 

of consumers who were unlikely to 

repay the loan based on traditional 

indicators of creditworthiness.96

While the proposal acknowledged 

that the Assessment Report analyzed the 

impact of the January 2013 Final Rule 

and its 43 percent DTI limit on access 

to credit, the proposal noted that 

specific findings related to the 

uncertainty of compliance and litigation 

risk for non-QM loans—and the 

resulting impact on consumers’ access 

to credit—remain relevant regardless of 

any amendments to the General QM 

loan definition.97 Indeed, while the 

Bureau anticipated that its General QM 

Proposal to replace the current 43 

percent DTI limit with a price-based 

approach would increase access to 

responsible and affordable mortgage 

credit among consumers with DTI ratios 

above 43 percent, the proposal 

expressed concern that compliance 

uncertainty and litigation risk would 

still persist for the remaining population 

of loans originated as non-QM loans at 

consummation. Furthermore, the 

proposal noted that the composition of 

the non-QM market has continued to 

grow and evolve since the period 

covered by the Assessment Report. In 

recent years, the share of non-QM 

securitizations comprised of loans with 

a DTI in excess of 43 percent has fallen, 

while loans based on alternative income 

documentation has grown to become the 

largest non-QM subsector, comprising 

approximately 50 percent of securitized 

pools in the first half of 2019.98 As a 

result, the Bureau preliminarily 

concluded in the proposal that 

providing a QM safe harbor to non-QM 

loans that have demonstrated sustained 

and timely mortgage payment histories 

could have a meaningful impact on 

improving access to credit for 

creditworthy consumers whose loans 

fall outside the other QM definitions. 

The Bureau proposed to adopt a 

Seasoned QM definition primarily to 

encourage creditors to originate more 

responsible, affordable loans that are not 

QMs at consummation, and to ensure 

that responsible, affordable credit is not 

lost because of legal uncertainty in nonQM status. The Bureau also stated that 

a Seasoned QM definition could provide 

incentives for making additional 

rebuttable presumption QM loans. As 

explained in the proposal, while the 

GSEs purchase rebuttable presumption 

QM loans, and nearly half of 

manufactured housing originations are 

rebuttable presumption QM loans, large 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86411 

99 15 U.S.C. 1640(k). 

100 Jim Parrot & Mark Zandi, Opening the Credit 

Box, Moody’s Analytics & the Urban Inst. (Sept. 30, 

2013), https://www.urban.org/sites/default/files/ 

publication/24001/412910-Opening-the-CreditBox.PDF. As an illustration of the tight 

underwriting requirements, in 2013, the average 

credit score in the agency market was over 750. 

This is 50 points higher than the average credit 

score across all loans at the time, and 50 points 

higher than the average score among those who 

purchased homes a decade prior, implying that 

mortgage origination markets may have overcorrected relative to the economic fundamentals at 

the time. 

101 JPMorgan mulls return to FHA-backed 

mortgages after era of fines, Am. Banker (Feb. 5, 

2020), https://www.americanbanker.com/articles/ 

jpmorgan-mulls-return-to-fha-backed-mortgagesafter-era-of-fines. 

banks tend to originate only safe harbor 

QM loans. A Seasoned QM definition 

may provide an additional incentive for 

large banks to originate rebuttable 

presumption QM loans that may not be 

eligible for sale to the GSEs and 

therefore may not otherwise have been 

made. 

The proposal explained that based on 

feedback from external stakeholders, the 

Bureau expected that a Seasoned QM 

definition may encourage creditors to 

originate more responsible, affordable 

loans that are not QMs at 

consummation, and ensure that 

creditors do not decide not to make 

responsible, affordable loans because of 

legal uncertainty in non-QM status. 

Comments on the ANPR suggested that 

allowing performing loans to season 

into QM status would provide creditors 

with clarity and certainty by ensuring 

that creditors would not have to litigate 

their ATR compliance long after 

consummation when an extensive 

record of on-time payments 

demonstrates that compliance and when 

default is more likely due to a change 

in the consumer’s circumstances. Not 

only would allowing performing loans 

to season into QM status clarify a 

creditor’s litigation risk, but external 

feedback suggested this could help 

provide certainty for secondary market 

participants that might otherwise be 

unable or unwilling to accept the 

litigation risk associated with assignee 

liability for either rebuttable 

presumption QM or non-QM loans. 

The proposal acknowledged that 

creditors may be uncertain about 

whether certain loans fall within the 

existing QM definitions. For example, 

the U.S. Department of Housing and 

Urban Development (HUD), the VA, and 

the USDA have each promulgated QM 

definitions pursuant to their authority 

under TILA section 129C(b)(3)(B)(ii), 

and they have largely set their QM 

criteria based on eligibility criteria they 

apply in their respective mortgage 

insurance or guarantee programs. The 

proposal noted that a creditor may be 

uncertain about whether a State court 

would interpret and apply those criteria 

to a particular loan in a consumer’s 

TILA section 130(k) 99 foreclosure 

defense, if the loan’s QM status were 

ever challenged, in the same way the 

agency would in administering its 

mortgage insurance or guarantee 

program. As discussed in the proposal, 

to the extent that there is ambiguity as 

to whether a given loan is eligible for a 

QM safe harbor through other QM 

definitions, a Seasoned QM definition 

will provide additional legal certainty 

by providing an alternative basis for a 

conclusive presumption of ATR 

compliance after the required seasoning 

period. 

As discussed in the proposal, to the 

extent that additional legal certainty 

provided by a Seasoned QM definition 

makes creditors more comfortable 

extending these types of loans in the 

future, such an effect would not only 

promote continued access to responsible 

and affordable credit, but could result in 

increased access to such credit. While 

the rationale in the proposal was 

primarily focused on the non-agency 

and non-QM markets, the proposal 

noted that the agency (i.e., GSE and 

government-insured) mortgage markets 

in the wake of the 2008 recession can 

serve as a useful illustration of the 

chilling effect legal risk and compliance 

uncertainty can have on origination 

markets. Access to responsible mortgage 

credit remained tight for years after the 

crisis, even in the agency mortgage 

market in which creditors typically do 

not bear the credit risk of default.100

While there is no doubt that the size and 

scale of the 2008 crisis impacted 

creditors’ willingness to take on credit 

risk, creditors also imposed additional, 

more stringent borrowing requirements 

due to their concerns that they could be 

forced to repurchase loans as a result of 

subsequent assertions of noncompliance. This occurred even though 

creditors believed the loans complied 

with FHA requirements for mortgage 

insurance and GSE standards for sale 

into the secondary markets without the 

more stringent borrowing requirements. 

Following GSE and FHA reforms, the 

proposal noted that access to 

responsible mortgage credit for GSE and 

government-insured loans has begun to 

rebound, with some of the biggest banks 

considering a return to FHA lending.101

Similarly, the Bureau noted in the 

proposal that creditors may originate 

loans they believe to be QMs at 

origination, but to the extent any 

lingering ambiguity remains, the added 

compliance certainty provided by the 

Seasoned QM definition could further 

incentivize creditors to originate these 

loans at scale. 

In addition, the Bureau preliminarily 

concluded in the proposal that, along 

with a possible increase in non-QM 

originations, a Seasoned QM definition 

might also encourage meaningful 

innovation and lending to broader 

groups of creditworthy consumers, 

especially those with less traditional 

credit profiles. As described in the 

proposal, the Bureau anticipates that 

innovations in technology and 

diversification of the overall economy 

will lead to changes in the composition 

of the job market and labor force, and 

the Bureau intends for the ATR/QM 

Rule to remain sufficiently flexible to 

accommodate and encourage 

developments in mortgage underwriting 

to reflect these changes. New technology 

allows creditors to assess financial 

information that may not be readily 

apparent through a traditional credit 

report, such as a consumer’s ability to 

consistently make on-time rent 

payments. The use of new tools could 

broaden homeownership to consumers 

who may have lacked credit histories 

with major credit reporting bureaus and 

so may have been less likely to obtain 

mortgages at an affordable price or 

obtain a mortgage at all. Additionally, 

technology platforms have led to rapid 

growth in the ‘‘gig economy,’’ through 

which workers earn income by 

providing services such as ride-sharing 

and home delivery and through the 

ability to earn income on assets such as 

a home. Some workers participate in the 

gig economy for their sole source of 

income, while others may do so to 

supplement their income from more 

traditional employment. Creditors’ 

methods of assessing consumers’ ability 

to repay mortgages evolve to 

accommodate these changes, but 

creditors may be left with some 

uncertainty as to whether these methods 

constitute, or can be part of, a 

reasonable determination of a 

consumer’s ability to repay under the 

ATR/QM Rule. Accordingly, the Bureau 

preliminarily concluded in the proposal 

that allowing an alternative pathway to 

a QM safe harbor may encourage 

creditors to lend to consumers with less 

traditional credit profiles at an 

affordable price based on an 

individualized determination of a 

consumer’s ability to repay. 

The proposal acknowledged that the 

extent to which a Seasoned QM 

definition may increase access to credit 

would be a function of the size of the 

eligible loan population that could 

benefit: The more loans that would be 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86412 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

102Comment 43(c)(1)–1.ii.A.1. 

103Section 1026.43(b)(11) provides a definition of 

recast. 

104Comment 43(c)(1)–2. 

105Assessment Report, supra note 47, at 83. 

106Fed. Hous. Fin. Agency, Representation and 

Warranty Framework, https://www.fhfa.gov/ 

PolicyProgramsResearch/Policy/Pages/ 

Representation-and-Warranty-Framework.aspx (last 

visited Nov. 30, 2020). 

107Fannie Mae, Amended and Restated GSE 

Rescission Relief Principles for Implementation of 

Master Policy Requirement #28 (Rescission Relief/ 

Incontestability) (Sept. 10, 2018), https://

singlefamily.fanniemae.com/media/16331/display. 

eligible to become Seasoned QMs, the 

more loans might be made that would 

not otherwise be made. In determining 

the length of time that is the appropriate 

seasoning period, the Bureau considered 

the rate at which loans terminate, to 

assess the potential population of loans 

that would be eligible to benefit from a 

Seasoned QM definition and thus 

potentially affect access to credit. Based 

on the data and analysis presented in 

part VII of the proposal, the Bureau 

preliminarily concluded that the 

majority of eligible non-QM and 

rebuttable presumption mortgage loans 

would remain active and thus be 

eligible to benefit from the seasoning 

period, across the economic cycle. 

B. Considerations Related to Ability To 

Repay Discussed in the Proposal 

The Bureau proposed to introduce an 

alternative pathway to a QM safe harbor 

for a new category of Seasoned QMs 

because it preliminarily concluded that, 

when coupled with certain other factors, 

successful loan performance over a 

number of years appears to indicate 

with sufficient certainty creditor 

compliance with the ATR requirements 

at consummation. 

The proposal first noted that the 

current ATR/QM Rule provides that 

loan performance can be a factor in 

evaluating a creditor’s ATR 

determination. Specifically, it provides 

that evidence that a creditor’s ATR 

determination was reasonable and in 

good faith may include the fact that the 

consumer demonstrated actual ability to 

repay the loan by making timely 

payments, without modification or 

accommodation, for a significant period 

of time after consummation.102 It 

explains further that the longer a 

consumer successfully makes timely 

payments after consummation or 

recast,103 the less likely it is that the 

creditor’s determination of ability to 

repay was unreasonable or not in good 

faith. The current ATR/QM Rule also 

distinguishes between a failure to repay 

that can be evidence that a consumer 

lacked the ability to repay at loan 

consummation, versus a failure to repay 

due to a subsequent change in the 

consumer’s circumstances that the 

creditor could not have reasonably 

anticipated at consummation. 

Specifically, it states that a change in 

the consumer’s circumstances after 

consummation (for example, a 

significant reduction in income due to 

a job loss or a significant obligation 

arising from a major medical expense) 

that cannot be reasonably anticipated 

from the consumer’s application or the 

records used to determine repayment 

ability is not relevant to determining a 

creditor’s compliance with the ATR/QM 

Rule.104 Thus, the existing regulatory 

framework supports the relevance of 

loan performance, particularly during 

the initial period following 

consummation, in evaluating a 

creditor’s ATR determination at 

consummation. 

Second, the proposal explained that 

an approach that takes loan performance 

into consideration in evaluating ATR 

compliance is consistent with the 

Bureau’s prior analyses of repayment 

ability. Because the affordability of a 

given mortgage will vary from consumer 

to consumer based upon a range of 

factors, there is no single recognized 

metric, or set of metrics, that can 

directly measure whether the terms of 

mortgage loans are within consumers’ 

ability to repay.105 The Bureau’s 

Assessment Report concluded that early 

borrower distress was an appropriate 

proxy for the lack of the consumer’s 

ability to repay at consummation across 

a wide pool of loans. Likewise, in the 

General QM Proposal and General QM 

Final Rule, the Bureau focused on an 

analysis of delinquency rates in the first 

few years to evaluate whether a loan’s 

price, as measured by the spread of APR 

over APOR (herein referred to as the 

loan’s rate spread), may be an 

appropriate measure of whether a loan 

should be presumed to comply with the 

ATR provisions. The incorporation of 

loan performance requirements in a 

Seasoned QM definition in turn reflects 

the Bureau’s view that across a wide 

pool of loans, early distress supports an 

inference that consumers lacked the 

ability to repay at consummation. 

As discussed in the proposal, in 

general, the earlier a delinquency 

occurs, the more likely it is due to a lack 

of ability to repay at consummation than 

a change in circumstances after 

consummation that the creditor could 

not have reasonably anticipated from 

the consumer’s application or the 

records used to determine repayment 

ability. However, there is neither an 

exact period of time after which all 

delinquencies can be attributed to a lack 

of ability to repay at consummation, nor 

an exact period after which no 

delinquencies can be attributed to a lack 

of ability to repay at consummation. The 

Bureau proposed a seasoning period of 

36 months based on a range of policy 

considerations, rather than any singular 

measure of delinquency, as discussed in 

the section-by-section analysis of 

§ 1026.43(e)(7)(iv)(C). The Bureau 

preliminarily decided in the proposal to 

grant a safe harbor to these loans 

because 36 months of loan performance, 

combined with the product restrictions 

and underwriting requirements as 

defined in the proposal, appeared to 

indicate with sufficient certainty 

creditor compliance with the ATR 

requirements at consummation. The 

Bureau acknowledged that some 

meaningful percentage of non-QM loans 

may end up delinquent in later years. 

But, given the increasing likelihood that 

intervening events meaningfully 

contributed to such delinquencies, the 

proposal noted the Bureau does not 

view delinquency at that point in the 

lifecycle of a loan product as 

undermining the presumption of 

creditor compliance with the ATR 

requirements at consummation. 

The proposal also explained that the 

current practices of market participants 

with respect to remedies for deficiencies 

in underwriting practices also support 

the Bureau’s adoption of a seasoning 

period to evaluate a creditor’s ATR 

determination. Each GSE generally 

provides creditors relief from its 

enforcement with respect to 

representations and warranties a 

creditor must make to the GSE regarding 

its underwriting of a loan. The GSEs 

generally provide creditors that relief 

after the first 36 monthly payments if 

the consumer had no more than two 30- 

day delinquencies.106 Similarly, the 

master policies of mortgage insurers 

generally provide that the mortgage 

insurer will not issue a rescission with 

respect to certain representations and 

warranties the originating lender made 

if the consumer had no more than two 

30-day delinquencies in the 36 months 

following the consumer’s first payment, 

among other requirements.107 These 

practices, which extend to a significant 

portion of covered transactions, suggest 

that the GSEs and mortgage insurers 

have concluded, based on their 

experience, that after 36 months of loan 

performance, a default should not be 

attributed to underwriting, but rather a 

change in the consumer’s circumstances 

that the creditor could not have 

reasonably anticipated from the 

consumer’s application or the records. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86413 

Based on these considerations, the 

Bureau preliminarily concluded in the 

proposal that a consumer’s timely 

payments for 36 months, in combination 

with compliance with the product 

restrictions and underwriting and 

portfolio requirements in the proposal, 

indicate that the consumer had the 

ability to repay the loan at 

consummation, such that granting of 

safe harbor QM status to the loan is 

warranted subject to certain limitations. 

As discussed in the proposal, the 

Bureau focused on loans that would be 

eligible to be Seasoned QMs and that 

have an interest rate spread in excess of 

150 basis points, and therefore would be 

outside the safe harbor threshold in the 

General QM Proposal and General QM 

Final Rule. These non-QMs and 

rebuttable presumption QMs are the 

population whose ATR compliance 

presumption status would be affected by 

becoming Seasoned QMs. The proposal 

noted that two-thirds (66 percent) of 

loans that experience a disqualifying 

event (i.e., an event that would prevent 

a loan from becoming a Seasoned QM 

under the proposed criteria described in 

the section-by-section analysis of 

§ 1026.43(e)(7)) do so within 36 months, 

and the rate at which loans disqualify 

diminishes beyond 36 months. The 

proposal explained that this may 

suggest that a failure to repay that 

occurs more than three years after 

consummation can generally be 

attributed to causes other than the 

consumer’s ability to repay at loan 

consummation, such as a subsequent job 

loss or other change in the consumer’s 

circumstances that could not reasonably 

be anticipated from the records used to 

determine repayment ability. 

Furthermore, while the proposal 

acknowledged that it is possible that a 

consumer could continue making ontime payments for some period of time 

despite lacking the ability to repay, such 

as by forgoing payments on other 

obligations, the Bureau noted that it 

believes it is unlikely that a consumer 

could continue doing so for more than 

three years following consummation, 

especially in the absence of 

circumstances that would be 

disqualifying under the proposal (such 

as a 60-day delinquency), as explained 

below in part VI. 

Notwithstanding this evidence and 

these considerations, the proposal 

acknowledged that a consumer might 

lack an ability to repay at loan 

consummation and yet still make timely 

payments for three years. For example, 

a consumer could at consummation lack 

the ability to make a fully amortizing 

mortgage payment but manage to make 

interest-only payments in the first three 

years. The proposal noted that the 

prospect that at consummation a 

consumer may lack the ability to repay 

a loan yet still make timely payments 

for three years, as well as the potential 

benefits that a Seasoned QM definition 

might offer in terms of fostering access 

to responsible, affordable mortgage 

credit, would tend to vary depending on 

the loan characteristics. To address this, 

the proposal limited the Seasoned QM 

definition to first-lien, fixed-rate 

covered transactions that are held in the 

originating creditor’s portfolio (with 

specified exceptions), satisfy the 

existing product-feature requirements 

and limits on points and fees under the 

General QM loan definition, and meet 

the underwriting requirements 

applicable to Small Creditor QMs. 

C. Comments in Support of a Seasoned 

QM Definition 

Numerous industry commenters 

supported the Bureau’s proposal to 

create a pathway to a QM safe harbor for 

loans that demonstrate a satisfactory 

performance history, subject to certain 

product feature restrictions and 

underwriting requirements. 

Commenters who supported the 

Seasoned QM definition generally 

supported the Bureau’s rationale for the 

proposal, which is described in parts 

V.A and V.B above. With respect to 

encouraging responsible innovation and 

expansion in the non-QM market, 

commenters supporting the proposal 

generally agreed that a Seasoned QM 

definition would provide an important 

incentive for industry to originate loans 

that are considered non-QMs at 

origination, while appropriately 

balancing access to credit with 

meaningful consumer protections. With 

respect to ability to repay, these 

commenters also generally agreed that a 

borrower’s demonstrated ability to make 

three years of mortgage payments 

indicates that the creditor made a 

reasonable, good faith determination of 

the borrower’s ability to repay at 

consummation and should therefore 

warrant a conclusive presumption of 

compliance. 

Individual financial institutions as 

well as industry trade associations 

argued that a Seasoned QM definition 

would increase access to credit without 

undermining protections for consumers. 

Some of these commenters stated that a 

Seasoned QM definition would reduce 

non-QM litigation exposure and reward 

responsible underwriting. While 

industry commenters offered varying 

assessments of the extent to which this 

reduction in compliance uncertainty 

and litigation exposure would increase 

access to credit, many industry 

commenters indicated that the proposal 

would encourage origination of more 

loans that may be considered non-QM 

or rebuttable presumption QM at 

origination without weakening the 

rule’s ability to protect consumers from 

unaffordable mortgage loans. 

Several industry commenters agreed 

that the proposal would provide a 

meaningful incentive for creditors to use 

innovative underwriting techniques to 

increase access to credit and reduce the 

costs of credit for the substantial share 

of the broader population who may lack 

traditional credit profiles or income 

sources and therefore struggle to qualify 

for mortgage credit through GSE and 

government mortgage programs. These 

commenters also noted that because 

these borrowers are more likely to fall 

outside the GSE and government 

underwriting guidelines, their loans are 

also more likely to be higher priced and 

therefore fall outside of the Bureau’s 

price-based thresholds for determining 

General QM status. An industry trade 

association noted that market data show 

creditors have a lower willingness to 

originate non-QM and rebuttable 

presumption QM loans. Examples 

provided by commenters of these creditworthy borrowers who have limited 

credit history include younger 

consumers without a long credit history, 

elderly borrowers who have paid down 

their debts and pay their expenses with 

cash, and other consumers who may 

have used more informal means of 

borrowing in the past. Examples 

provided of borrowers with nontraditional income include those with 

income sources that are not reported on 

W–2 forms who have difficulty 

qualifying under standard underwriting 

guidelines due to variable amount and 

timing of their income, such as ‘‘gig 

economy’’ workers, seasonal employees, 

and self-employed borrowers. 

Three industry commenters supported 

the proposal but suggested that its 

impact on access to credit may be 

marginal. One of these commenters 

described the proposal as a ‘‘modest, but 

useful step’’ that would bring 

incremental improvement. Generally, 

these commenters expressed concern 

that the risk of litigation would remain 

because the Seasoned QM definition 

would not confer safe harbor status at 

consummation. These commenters 

indicated that some creditors would be 

less willing to originate additional loans 

even if the proposal were finalized, and 

even if the borrower has the requisite 

ability to repay based on prudent 

underwriting practices, given that these 

loans would lack a QM safe harbor at 

consummation. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86414 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

108Public Law 103–325, tit. I, subtit. B, 108 Stat. 

2190 (1994). 

Several commenters stated that access 

to credit would increase because the 

proposal would increase marketability 

to the secondary market of loans that are 

originated as non-QM or rebuttable 

presumption QM loans but season into 

a QM safe harbor, thereby increasing the 

ability of creditors to access secondary 

market liquidity to originate new loans. 

These commenters noted that the 

secondary market for non-QM loans is 

less liquid due to litigation and 

compliance risks as well as the costs of 

additional due diligence that many 

secondary market investors require prior 

to purchase. According to these 

commenters, eliminating assignee 

liability and litigation risks related to 

the ATR/QM Rule for Seasoned QMs 

that are sold in the secondary market 

would improve the marketability of 

these loans and reduce the transaction 

costs associated with buying and selling 

Seasoned QMs. These commenters 

stated that this would have the effect of 

increasing the number of market 

participants, in both the primary and 

secondary markets. 

Commenters in support of the 

proposal also agreed with the Bureau’s 

rationale for proposing a conclusive 

presumption of compliance with the 

ATR/QM Rule after three years of 

demonstrated loan performance. These 

commenters stated that if a borrower 

makes timely payments for an extended 

period of time, any subsequent default 

cannot reasonably be attributed to a 

creditor’s underwriting or ATR 

determination at consummation. Some 

commenters noted that because the legal 

standard for the ATR/QM Rule requires 

a creditor to make its ATR 

determination at consummation, 

subsequent defaults due to economic 

disruptions or a change in life 

circumstances that cannot be attributed 

to an underwriting or ATR deficiency at 

the time of consummation. 

While these commenters agreed that 

performance over time is sufficient 

evidence of a creditor’s ATR 

determination at consummation, they 

had varying opinions on the necessity of 

some of the additional consumer 

protections in the proposal, as discussed 

in greater detail in part VI below. While 

industry commenters generally 

supported maintaining the statutory 

product restrictions (such as the 

exclusion for loans with interest-only or 

negative amortization features, balloon 

payments, or terms that exceed 30 

years), they expressed a range of views 

on whether ARMs and subordinate-lien 

loans should be eligible to season into 

QM status. They also expressed varying 

opinions on whether the proposed 

portfolio requirement is a necessary 

consumer protection or overly 

restrictive. 

D. Comments in Opposition to a 

Seasoned QM Definition 

A number of consumer advocates and 

other non-profit organizations as well as 

an academic commenter opposed the 

Bureau’s proposed Seasoned QM 

definition. These commenters generally 

expressed concerns over the evidentiary 

support for the proposed Seasoned QM 

definition, the Bureau’s legal authority, 

the concept that demonstrated loan 

performance over an extended period of 

time can warrant a conclusive 

presumption of compliance with the 

ATR/QM Rule, and the impact on 

minority borrowers. Most of these 

commenters stated that if the Bureau 

were to finalize a Seasoned QM 

definition, the Bureau should retain the 

underwriting requirements, product 

restrictions, portfolio requirement, and 

other consumer protections included in 

the proposal. A joint comment from a 

number of non-profit organizations 

suggested that if the Bureau were to 

finalize a Seasoned QM definition, the 

final rule should incorporate a twotiered approach, such that non-QM 

loans at consummation could only 

season into rebuttable presumption QM 

loans and only loans originated as 

rebuttable presumption QM loans could 

season into safe harbor QM loans. 

Nearly all commenters that opposed 

the Seasoned QM definition questioned 

the Bureau’s legal authority to issue a 

rule that would limit a consumer’s 

private right of action and foreclosure 

defense for violations of the ATR/QM 

Rule after three years. Commenters 

asserted that TILA’s statutory 

requirements allow borrowers to raise a 

violation of the ATR/QM rule as a 

defense at any time in response to a 

foreclosure, and that Congress intended 

that these claims not be cut off. In 

addition, they maintained that, by 

extending the general one-year statute of 

limitations under TILA to three years for 

ability-to-repay claims, Congress 

recognized that it could take consumers 

a minimum of three years to recognize 

the right to bring an action against a 

creditor. Finally, commenters asserted 

that the performance requirements in 

the final rule are beyond the Bureau’s 

authority to define QMs because 

Congress intended to limit the 

definition of QM to only those 

conditions that could be determined at 

or prior to the consummation of a loan. 

These commenters suggested that the 

Bureau’s proposal is contrary to 

Congressional intent and exceeds the 

Bureau’s authority. 

Many of these commenters also 

asserted that the Bureau did not provide 

enough evidentiary support and data 

analysis demonstrating that Seasoned 

QMs are the types of high-quality, lowcost loans for which Congress intended 

the Bureau to exercise its exemption 

authority. Commenters stated that the 

proposal could afford a QM safe harbor 

and a release from risk retention 

requirements to loans that are higher 

cost, have high DTIs, and have limited 

income documentation. These 

commenters asserted that the analysis in 

part VII of the proposal demonstrated 

that a meaningful percentage of loans 

suffer a disqualifying event after three 

years and that the proposal’s three-year 

seasoning period is arbitrary. They also 

maintained that the Bureau’s objective 

to increase access to credit and 

innovation in the mortgage market is not 

a sufficient justification absent a clearer 

explanation of how the proposal 

advances the statutory objective of 

affordable and responsible mortgage 

lending. 

One consumer advocate commenter 

argued that the proposal could have 

unanticipated disparate impacts on 

borrowers of color and would likely 

burden these borrowers with higher 

mortgage costs without affording them 

the underwriting and assessment 

protections that the Dodd-Frank Act 

sought to provide. The commenter 

pointed to historical evidence that 

minority borrowers have been steered 

into predatory, higher-priced mortgage 

products, and that the foreclosure crisis 

preceding the Dodd-Frank Act resulted 

in a significant loss in housing wealth 

among minority homeowners. The 

commenter stated that the proposal 

would target vulnerable consumers and 

remove their statutorily provided life-ofloan defense to foreclosure. 

Several consumer advocates also 

stated that the proposal could restrict 

remedies for high cost loans under the 

Home Ownership and Equity Protection 

Act of 1994 (HOEPA).108 They asserted 

that the Bureau has not made the 

necessary case to restrict remedies 

under HOEPA for violations of HOEPA’s 

ability-to-repay requirements. 

Commenters also argued that loan 

performance should not be equated with 

ability to repay. They pointed to survey 

data and anecdotal evidence that many 

consumers take extraordinary measures 

to pay an unaffordable mortgage, such 

as drawing down retirement accounts, 

foregoing food, medicine, and utilities, 

or borrowing from relatives and friends. 

One consumer advocate commenter 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86415 

109 78 FR 6408, 6507 (Jan. 30, 2013). 

110This final rule, like the Assessment Report and 

the General QM Final Rule, reflects a shared 

underlying rationale that early payment difficulties 

indicate higher likelihood that the consumer may 

have lacked ability to repay at origination, and that 

delinquencies occurring soon after consummation 

are more likely indicative of a consumer’s lack of 

ability to repay than later-in-time delinquencies. 

The Assessment Report and the General QM Final 

Rule measure early distress as whether a consumer 

was ever 60 days or more past due within the first 

two years after origination. The performance 

requirements for Seasoned QMs reflect the Bureau’s 

consideration of this measure of early distress, but 

also its view of what requirements strike the best 

balance between facilitating responsible access to 

the credit in question while assuring protection of 

the consumer interests covered by ATR 

requirements. Similarly, the Bureau recognizes that 

the definition of delinquency and performance 

requirements in § 1026.43(e)(7) differ in some 

respects from the measure of early distress used in 

the Assessment Report, but concludes that this final 

rule’s definition and performance requirements 

further the specific purposes of this final rule for 

the reasons explained in the section-by-section 

analyses of § 1026.43(e)(7)(ii) and (iv)(A) below. 

cited its survey of housing counselors 

and attorneys, which showed that 70 

percent of respondents reported that 

their clients had forgone or decreased 

essential expenses in order to make 

payments for the first three years. 

Several commenters also asserted that 

the proposal is inconsistent with the 

statutory mandate that ability to repay is 

determined at origination, and that a 

change in circumstance (e.g., winning 

the lottery) whereby a borrower is able 

to pay a loan that was unaffordable at 

origination should not relieve creditors 

of their obligation to conduct a prudent 

ability-to-repay evaluation at 

origination. Several consumer advocates 

also expressed concern that the 

Seasoned QM definition may restrict the 

ability of the Bureau and other agencies 

to conduct supervisory examinations 

beyond the three-year seasoning period 

when the loan obtains QM safe harbor 

status. 

Several commenters also questioned 

the Bureau’s use of the GSE 

representation and warranty framework 

as a model for the proposal’s three-year 

seasoning period. They stated that the 

FHFA and GSE analysis is based on an 

investor’s view of the aggregate financial 

impact on the GSEs’ portfolios, as 

opposed to Congress’s objective in 

enacting the ATR mandate to protect 

individual consumers from harm. They 

also noted that the GSE representation 

and warranty framework includes lifeof-loan exclusions for more material 

defects such as misstatements, 

misrepresentations, and omissions. 

Lastly, the commenters pointed out that 

the GSEs perform post-purchase quality 

control checks and audits shortly after 

acquiring the loans and before loans 

have defaulted, to ensure they are able 

to require creditors to repurchase 

defective loans within the three-year 

sunset. These commenters asserted that 

the proposal lacked similar quality 

control checks and exceptions for 

misconduct and fraud. 

Several commenters maintained that 

the proposal’s assessment of the 

litigation risks associated with 

originating non-QM loans and the 

impact on cost of credit are unproven 

and inconsistent with the Bureau’s 

findings in the January 2013 Final Rule. 

They noted that Congress has balanced 

the interest of consumers and creditors 

over the years, as evidenced by the 

limitations that TILA’s general rules of 

liability place on possible litigation 

exposure. They also pointed out that 

there are practical limitations on 

litigation exposure for non-compliance 

with ability-to-repay violations, such as 

access to a limited supply of legal 

services and public interest attorneys. 

E. The Final Rule 

The Bureau is creating a Seasoned 

QM definition in this final rule because 

it concludes that providing a pathway to 

a QM safe harbor for performing nonQM and rebuttable presumption QM 

loans at consummation will maintain or 

expand access to responsible and 

affordable mortgage credit for loans that 

were originated in compliance with the 

ATR/QM Rule. The Bureau observed in 

the January 2013 Final Rule that 

increased legal certainty may benefit 

consumers if, as a result, creditors are 

encouraged to make loans that satisfy 

the statutory QM criteria, and further, 

that increased legal certainty may result 

in loans with a lower cost than would 

be charged in a context of legal 

uncertainty.109 Consistent with that 

earlier finding, the Bureau finds here 

that the increased compliance certainty 

and reduction in litigation risk 

associated with providing a conclusive 

presumption of compliance for 

Seasoned QMs will encourage creditors 

to lend to consumers whose loans may 

fall outside of the QM safe harbor at 

consummation but who nonetheless 

have the ability to repay. In particular, 

the Bureau concludes that there are a 

significant number of creditworthy 

consumers who are unable to readily 

obtain mortgage financing because they 

fall outside of the GSE and government 

lending guidelines, particularly those 

with non-traditional credit or income 

sources and self-employed borrowers. 

The Bureau also concludes that if 

combined with certain other factors, 

successful loan performance over a 

number of years indicates sufficient 

certainty to presume that loans were 

originated in compliance with the ATR/ 

QM Rule. 

This final rule provides a conclusive 

presumption of compliance for loans 

that are originated as non-QM or 

rebuttable presumption QM loans, that 

meet certain performance criteria and 

portfolio requirements over the 

seasoning period of at least 36 months, 

and that satisfy certain product 

restrictions, points-and-fees limits, and 

underwriting requirements. Specifically, 

the Seasoned QM definition is limited 

to fixed-rate, first-lien mortgages that 

also satisfy the product-feature 

requirements and limits on points and 

fees under the General QM loan 

definition. Under the final rule, 

creditors are required to consider the 

consumer’s DTI ratio or residual 

income, income or assets other than the 

value of the dwelling, and debts and 

verify the consumer’s income or assets 

other than the value of the dwelling and 

the consumer’s debts, using the same 

consider and verify requirements 

established for General QMs in the 

General QM Final Rule. The final rule 

generally requires the original creditor 

or purchasing institution to hold the 

loan in portfolio until the end of the 

seasoning period, except that it permits 

a single whole-loan transfer, as further 

described in the section-by-section 

analysis of § 1026.43(e)(7)(iii) below. 

The Bureau adopts a Seasoned QM 

definition because it concludes that the 

definition strikes the best balance 

between the competing consumer 

protection and access-to-credit 

considerations described herein. 

Specifically, the Bureau concludes that, 

if coupled with other consumer 

protections, a seasoning period of at 

least 36 months provides a sufficient 

length of time to conclusively presume 

that a creditor reasonably determined a 

consumer’s ability to repay at the time 

of consummation, while promoting 

continued access to credit and 

incentivizing creditors to make certain 

loans that may not have otherwise been 

made in the absence of potentially 

greater ability-to-repay compliance 

certainty.110 As discussed in further 

detail in the section-by-section analysis 

of § 1026.43(e)(7)(ii), the Bureau 

concludes that, for loans that meet the 

eligibility requirements to season into a 

QM safe harbor, it is reasonable to 

attribute any subsequent default after 

the 36-month seasoning period to a 

change in economic conditions or 

consumer circumstances that a creditor 

could not reasonably have anticipated 

from the consumer’s application or the 

records used to determine repayment 

ability rather than to a failure by the 

creditor to make a reasonable 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86416 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

111One academic commenter indicated that 

under the proposal, loans could season during 

pending litigation, cutting off affirmative claims 

filed within the statute of limitations period. 

Acknowledging this possibility, the Bureau 

nonetheless concludes that the final rule should not 

be revised to prevent that possibility in all cases. 

The reasoning underlying this final rule—that 

satisfaction of the seasoning requirements for the 

duration of the seasoning period demonstrates that 

the creditor made a reasonable determination of the 

consumer’s ability to repay at consummation—is 

not any less applicable when litigation is initiated 

during the seasoning period, but the consumer 

continues making on-time payments for the 

remainder of the seasoning period. The mere filing 

of the lawsuit itself does not indicate the creditor 

failed to make a reasonable determination of ability 

to repay at consummation. Accordingly, the Bureau 

does not believe there is a good reason to create and 

administer potentially complex rules managing the 

effects that various court or litigant actions should 

have on the seasoning period. 

112Likewise, the Bureau disagrees with 

commenters who suggest that the final rule is a 

statute of limitations or statute of repose. In contrast 

to statutes of limitations or repose—which limit 

liability based solely on the passage of time 

measured after a certain event occurs—the 

performance requirements in the final rule are 

based on a series of events, periodic payments, that 

must occur before a loan can season. Moreover, 

whereas a statute of limitations or repose cuts off 

a consumer’s right to raise a claim for reasons 

unrelated to the merits of a claim, the performance 

requirements in the final rule are probative of the 

merits of a section 129C(a) violation. 

determination of ability to repay at 

consummation. 

The Bureau concludes that the 

Seasoned QM definition will maintain 

or expand access to credit for non-QM 

and rebuttable presumption QM loans 

that otherwise may not have been made 

due to perceived litigation or 

compliance risks, even if the creditor 

has confidence that it could originate 

the loan in compliance with the ATR 

requirements. Indeed, many industry 

commenters specifically indicated in 

their comments that they anticipated 

that the proposal would do so. The 

Bureau concludes that the Seasoned QM 

definition will also facilitate innovation 

in underwriting in the non-QM market 

to better serve consumers with nontraditional credit profiles, allow for 

more flexibility to adapt to future 

changes in the work force and 

technology, and better support emerging 

research and technologies into 

alternative mechanisms to assess a 

consumer’s ability to repay, such as 

cash flow underwriting. Several 

commenters noted that the impacts on 

access to credit are uncertain or 

unproven given these loans would be 

consummated without a conclusive 

presumption of compliance, and that 

therefore uncertainty and legal risk will 

persist with respect to these loans. The 

Bureau acknowledges that not every 

creditor may seek to expand their 

product offerings as a result of this final 

rule, but the Bureau nonetheless 

concludes the final rule will further its 

policy objectives, as many industry 

commenters indicated in their 

comments. 

Furthermore, the Bureau concludes 

that the objective of increasing access to 

responsible non-QM lending is of 

particular importance in light of recent 

contractions in that segment of the 

market. As described in the proposal, 

the non-QM market has been further 

reduced by the recent economic 

disruptions associated with the COVID– 

19 pandemic, with most mortgage credit 

now available in the form of loans that 

obtain QM status at consummation. 

During periods of economic stress, 

investors seek safer assets such as cash 

and government-backed securities. 

Because non-QM loans are generally 

perceived as riskier by investors in part 

for the reasons discussed in the 

proposal, the decreases in originations 

related to the pandemic were 

particularly acute in the non-QM sector 

of the mortgage market. While the nonQM market has begun to recover, recent 

events have illustrated how investors’ 

perception of risk—including 

uncertainty over compliance and 

litigation risk—can exacerbate the 

impacts on access to credit, particularly 

during periods of economic distress. 

The Bureau concludes that the Seasoned 

QM definition in this final rule should 

help counteract these impacts. 

The Bureau acknowledges the 

concerns expressed by some 

commenters that the Seasoned QM 

definition will limit a consumer’s 

foreclosure-related defense by 

recoupment or set off for alleged 

violations of the ATR requirements after 

three years under TILA section 

130(k).111 These commenters suggested 

that availability of this defense indicates 

that Congress contemplated that 

consumers would default later than the 

ability-to-repay three-year statute of 

limitations period, and intended for 

consumers who defaulted at any point 

to be able to raise the creditor’s failure 

to reasonably determine ability to repay 

as a defense against foreclosure. 

The Bureau disagrees with this 

understanding of TILA section 130(k) 

and its implications regarding the scope 

of the Bureau’s authority to define a 

QM. TILA section 130(k) authorizes a 

consumer to assert a violation of the 

ATR requirements in section 129C(a) as 

a defense in the event of judicial or 

nonjudicial foreclosure, without regard 

for the time limit on a private action for 

damages for such a violation. With TILA 

section 130(k), Congress provided 

consumers with a degree of relief from 

the finality generally associated with a 

statute of limitations period so that they 

may assert a violation of TILA section 

129C(a) as a matter of defense by 

recoupment or set off in connection 

with judicial or nonjudicial foreclosure. 

TILA section 130(k) thus conditions a 

consumer’s actual right to obtain 

recoupment or set off on a finding that 

a creditor in fact violated TILA section 

129C(a). But, on this matter of 

substantive law, TILA section 

129C(b)(1) expressly provides that a 

creditor may presume its compliance 

with TILA section 129C(a) with respect 

to any mortgage that falls within the 

definition of a QM. TILA section 

129C(b)(2) and (3) grant the Bureau 

broad authority to revise, add to, or 

subtract from the criteria defining a QM 

for purposes of presuming compliance 

with TILA section 129C(a). Consistent 

with that authority, the final rule 

concludes that—if coupled with certain 

product restrictions and other factors— 

successful loan performance over a 

number of years indicates with 

sufficient certainty creditor compliance 

with TILA section 129C(a). 

Consequently, creditors of loans 

satisfying the final rule’s requirements 

may lawfully invoke the loan’s status to 

show that there is no ‘‘violation’’ for the 

purposes of TILA section 130(k), just as 

creditors properly originating loans 

under other QM categories have been 

able to do since the effective date of the 

January 2013 Final Rule. Consumers in 

turn may respond with evidence and 

argument establishing that a loan in fact 

does not satisfy the final rule’s 

requirements to qualify as a Seasoned 

QM. But the Bureau does not read TILA 

section 130(k) to preserve for consumers 

a right to assert a violation of TILA 

section 129C(a) when the Bureau has 

determined as a matter of substantive 

law to conclusively presume the loan’s 

compliance with TILA section 

129C(a).112 This regulatory regime, 

under which QM status may affect a 

consumer’s ability to raise a defense to 

foreclosure under TILA section130(k), is 

precisely what Congress intended and 

the introduction of a Seasoned QM 

category in no way alters that regime. 

The Bureau also disagrees with the 

concerns expressed by some 

commenters that the performance 

requirements in the final rule are 

beyond the Bureau’s authority to define 

QMs because Congress intended to limit 

the definition of QM to only those 

conditions that could be determined 

before a loan is consummated. These 

commenters specifically point to the 

statutory QM provisions, which they 

argue are conditions directly related to 

underwriting that can be met prior to 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86417 

113 15 U.S.C. 1639c(b)(2)(A)(iii) through (v). 

114 15 U.S.C. 1639c(b)(2)(A)(i) through (ii), (vii) 

through (viii); see 78 FR 6408, 6503–04 (Jan. 30, 

2013). 

115See 78 FR 6408, 6462 (Jan. 30, 2013). 

116For example, if justified by the merits, the 

final rule could have mimicked the QM category 

adopted by Congress in EGRRCPA and granted QM 

status to all covered loans at consummation with 

the caveat that the loan could lose QM status if a 

borrower fails the performance requirements. 15 

U.S.C. 1639c(b)(2)(F)(ii)(I)(aa), (iii). 

117As illustrated in Figure 3 in part VIII below, 

the Bureau estimates that nearly two-thirds of loans 

that experience delinquencies that would prevent a 

loan from becoming a Seasoned QM under the final 

rule do so within 36 months, and the rate at which 

loans disqualify diminishes beyond 36 months. 

consummation, unlike the performance 

requirements in the final rule. 

The Bureau concludes that nothing in 

the text of TILA section 129C(b) 

prevents the Bureau from creating 

categories of QMs that are based on 

conditions that can be observed after a 

loan is consummated. The Bureau 

instead believes that QM conditions that 

are indicative of creditor compliance 

with the ATR requirements at 

consummation, regardless of when they 

are satisfied, are consistent with the text 

and structure of TILA section 129C(b). 

Congress only required that additional 

QM conditions be necessary or proper to 

ensure responsible, affordable mortgage 

credit remains available to consumers in 

a manner consistent with the purposes 

of TILA section 129C or necessary and 

appropriate to effectuate the purposes of 

TILA sections 129B and 129C. And 

although some of the statutory QM 

conditions focus on underwriting,113

most of these statutory conditions 

instead focus on prohibiting risky 

product features that may be probative 

of a creditor’s non-compliance with the 

ATR requirements, such as interest-only 

loans, or loan terms that exceed 30 

years.114 The final rule goes beyond 

these statutory QM conditions with 

performance requirements and 

restrictions on creditors that, like the 

statutory product restrictions, are 

probative of whether a consumer was 

offered and received a loan on terms 

that the creditor reasonably determined 

reflected the consumer’s ability to repay 

the loan. The Bureau does not believe 

that Congress intended to allow certain 

QM conditions that provide prospective 

evidence of creditor compliance with 

the ATR requirements but prohibit 

conditions that instead provide 

retrospective evidence of the same.115

Thus, while a creditor undoubtedly 

must determine a consumer’s ability to 

repay at consummation, there is no 

indication that Congress intended to 

preclude or limit the Bureau’s authority 

to defer its decision on the merits of 

presuming such compliance until the 

occurrence of later-in-time events. 

Commenters’ insistence that QM 

status be determined at consummation 

is an approach the Bureau could have 

taken in the final rule. But the Bureau 

concludes that it has as much authority 

under TILA to grant QM status at 

consummation and to later withdraw it 

based on later-in-time events, on the one 

hand, as it does to condition the same 

presumption on the occurrence of postconsummation events, so long as the 

later-in-time event is probative of or 

related to creditor compliance with the 

ATR requirements at consummation.116

The Bureau further concludes that the 

wait-and-see approach adopted in this 

final rule is the most reasonable 

approach in this context. As already 

noted above, consumer distress during 

the first three years of a loan supports 

an inference that consumers lacked the 

ability to repay at consummation. By 

withholding the presumption during the 

first three years of a loan, the final rule 

ensures that consumers are afforded 

greater consumer protections by being 

able to assert their rights without being 

forced to first default on their loan. The 

final rule also ensures that creditors 

benefit from the presumption only once 

there is enough evidence that the 

creditor made a reasonable ATR 

determination at consummation. The 

Bureau thus concludes that creating a 

new category of QMs for seasoned loans 

that meet the statutory QM requirements 

and other appropriate criteria is 

consistent with the Bureau’s authority 

under and the purposes of TILA 

sections 129B and 129C. 

The Bureau recognizes the concerns 

expressed by many consumer advocate 

commenters that loan performance does 

not always equate to ability to repay and 

that consumers may take extraordinary 

measures to make payments on their 

mortgage. The Bureau acknowledged in 

the proposal that it is possible that a 

consumer could continue making ontime payments for some period of time 

despite lacking the ability to repay by 

foregoing payments on other 

obligations, and that a meaningful 

percentage of non-QM loans may end up 

delinquent in later years. However, as 

discussed in part VIII below, in general, 

the later a delinquency occurs, the less 

likely it is due to a lack of ability to 

repay at consummation rather than a 

change in circumstance after 

consummation that the creditor could 

not have reasonably anticipated from 

the consumer’s application or the 

records at consummation.117

Furthermore, the Bureau finds that 

the final rule’s inclusion of additional 

consumer protections mitigates the risks 

cited by commenters that a consumer 

lacks ability to repay but is nonetheless 

able to make timely payments for at 

least 36 months. As discussed further in 

the section-by-section analysis of 

§ 1026.43(e)(7)(i)(A) and (B), this final 

rule’s product restrictions prohibit loan 

features such as adjustable rates, 

interest-only payments, and negative 

amortization that can lead to sharp 

payment increases shortly after 

consummation, and limits Seasoned QM 

status to first-lien loans. The final rule 

also generally requires the creditor or 

first purchaser to hold the loan in 

portfolio until the end of the seasoning 

period. As discussed in the section-bysection analysis of § 1026.43(e)(7)(iii), 

this requirement gives creditors a 

greater incentive to make responsible 

and affordable loans at consummation 

by ensuring that the creditor or first 

purchaser of the loan bears the risk if 

the loan defaults during the seasoning 

period. 

Lastly, the final rule maintains the 

requirement that a creditor consider the 

consumer’s DTI ratio or residual 

income, income or assets other than the 

value of the dwelling, and debts and 

verify the consumer’s income or assets 

other than the value of the dwelling and 

the consumer’s debts. As discussed in 

the section-by-section analysis of 

§ 1026.43(e)(7)(i)(B), this final rule 

aligns the Seasoned QM consider and 

verify requirements with that of the 

General QM Final Rule, which will help 

to ensure that loans for which the 

creditor has not made a good faith 

determination of the consumer’s ability 

to repay do not season into a QM safe 

harbor. 

A number of commenters expressed 

concern that the Bureau lacks the 

evidentiary support and data analysis to 

demonstrate that Seasoned QMs are safe 

and high-quality loan products. These 

concerns are addressed in greater detail 

in part VIII below. The Bureau 

concludes that the delinquency and 

foreclosure analysis presented in part 

VIII, combined with the consumer 

protections discussed above, provides 

sufficient support to presume 

compliance with the ATR requirements 

when a loan performs over a seasoning 

period of at least 36 months and meets 

the other requirements in this final rule. 

Some consumer advocate commenters 

expressed concern about the potential 

effects of this final rule given that 

minority homeowners historically have 

had higher-priced mortgage products 

relative to White consumers with 

similar credit characteristics. These 

commenters stated that this final rule 

could result in unanticipated disparate 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86418 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

118See, e.g., Consent Order, U.S. v. Bancorpsouth 

Bank, No. 1:16–cv–00118, ECF No. 8 (N.D. Miss. 

July 25, 2016), https://files.consumerfinance.gov/f/ 

documents/201606_cfpb_bancorpSouth-consentorder.pdf (joint action for discriminatory mortgage 

lending practices including charging AfricanAmerican customers more for certain mortgage 

loans than non-Hispanic White borrowers with 

similar loan qualifications). 119 15 U.S.C. 1691 et seq. 120 12 CFR part 1002. 

121Fed. Hous. Fin. Agency, Representation and 

Warranty Framework, https://www.fhfa.gov/ 

PolicyProgramsResearch/Policy/Pages/ 

Representation-and-Warranty-Framework.aspx (last 

visited Nov. 30, 2020). 

122Fed. Hous. Fin. Agency, Credit Risk Transfer, 

https://www.fhfa.gov/PolicyProgramsResearch/ 

Policy/Pages/Credit-Risk-Transfer.aspx (last visited 

Nov. 30, 2020). 

123See Assessment Report, supra note 47, at 118, 

147, 150. 

impacts on borrowers of color if they 

lose their set off or recoupment rights 

after three years. The Bureau recognizes 

that some creditors may violate Federal 

fair lending laws by charging certain 

borrowers higher prices on the basis of 

race or national origin compared to nonHispanic White borrowers with similar 

credit characteristics, and the Bureau 

affirms its commitment to consistent, 

efficient, and effective enforcement of 

Federal fair lending laws.118 The Bureau 

further emphasizes that the QM criteria, 

including the Seasoned QM definition 

added by this final rule, do not create 

an inference or presumption that a loan 

satisfying the QM criteria is compliant 

with any Federal, State, or local antidiscrimination laws that pertain to 

lending. A creditor has an independent 

obligation to comply with the Equal 

Credit Opportunity Act 119 and 

Regulation B,120 and an effective way 

for a creditor to minimize and evaluate 

fair lending risks under these laws is by 

monitoring its policies and practices 

and implementing effective compliance 

management systems. 

This final rule’s performance criteria, 

product restrictions, underwriting 

criteria, and portfolio requirements are 

designed to ensure that Seasoned QMs 

do not contain risky product features 

identified in TILA section 129C(b)(2) 

and that they are underwritten with 

appropriate attention to consumers’ 

resources and obligations. Moreover, as 

discussed in the section-by-section 

analysis of § 1026.43(e)(7)(i)(E), this 

final rule also clarifies that the Seasoned 

QM definition does not extend to highcost mortgages covered by HOEPA, thus 

excluding the highest cost loans on the 

market from eligibility for Seasoned QM 

status. 

As discussed above, commenters 

expressed differing views on the 

utilization of the GSE representation 

and warranty framework as an analog or 

model for the Seasoned QM definition. 

Many industry commenters supported 

the Seasoned QM definition, citing 

consistency with the industry standards 

set by the GSE representation and 

warranty framework and the mortgage 

insurers’ rescission relief policies. One 

consumer advocate commenter, on the 

other hand, pointed out several 

differences relative to the Seasoned QM 

definition and questioned the utility of 

the GSE model as a precedent, as 

described above. The Bureau 

acknowledges that the GSE framework 

may have been developed based on an 

aggregate analysis of the GSE portfolio 

to provide certainty for lenders by 

clarifying when a loan may be subject to 

repurchase. However, the GSE 

framework nonetheless illustrates a 

recognition based on experience by both 

GSEs and lenders that after 36 months 

of strong loan performance, a default 

should fairly be attributed to a change 

in consumer’s circumstances that the 

creditor could not have reasonably 

anticipated from the consumer’s 

application or the records at 

consummation or other cause besides 

that of the lender’s underwriting. The 

FHFA’s stated purpose for the 

framework is to ‘‘provide more certainty 

for lenders, facilitate greater liquidity to 

the primary market, and help increase 

access to credit without compromising 

safety and soundness.’’ 121 Furthermore, 

although commenters are correct that 

the GSE representation and warranty 

framework includes life-of-loan 

exclusions for more material defects, 

this final rule includes many important 

and consumer-protective loan-level 

requirements, some of which are not 

required under the GSE framework, 

such as the portfolio requirement and 

exclusion for adjustable-rate mortgages. 

The Bureau also acknowledges that 

the GSEs have developed a robust postpurchase quality control and audit 

framework to identify loan defects 

typically within a few months of 

consummation and well within the 36- 

month representation and warranty 

relief sunset. However, the Bureau 

concludes that this final rule’s portfolio 

requirement provides similar incentives 

for creditors to originate loans with 

ability to repay. That is, if a financial 

institution purchases a loan from a 

creditor that it is required to hold in 

portfolio for 36 months, that purchaser 

has similar incentives to perform loanlevel due diligence as the GSEs given 

the purchaser, like the GSEs, bears the 

credit risk of default. The prospect of 

being able to sell the loan only if it 

passes that due diligence creates a 

strong incentive for the creditor to 

employ rigorous underwriting at 

consummation akin to post-purchase 

quality control and audit under the GSE 

representation and warranty framework. 

In fact, given the size and scale of the 

GSEs’ credit risk transfer programs 

whereby much of the risk of default for 

a large portion of the GSEs’ guaranteed 

portfolio is syndicated to private market 

participants,122 purchasers that are 

required to hold the loan in portfolio for 

36 months may have an even greater 

incentive to ensure the loans they 

purchase will perform well than the 

GSEs do. Moreover, like the GSEs, 

financial institutions have similar 

remedies to require the originating 

creditor to repurchase loans that were 

consummated with defects, including a 

lack of ability to repay. For these 

reasons, the Bureau has decided to base 

its adoption of a 36-month seasoning 

period in part on the 36-month 

representation and warranty sunset for 

GSE loans. 

Some consumer groups suggested that 

the Bureau’s concern regarding potential 

and perceived litigation risks associated 

with originating non-QM loans and their 

impact on access to credit is 

inconsistent with the Bureau’s findings 

in the January 2013 Final Rule and 

unproven. However, as discussed in the 

proposal, the analysis that the Bureau 

subsequently published in the 

Assessment Report found that some of 

the observed effect of the January 2013 

Final Rule on access to credit was likely 

driven by creditors’ interest in avoiding 

litigation or other risks associated with 

non-QM status, rather than by creditors’ 

determinations that consumers were 

unlikely to repay the loan based on 

traditional indicators of 

creditworthiness.123 Many industry 

commenters also reaffirmed the impact 

of compliance uncertainty and litigation 

risk on creditors’ willingness to 

originate non-QM and rebuttable 

presumption QM loans as well as the 

secondary market’s willingness to 

purchase them. They asserted that the 

conclusive presumption of compliance 

for a Seasoned QM after 36 months 

would result in higher secondary market 

liquidity for these loans as investors are 

extended the liability protections that 

QM status provides. Based on its 

Assessment Report, external feedback to 

the Bureau, and the comments, the 

Bureau has concluded that many 

secondary market investors are unable 

or unwilling to accept the litigation risk 

associated with assignee liability 

particularly with respect to non-QM 

loans, which has in turn contributed to 

the relative scarcity of non-QM loans. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86419 

124 78 FR 6408, 6511 (Jan. 30, 2013). 

125 Id. at 6514. 

126 Id. at 6511. 

127 Id. 

128 Id. 

129 Id. 

VI. Section-by-Section Analysis 

1026.43 Minimum Standards for 

Transactions Secured by a Dwelling 

43(e) Qualified Mortgages 

43(e)(1) Safe Harbor and Presumption 

of Compliance 

Section 1026.43(e)(1) currently 

provides that a creditor that makes a 

QM loan receives either a conclusive or 

rebuttable presumption of compliance 

with the repayment ability requirements 

of § 1026.43(c), depending on whether 

the loan is a higher-priced covered 

transaction. Section 1026.43(e)(1)(i) 

currently provides that a creditor that 

makes a QM loan that is not a higherpriced covered transaction is entitled to 

a safe harbor from liability under the 

ATR provisions. The Bureau proposed 

to add § 1026.43(e)(1)(i)(B), identifying 

Seasoned QMs as a separate category of 

QMs for which a creditor receives a 

conclusive presumption of compliance 

with ATR requirements, regardless of 

whether the loan is a higher-priced 

covered transaction. The proposal 

would have redesignated current 

§ 1026.43(e)(1)(i) as § 1026.43(e)(1)(i)(A). 

To conform with these changes, the 

Bureau proposed to revise comment 

43(e)(1)–1 to add a reference to 

proposed § 1026.43(e)(7). The Bureau 

also proposed to make a technical 

correction to comment 43(e)(1)–1 to add 

references to § 1026.43(e)(5) and (6). The 

Bureau further proposed to remove the 

first sentence of comment 43(e)(1)(i)–1, 

which would have been duplicative of 

regulatory text, and to redesignate that 

comment as comment 43(e)(1)(i)(A)–1. 

For the reasons discussed below, the 

Bureau is finalizing the amendments to 

§ 1026.43(e)(1) and related commentary 

as proposed, with minor technical 

changes to the proposed commentary. 

The Bureau’s Proposal 

TILA section 129C(b) provides that 

loans that meet certain requirements are 

‘‘qualified mortgages’’ and that creditors 

making QMs ‘‘may presume’’ that such 

loans have met the ATR requirements. 

As discussed above, TILA does not 

specify whether the presumption of 

compliance means that the creditor 

receives a conclusive presumption or a 

rebuttable presumption of compliance 

with the ATR provisions. The Bureau 

concluded in the January 2013 Final 

Rule that the statutory language is 

ambiguous and does not mandate either 

interpretation and that the 

presumptions should be tailored to 

promote the policy goals of the 

statute.124 In the January 2013 Final 

Rule, the Bureau interpreted TILA to 

provide for a rebuttable presumption of 

compliance with the ATR provisions 

but used its adjustment and exception 

authority under TILA to establish a 

conclusive presumption of compliance 

for loans that are not ‘‘higher-priced 

covered transactions.’’ 125

In the January 2013 Final Rule, the 

Bureau identified several reasons why 

the performance of QMs that are not 

higher-priced loans could suggest 

consumers have the ability to repay and 

should receive a safe harbor.126 The 

Bureau noted that the QM requirements 

would ensure that the loans do not 

contain certain risky product features 

and are underwritten with careful 

attention to consumers’ DTI ratios.127

The Bureau also noted that a safe harbor 

would provide greater legal certainty for 

creditors and secondary market 

participants and might promote 

enhanced competition and expand 

access to credit.128 The Bureau noted 

that it was not possible to define by a 

bright-line rule a class of mortgages for 

which each consumer would have the 

ability to repay.129

In the Seasoned QM Proposal, the 

Bureau preliminarily concluded that, in 

conjunction with the QM statutory and 

other requirements in proposed 

§ 1026.43(e)(7), a loan’s satisfaction of 

portfolio and seasoning requirements 

provides sufficient grounds for 

supporting a conclusive presumption 

that the creditor made a reasonable 

determination that the consumer had 

the ability to repay, in compliance with 

the ATR requirements. The Bureau also 

preliminarily concluded that 

satisfaction of the seasoning 

requirements—in particular, the fact 

that the consumer made timely 

payments for the duration of the 

seasoning period—supports the 

inference that the consumer was offered 

and received a loan on terms that the 

creditor reasonably determined reflected 

the consumer’s ability to repay the loan. 

The Bureau noted that proposed 

§ 1026.43(e)(7) would require creditors 

to comply with TILA requirements 

applicable to QMs and minimum 

underwriting requirements. The Bureau 

also noted that the proposed 

requirements would ensure that the 

loans do not contain risky product 

features identified in TILA section 

129C(b)(2), the loans are underwritten 

with attention to consumers’ resources 

and obligations, and the conclusive 

presumption would be available to 

creditors only after the loans have 

performed for a substantial period of 

time. 

In the proposal, the Bureau stated that 

providing creditors with an alternative 

pathway to greater ATR compliance 

certainty for loans that satisfy the 

criteria set forth in proposed 

§ 1026.43(e)(7) may result in greater 

access to responsible, affordable 

mortgage credit. For example, creditors 

may be more willing to maintain or 

expand access to credit to consumers 

with non-traditional income or a limited 

credit history, or to employ innovative 

methods of assessing financial 

information, as these loans could season 

into safe harbor QMs with satisfactory 

performance. In addition, the Bureau 

noted in the proposal that, similar to the 

Small Creditor QM definition and the 

pathway to QM status provided in 

EGRRCPA section 101, the Seasoned 

QM definition would include a 

requirement for the creditor to hold the 

loan in portfolio. Finally, in the 

proposal the Bureau preliminarily 

concluded that, in combination with the 

other Seasoned QM requirements in 

proposed § 1026.43(e)(7), the proposed 

portfolio requirement would provide an 

added layer of assurance that the 

Seasoned QM definition would 

encourage responsible non-QM lending 

and creditors would not make 

unaffordable loans. 

The Bureau sought comment on all 

aspects of the proposal that would be 

applicable to determining whether, by 

meeting the requirements of 

§ 1026.43(e)(7) for a particular loan, a 

creditor has demonstrated that the 

consumer had a reasonable ability to 

repay the loan according to its terms 

and the loan should be accorded safe 

harbor QM status. In addition, the 

Bureau sought comment on whether 

there are other approaches to providing 

QM status to seasoned loans that would 

better accomplish the Bureau’s 

objectives. 

Comments Received 

The Bureau received a number of 

comments relating to the proposed 

amendments to § 1026.43(e)(1). As 

discussed in greater detail in part V 

above, industry commenters generally 

supported the proposed amendments to 

§ 1026.43(e)(1), and consumer advocate 

commenters generally opposed the 

proposed amendments to 

§ 1026.43(e)(1). 

Industry commenters generally 

expressed support for the Bureau’s 

preliminary conclusion that a loan’s 

satisfaction of the proposed seasoning 

requirements provides sufficient 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86420 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

grounds for supporting a conclusive 

presumption that the creditor made a 

reasonable determination that the 

consumer had the ability to repay, in 

compliance with the ATR requirements. 

These commenters stated that the 

proposed amendments to 

§ 1026.43(e)(1), and the proposal in 

general, retain consumer safety 

considerations and legal protections 

consistent with the existing ATR/QM 

Rule. Industry commenters agreed that 

providing safe harbor QM status to loans 

that season would incentivize 

responsible non-QM lending, while 

maintaining market stability. Several of 

these commenters noted that safe harbor 

QM status would provide legal certainty 

to loans that previously did not receive 

safe harbor QM status at consummation, 

and thereby remove risk associated with 

originating non-QM loans. 

Consumer advocate commenters 

opposed the Bureau’s proposal, 

cautioning that a seasoning period is not 

an adequate basis for determining 

compliance with the ATR requirements. 

They also suggested that ATR 

determinations should remain a case-bycase determination, because there may 

be situations in which borrowers remain 

current on their loan for 36 months but 

did not have an ability to repay the loan 

at consummation. 

A joint comment from a number of 

consumer advocates and other nonprofit organizations suggested that the 

Bureau adopt a two-tiered approach to 

seasoning instead of providing all loans 

that season with safe harbor QM status. 

A two-tiered approach would allow 

non-QM loans to season into rebuttable 

presumption QM loans, and loans that 

are originated as QMs under other QM 

categories to season into safe harbor QM 

loans, after meeting the requirements for 

seasoning. 

Some commenters made suggestions 

to modify proposed § 1026.43(e)(7), 

which are discussed and addressed in 

the section-by-section analysis of 

§ 1026.43(e)(7) below. 

The Final Rule 

For the reasons discussed above and, 

pursuant to its authority under TILA 

section 105(a) as discussed below, the 

Bureau is finalizing § 1026.43(e)(1) as 

proposed. As finalized, § 1026.43(e)(1) 

provides that loans meeting the 

Seasoned QM requirements in 

§ 1026.43(e)(7) obtain a conclusive 

presumption of compliance with the 

repayment ability requirements of 

§ 1026.43(c). 

Since the January 2013 Final Rule, the 

Bureau has noted that a safe harbor 

provides greater legal certainty for 

creditors and secondary market 

participants and may promote enhanced 

competition and expand access to 

credit. As discussed in part V above, the 

Bureau concludes that a Seasoned QM 

definition will encourage creditors to 

originate more responsible, affordable 

loans that are not QMs at 

consummation, and to ensure that 

responsible, affordable credit is not lost 

because of legal uncertainty in non-QM 

status. 

The Bureau declines to adopt the twotiered approach that some commenters 

suggested that would provide only 

rebuttable presumption status to 

Seasoned QMs originated as non-QM 

loans. Adopting such a two-tiered 

approach would lessen the prospect of 

legal certainty for loans originated as 

non-QMs and could thereby undermine 

the final rule’s primary objective, which 

is to promote continued and potentially 

increased access to responsible and 

affordable credit by incentivizing the 

origination of non-QM loans that 

otherwise may not be made. The Bureau 

recognizes that it has decided in the 

General QM Final Rule not to provide 

a similar safe harbor at consummation 

to General QMs priced 1.5 percentage 

points or more above APOR. That 

decision reflects a balancing of the 

relevant consumer protection and 

access-to-credit considerations in view 

of the Bureau’s findings that (i) such 

loans have higher delinquency rates 

than lower-priced loans and (ii) it lacks 

sufficient evidence to suggest that 

having provided those loans with only 

a rebuttable presumption of ATR 

compliance since the January 2013 Final 

Rule took effect has resulted in a 

significant disruption of access to 

responsible, affordable mortgage credit. 

A balance of the same statutory 

considerations leads the Bureau to a 

different conclusion with respect to 

Seasoned QMs. The final rule’s 

performance requirements will ensure 

that only loans with strong early 

performance receive the Seasoned QM 

safe harbor. When coupled with the 

final rule’s other requirements, the 

Bureau concludes that loans meeting the 

Seasoned QM definition will have 

demonstrated that the creditor made a 

reasonable determination of the ability 

to repay, regardless of the loan’s QM or 

non-QM status at origination. The 

Bureau also recognizes that the prospect 

of a safe harbor three years after 

origination will provide a stronger 

incentive to originate loans that will be 

non-QM for at least the first three years 

than the prospect of a rebuttable 

presumption three years after 

origination. In light of these 

considerations, the Bureau concludes 

that extending Seasoned QMs a safe 

harbor strikes the best balance between 

consumer protection and ensuring 

continued access to responsible, 

affordable credit. The Bureau is 

therefore finalizing the amendments to 

§ 1026.43(e)(1) and related commentary 

as proposed, with minor technical 

changes to the proposed commentary. 

Legal Authority 

The Bureau is revising § 1026.43(e)(1) 

pursuant to its adjustment authority 

under TILA section 105(a) to establish a 

conclusive presumption of compliance 

for loans that meet the criteria in 

proposed § 1026.43(e)(7). The Bureau 

concludes that providing a safe harbor 

for seasoned loans is necessary and 

proper to facilitate compliance with and 

to effectuate the purposes of section 

129C and TILA, including to assure that 

consumers are offered and receive 

residential mortgage loans on terms that 

reasonably reflect their ability to repay 

the loans. The Bureau also concludes 

that providing such a safe harbor is 

consistent with the Bureau’s authority 

under TILA section 129C(b)(3)(B)(i) to 

prescribe regulations that revise, add to, 

or subtract from the criteria that define 

a QM upon a finding that such 

regulations are necessary or proper to 

ensure that responsible, affordable 

mortgage credit remains available to 

consumers in a manner consistent with 

the purposes of this section, necessary 

and appropriate to effectuate the 

purposes of TILA sections 129B and 

129C, to prevent circumvention or 

evasion thereof, or to facilitate 

compliance with such sections. 

43(e)(2) Qualified Mortgage Defined— 

General 

Section 1026.43(e)(2) sets out the 

general criteria for meeting the 

definition of a QM and provides 

exceptions for QMs covered by 

requirements set out in other specific 

paragraphs in § 1026.43(e). The Bureau 

proposed a conforming amendment to 

§ 1026.43(e)(2) to include a reference to 

§ 1026.43(e)(7), which sets out the 

requirements applicable to Seasoned 

QMs and is described in the section-bysection analysis below. The Bureau did 

not receive comments specifically 

relating to proposed § 1026.43(e)(2). To 

conform with the other amendments in 

this final rule, the Bureau is adopting 

the amendment to § 1026.43(e)(2) as 

proposed. 

43(e)(7) Qualified Mortgage Defined— 

Seasoned Loans 

The Bureau is adding § 1026.43(e)(7) 

to define a new category of QMs, 

Seasoned QMs, for covered transactions 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86421 

that meet certain criteria. The Bureau 

concludes that providing creditors an 

alternative path to a QM safe harbor for 

these types of loans is likely to increase 

creditors’ willingness to make these 

loans despite their ineligibility for a QM 

safe harbor at consummation. The 

Bureau recognizes that there is some 

risk that a consumer can lack an ability 

to repay at loan consummation yet 

manage to make timely payments for the 

seasoning period defined in 

§ 1026.43(e)(7)(iv)(C) of this final rule. 

The Bureau concludes that such risk, as 

well as the potential benefits that a 

Seasoned QM might offer in terms of 

fostering access to responsible, 

affordable mortgage credit, would vary 

depending on the loan characteristics. 

To mitigate this risk, the Bureau is 

limiting Seasoned QMs to first-lien 

covered transactions that satisfy the 

other requirements in § 1026.43(e)(7), as 

explained below. 

The Bureau concludes that adding a 

definition of Seasoned QM for covered 

transactions, as well as establishing the 

requirements for Seasoned QMs in 

§ 1026.43(e)(7) discussed below, is 

consistent with the Bureau’s authority 

under TILA section 129C(b)(3)(B)(i) to 

prescribe regulations that revise, add to, 

or subtract from the criteria that define 

a qualified mortgage upon a finding that 

such regulations are necessary or proper 

to ensure that responsible, affordable 

mortgage credit remains available to 

consumers in a manner consistent with 

the purposes of TILA section 129C, 

necessary and appropriate to effectuate 

the purposes of TILA sections 129B and 

129C, to prevent circumvention or 

evasion thereof, or to facilitate 

compliance with such sections. The 

Bureau finds that the provisions in 

§ 1026.43(e)(7) establishing criteria to 

define a Seasoned QM are necessary or 

proper to ensure that responsible, 

affordable mortgage credit remains 

available to consumers in a manner 

consistent with and appropriate to the 

purposes of TILA sections 129B and 

129C, which include assuring that 

consumers are offered and receive 

residential mortgage loans on terms that 

reasonably reflect their ability to repay 

the loan and that responsible, affordable 

mortgage credit remains available to 

consumers. In particular, the Bureau has 

concluded that establishing a QM safe 

harbor pathway for seasoned loans is 

likely to increase creditors’ willingness 

to make additional loans that do not 

qualify for a QM safe harbor at 

origination, or to make such loans with 

better pricing. The Bureau finds that 

limiting Seasoned QMs to covered 

transactions that meet the requirements 

in § 1026.43(e)(7) provides assurance 

that those loans that may qualify for 

Seasoned QM status after the seasoning 

period are made to creditworthy 

consumers. 

In addition, TILA section 

129C(b)(3)(A) provides the Bureau with 

authority to prescribe regulations to 

carry out the purposes of the qualified 

mortgage provisions—to ensure that 

responsible, affordable mortgage credit 

remains available to consumers in a 

manner consistent with the purposes of 

TILA section 129C. TILA section 105(a) 

also provides authority to the Bureau to 

prescribe regulations to carry out the 

purposes of TILA, including the 

purposes of the qualified mortgage 

provisions, and states that such 

regulations may contain such additional 

requirements, classifications, 

differentiations, or other provisions and 

may further provide for such 

adjustments and exceptions for all or 

any class of transactions that the Bureau 

judges are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance 

therewith. TILA section 

129C(b)(2)(A)(vi) provides authority to 

the Bureau specifically to establish 

guidelines or regulations relating to 

ratios of total monthly debt to monthly 

income or alternative measures of 

ability to pay regular expenses after 

payment of total monthly debt, taking 

into account the income levels of the 

borrower and such other factors as the 

Bureau may determine are relevant and 

consistent with the purposes described 

in TILA section 129C(b)(3)(B)(i). 

Accordingly, the Bureau exercises its 

authority under TILA sections 105(a), 

129C(b)(2)(A)(vi), (3)(A), and (3)(B)(i) to 

adopt § 1026.43(e)(7) for the reasons 

discussed above and below. 

43(e)(7)(i) General 

The Bureau proposed adding 

§ 1026.43(e)(7) to define a new category 

of QMs for covered transactions that 

meet certain criteria. The Bureau 

proposed as initial criteria under 

§ 1026.43(e)(7)(i) that Seasoned QM 

status would be available for first-lien 

covered transactions that meet certain 

additional requirements. Additional 

proposed requirements were set out 

generally in § 1026.43(e)(7)(i)(A) 

through (D) and included restrictions on 

product features and points and fees, as 

well as certain underwriting and 

performance requirements. The 

proposed criteria and related public 

comments are discussed below. 

In its proposal the Bureau tentatively 

concluded that limiting Seasoned QMs 

to first-lien covered transactions that 

satisfy the other requirements in 

proposed § 1026.43(e)(7) recognizes 

both the risk of consumers lacking an 

ability to repay at consummation and 

the potential benefits of fostering access 

to responsible, affordable mortgage 

credit through a Seasoned QM category. 

This final rule adopts in the 

introductory text for § 1026.43(e)(7)(i) 

the requirement that a Seasoned QM be 

a first-lien covered transaction as 

proposed. 

Comments Received 

A significant number of industry 

commenters and industry trade 

associations requested that the Bureau 

extend Seasoned QM eligibility to 

subordinate liens that otherwise meet 

the criteria. Several of these commenters 

noted that closed-end subordinate liens 

are included within the broader scope of 

requirements in § 1026.43. One industry 

commenter stated that its subordinate 

liens have better repayment and lower 

delinquencies than the overall first-lien 

industry and noted that the demand for 

cash-out subordinate-lien loans may 

grow as consumers looking to equity as 

a source of funds in a future, higherinterest-rate environment also want to 

retain the advantage of current, 

historically low rates on the remaining 

balance of their first-lien mortgages. 

Although two industry commenters 

suggested generally that the Bureau 

could make extension of Seasoned QM 

eligibility to subordinate liens more 

acceptable by tailoring the performance 

requirements for subordinate liens, the 

commenters did not provide specific 

suggestions. Commenters supporting 

extension of Seasoned QM eligibility to 

subordinate liens stated that doing so 

would encourage innovation, reduce 

litigation risk, and expand access to 

credit. An industry commenter, without 

elaboration, expressly supported 

limiting Seasoned QMs to first-lien 

loans, while a consumer advocate 

commenter stated that, if a Seasoned 

QM definition is finalized, the loan 

characteristics included in the proposal 

to limit the scope of the definition 

should be retained, even though those 

characteristics would not adequately 

protect consumers. 

The Final Rule 

For the reasons stated below, the 

Bureau adopts in § 1026.43(e)(7)(i) the 

requirement that a Seasoned QM be a 

first-lien covered transaction, as 

proposed. The Bureau continues to 

recognize, as it did in the proposal, that 

the potential risks and benefits of a 

Seasoned QM category will tend to vary 

depending on loan characteristics. The 

Bureau is exercising its discretionary 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86422 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

130The Bureau currently has limited data to use 

in analyzing the interaction of first- and 

subordinate-lien loans and how that interaction 

affects the consumers’ ability to repay those 

mortgages over time. As discussed in part VIII 

below, the primary data source relating to loan 

performance that the Bureau has relied upon in the 

Seasoned QM Proposal and this final rule is the 

National Mortgage Database (NMDB), which does 

not include subordinate-lien mortgages. The NMDB 

data include de-identified performance information 

for a nationally representative 5 percent sample of 

active first-lien mortgages. See Bureau of Consumer 

Fin. Prot., Sources and Uses of Data at the Bureau 

of Consumer Financial Protection at 55–56 (Sept. 

2018), https://files.consumerfinance.gov/f/ 

documents/bcfp_sources-uses-of-data.pdf; Robert B. 

Avery et al., National Mortgage Database Technical 

Report 1.2, at 1 (Nat’l Mortg. Database, Bureau of 

Consumer Fin. Prot., and Fed. Housing Fin. Agency, 

Technical Report Series, 2017), https://

www.fhfa.gov/PolicyProgramsResearch/Programs/ 

Documents/NMDB-Technical-Report_1.2_

10302017.pdf. 

131For example, a 2012 New York Federal 

Reserve Bank study noted that among consumers 

who are seriously delinquent on their first-lien 

loans for more than a year and have a second-lien 

loan, about 20 to 30 percent of consumers are 

current on their second-lien loans. The authors 

suggested possible explanations for why some 

consumers remain current on their subordinate-lien 

loans even a year beyond a continuing delinquency 

on their first-lien loan, including that (1) consumers 

may choose to pay as many bills as possible each 

month so will prioritize smaller bills over first-lien 

mortgages with likely larger payments; and (2) 

consumers may strategically default on first-lien 

loans in order to qualify for targeted modification 

programs. Donghoon Lee et al., Fed. Reserve Bank 

of New York, A New Look at Second Liens (Staff 

Report No. 569) (Aug. 2012), https://

www.newyorkfed.org/medialibrary/media/research/ 

staff_reports/sr569.pdf. 132 85 FR 53568, 53581–82 (Aug. 28, 2020). 

133As applicable to the definition of fixed-rate 

mortgage, § 1026.18(s)(7)(i) defines adjustable-rate 

mortgage as a transaction for which the APR may 

increase after consummation, and § 1026.18(s)(7)(ii) 

defines step-rate mortgage as a transaction for 

which the interest rate will change after 

consummation, and the rates that will apply and 

the periods for which they will apply are known at 

consummation. 

134Qualifying changes are discussed more fully 

below in the section-by-section analysis of 

§ 1026.43(e)(7)(iv). 

authority to establish an additional way 

in which covered transactions can 

achieve qualified mortgage status under 

the ATR requirements of TILA and 

Regulation Z. However, it is not 

apparent that extending Seasoned QM 

eligibility to subordinate lien loans can 

be done in a manner that improves 

access to credit without introducing 

unnecessary complexity in 

application.130 Subordinate-lien loans 

may be an example of loans with an 

elevated risk of showing timely 

payments even when a consumer lacks 

ability to repay. A consumer may make 

on-time payments on the second-lien 

loan but fail to make payments on the 

first-lien loan because the consumer is 

unable to afford the combination of the 

two periodic payments and the secondlien payment is often smaller than the 

first-lien payment.131 In light of the 

significant changes being made in the 

General QM Final Rule, the Bureau 

concludes that limiting Seasoned QM 

status to first-lien transactions will 

provide an opportunity for the market to 

gain experience with how access to 

credit and consumer ability-to-repay 

protections will be affected by both the 

portfolio and performance criteria in the 

new Seasoned QM definition and the 

revised underwriting requirements and 

other criteria in the General QM Final 

Rule. This experience could help inform 

any future changes to the Seasoned QM 

criteria that may be in accordance with 

the purposes of TILA. 

The Bureau notes, as it did in the 

proposal, that loans that satisfy another 

QM definition at consummation also 

could be Seasoned QMs, as long as the 

requirements of § 1026.43(e)(7) are 

met.132 A loan that becomes a Seasoned 

QM after seasoning might have been 

eligible as a QM at consummation under 

the General QM, Small Creditor QM, or 

EGRRCPA QM definitions. Although the 

various QM categories may overlap, 

each QM category is based on a 

particular set of factors that support a 

presumption that the creditor at 

consummation complied with the ATR 

requirements, and each QM category 

imposes requirements of varying 

degrees of restrictiveness relative to 

others. For example, EGRRCPA section 

101 provides a presumption of 

compliance starting at consummation 

and is available only to insured 

depository institutions and insured 

credit unions with assets below $10 

billion who hold those loans in 

portfolio, except that transfer of the 

loans is permitted in certain limited 

circumstances. QM status under 

EGRRCPA section 101 is available to 

both fixed and variable rate mortgages, 

as well as subordinate-lien loans, and 

section 101 also does not impose any 

requirements on post-consummation 

loan performance. The Seasoned QM 

category established in this final rule, by 

contrast, is not limited by creditor size, 

and is available only for fixed-rate, firstlien loans that meet a portfolio 

requirement, and only after a seasoning 

period during which the loans must 

meet performance requirements. The 

Bureau concludes that the Seasoned QM 

category and the EGRRCPA QM 

category, therefore, identify unique and 

discrete factors that, for different 

reasons, support a presumption of 

creditor compliance with the ATR 

requirements. The Bureau similarly 

concludes that because each QM 

category is based on a distinct set of 

factors that support a presumption of 

compliance with ATR requirements, it 

is possible for some transactions to fall 

within the scope of multiple QM 

categories. Accordingly, the Bureau 

determines that it is appropriate to 

exercise its authority under TILA 

sections 105(a), 129C(b)(2)(A)(vi), (3)(A), 

and (3)(B)(i) to make the Seasoned QM 

definition available to any first-lien 

covered transaction that meets the 

requirements in § 1026.43(e)(7), 

including transactions that might be 

eligible at consummation for the 

General QM loan definition, the Small 

Creditor QM definition, or the 

EGRRCPA QM definition. 

43(e)(7)(i)(A) 

The Bureau proposed to add 

§ 1026.43(e)(7)(i)(A) which would limit 

the Seasoned QM definition to fixedrate mortgages with fully amortizing 

payments. Proposed 

§ 1026.43(e)(7)(i)(A) would have applied 

the definition of fixed-rate mortgage set 

out in § 1026.18(s)(7)(iii). Section 

1026.18(s)(7)(iii) defines fixed-rate 

mortgage as a transaction secured by 

real property or a dwelling that is not 

an adjustable-rate mortgage or a steprate mortgage.133 In addition, proposed 

§ 1026.43(e)(7)(i)(A) would have applied 

the definition of fully amortizing 

payments set out in § 1026.43(b)(2). 

Section 1026.43(b)(2) defines fully 

amortizing payments as a periodic 

payment of principal and interest that 

will fully repay the loan amount over 

the loan term. 

Proposed comment 43(e)(7)(i)(A)–1 

would have clarified that a covered 

transaction that is an adjustable-rate 

mortgage or a step-rate mortgage would 

not be eligible to become a Seasoned 

QM. Proposed comment 43(e)(7)(i)(A)–2 

would have clarified that loans could 

become Seasoned QMs only if the 

scheduled periodic payments on them 

do not require a balloon payment to 

fully amortize the loan within the loan 

term. Proposed comment 43(e)(7)(i)(A)– 

2 also would have clarified that the 

requirement that a Seasoned QM have 

fully amortizing payments does not 

prohibit a qualifying change, as defined 

in the proposal, that is entered into 

during or after a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency.134

The Bureau adopts 

§ 1026.43(e)(7)(i)(A) and comments 

43(e)(7)(i)(A)–1 and –2 as proposed, 

except that comment 43(e)(7)(i)(A)–2 is 

revised to clarify that 

§ 1026.43(e)(7)(i)(A) does not prohibit a 

qualifying change that is entered into 

during or after a temporary payment 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86423 

135The commenter noted that the definition of 

qualified residential mortgage (QRM) used by other 

Federal regulatory agencies to exempt securities 

from Dodd-Frank Act section 941 risk retention 

requirements is limited by the Bureau’s definition 

of QM. An industry trade association also addressed 

the separate QRM requirements but suggested only 

that the Bureau should work with other regulators 

to reform assignee liability and develop a 

mechanism that enables investors to put back loans 

with defects at origination. 

136Proposed § 1026.43(e)(7)(i)(B) would have 

incorporated by cross-reference the QM 

requirements set out for Small Creditor QMs in 

§ 1026.43(e)(5)(i)(A) and (B). Those Small Creditor 

QM requirements generally cross-referenced the 

existing General QM requirements in 

§ 1026.43(e)(2), except for the requirements in 

paragraph (e)(2)(vi) of that section, which 

established a DTI limit. In the Seasoned QM 

Proposal, the Bureau noted that it had recently 

proposed certain conforming changes to 

§ 1026.43(e)(5)(i)(A) and (B) in the General QM 

proposal. 85 FR 53568, 53583 n.120 (Aug. 28, 2020). 

As discussed above, the Bureau is issuing this final 

rule simultaneously with the General QM Final 

Rule. 

accommodation in connection with a 

disaster or pandemic-related national 

emergency, even if the qualifying 

change involves a balloon payment or 

lengthened loan term. 

Comments Received 

Some industry commenters 

recommended amending the proposed 

criteria to permit ARMs to become 

Seasoned QMs, with a couple of these 

commenters suggesting that the 

seasoning period begin from the date of 

the new payment when the interest rate 

first adjusts. One industry commenter 

suggested that the Bureau could draft 

the final rule in a way that would 

extend eligibility to ARMs at least for 

purposes of relieving securitizers of 

separate risk retention requirements on 

those loans, so as to allow resultant cost 

savings to be passed on to consumers at 

origination.135 Other industry 

commenters and a number of consumer 

advocate commenters supported the 

proposal’s limitation to fixed-rate loans. 

Consumer advocate commenters that 

were not supportive of adding a 

Seasoned QM definition generally 

nonetheless supported excluding from 

any final rule adjustable-rate and 

balloon features, which they described 

as exacerbating the risks of unaffordable 

and irresponsible lending. One industry 

commenter supportive of the limitation 

to fixed-rate loans stated that the 

General QM loan definition should be 

applied to ARMs because payments can 

increase over time beyond the proposed 

seasoning period. 

Commenters generally supported the 

Bureau’s proposal to allow only loans 

with fully amortizing payments to 

become Seasoned QMs. Several industry 

and industry trade association 

commenters, however, requested that 

the Bureau clarify that the restriction on 

balloon payments does not affect a 

loan’s eligibility for Seasoned QM status 

if the loan is restructured to include a 

balloon payment as part of a qualifying 

change that is entered into during or 

after a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency. 

The Final Rule 

For the reasons stated below, the 

Bureau adopts § 1026.43(e)(7)(i)(A) as 

proposed. The final rule limits Seasoned 

QMs to fixed-rate mortgages, excluding 

ARMs. ARMs typically have an 

introductory interest rate that is 

applicable for several years. The 

introductory interest rate for a typical 

ARM could be in place for some or all 

of the seasoning period and could 

extend beyond the seasoning period. 

After the introductory interest rate 

expires, the interest rate adjusts 

periodically and could increase through 

the life of the loan. 

The Bureau concludes that a 

consumer’s payment history 

immediately after consummation of an 

ARM would not be a reliable indicator 

of whether at consummation the 

creditor reasonably determined the 

consumer’s continuing ability to repay 

the loan after any interest rate 

adjustment, which could increase the 

consumer’s periodic payment amount. 

In addition, because an ARM may 

continue to reset periodically after the 

first interest rate reset date, even a 

seasoning period that begins on the first 

reset date would not necessarily be 

sufficient to assure a consumer’s ability 

to repay after the seasoning period. 

Given this possibility for increases in 

payment amounts in later years, 

therefore, timely payments during the 

seasoning period are not as strong of an 

indicator on an ARM as they are on a 

fixed-rate mortgage of the consumer’s 

ability to repay at the time of 

consummation. Although a few 

commenters provided suggestions 

concerning how the Bureau might 

provide some Seasoned QM eligibility 

to ARMs, the suggestions were only 

general in nature and did not include 

analyses that would support 

modification of the proposal. The 

Bureau therefore is not extending 

eligibility for the new Seasoned QM 

category to ARMs. 

Similarly, the Bureau remains 

concerned that, as a general matter, the 

ability of a consumer to stay current on 

mortgage payments during the 

seasoning period would not be reliable 

as an indicator that at consummation a 

consumer had the ability to meet 

balloon payment obligations beyond the 

seasoning period. In this final rule, the 

Bureau is not extending eligibility for 

the new Seasoned QM category to loans 

that do not provide for fully amortizing 

payments. As highlighted by several 

commenters, however, the Bureau 

understands that, in instances of 

financial hardship, including during the 

current COVID–19 pandemic, creditors 

and consumers often agree to restructure 

loans to defer delinquent amounts and 

create a balance due at maturity or 

payoff of the loan. As suggested by these 

commenters, the Bureau is revising 

proposed comment 43(e)(7)(i)(A)–2 to 

clarify that the general Seasoned QM 

criteria set out in § 1026.43(e)(7)(i)(A) 

do not prohibit a qualifying change that 

is entered into during or after a 

temporary payment accommodation in 

connection with a disaster or pandemicrelated national emergency, even if the 

qualifying change involves a balloon 

payment or lengthened loan term. 

Qualifying changes are discussed in 

more detail in the section-by-section 

analysis of § 1026.43(e)(7)(iv)(B), below. 

43(e)(7)(i)(B) 

TILA section 129C(b)(1) provides a 

presumption of compliance with ATR 

requirements if a loan is a qualified 

mortgage. TILA section 129C(b)(2)(A) 

defines a qualified mortgage as a loan 

that includes general restrictions on 

product features and points and fees 

and meets certain underwriting 

requirements. Regulation Z 

§ 1026.43(e)(2) codifies these criteria in 

the Bureau’s definition of a General QM. 

In the Seasoned QM Proposal, the 

Bureau proposed adding 

§ 1026.43(e)(7)(i)(B) to extend to 

Seasoned QMs the same general 

restrictions on product features and 

points and fees that exist under the 

General QM and Small Creditor QM 

definitions, and to impose the same or 

similar requirements to consider and 

verify certain consumer information as 

part of the underwriting process.136

Proposed comment 43(e)(7)(i)(B)–1 

stated that a loan that complies with the 

consider and verify requirements of any 

other qualified mortgage definition 

would be deemed to comply with the 

consider and verify requirements 

applicable to a Seasoned QM. 

For the reasons described below, the 

Bureau adopts § 1026.43(e)(7)(i)(B) as 

proposed, except that the criteria 

relating to prohibited product features, 

points-and-fees cap, and requirements 

to consider and verify certain consumer 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86424 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

137The Bureau did not propose to adopt in this 

final rule any DTI limit, pricing threshold, or 

similar requirement applicable under 

§ 1026.43(e)(2)(vi) to covered transactions in the 

General QM loan definition. The Small Creditor QM 

definition also does not include any such criteria. 

138 In addition, because § 1026.43(e)(7)(i)(B) 

incorporates the requirements of § 1026.43(e)(2)(iv), 

the underwriting for the loan must use a payment 

schedule that fully amortizes the loan over the loan 

term and takes into account the monthly payment 

for mortgage-related obligations. 

information are established by direct 

cross-reference to the relevant General 

QM requirements in § 1026.43(e)(2), as 

amended by the General QM Final Rule. 

The Bureau has decided not to adopt 

proposed comment 43(e)(7)(i)(B)–1 

because, with the revisions made to 

§ 1026.43(e) in the General QM Final 

Rule and this final rule, the comment is 

unnecessary and could be confusing. 

Comments Received 

Additional Criteria, Generally. 

Commenters generally agreed that only 

loans with QM product protections 

should be allowed to season. Some of 

those commenters objected to the 

addition of a Seasoned QM definition— 

with one consumer advocate commenter 

stating that the additional loan features 

are not a bulwark against improvident 

lending—but stated that if the rule is 

adopted, the additional required 

characteristics in § 1026.43(e)(7)(i)(A) 

through (D) should be retained. An 

industry trade association stated that the 

product restrictions and continuance of 

underwriting requirements, along with 

performance requirements, provide 

sufficient assurance of ATR compliance. 

Another industry trade association 

noted that aligning the product features 

and underwriting requirements of 

different kinds of QMs is appropriate 

and avoids inappropriately 

incentivizing any particular category of 

QMs. 

Product and Points-and-Fees 

Restrictions. A few commenters 

addressed particular aspects of the 

Seasoned QM criteria that the Bureau 

proposed to adopt by cross-reference to 

other QM requirements. Several 

industry commenters requested that the 

Bureau clarify that limiting the 

Seasoned QM definition to loans with 

terms not exceeding 30 years does not 

affect a loan’s eligibility for Seasoned 

QM status when the loan is restructured 

to include a longer repayment period as 

part of a qualifying change that is 

entered into during or after a temporary 

payment accommodation in connection 

with a disaster or pandemic-related 

national emergency. One industry 

commenter recommended that the limit 

on points and fees be eliminated, while 

another supported including the limit in 

the proposal. One industry trade 

association advocated generally to 

include only points and fees paid 

directly by the consumer in the 

calculation of the 3 percent cap, and 

another stated that the calculation 

should exclude fees paid to affiliated 

service providers. An academic 

commenter expressed concern that the 

proposal did not address separate DoddFrank Act prepayment penalty 

restrictions and requested that the 

Bureau affirm the applicability of those 

restrictions. 

Underwriting Requirements. Several 

commenters referenced and 

incorporated the comments they had 

submitted on the consider and verify 

requirements in the General QM 

Proposal and indicated that the 

requirements in the General QM and 

Seasoned QM rules should be aligned. 

Comments on the underwriting 

requirements generally were consistent 

between the General QM Proposal and 

the Seasoned QM Proposal. Commenters 

widely recognized the importance of the 

consider and verify requirements in 

underwriting a QM loan. An industry 

trade association supported the 

proposal’s avoidance of using the 

appendix Q methodology for calculating 

consumer income and debts and 

commented that underwriting 

requirements should provide flexibility 

to allow for innovation. An industry 

trade association noted a concern that 

the final language should not 

inadvertently introduce a 

reasonableness standard for the DTI 

ratio through application of the 

§ 1026.43(c)(7) calculation requirement. 

Some consumer advocate commenters 

cautioned that lax underwriting 

requirements, especially if in 

combination with relaxed product 

features, would not comply with TILA 

and would not be consistent with 

congressional intent. On the other hand, 

commenters noted that alignment of 

underwriting requirements and product 

features among different QM categories 

would help ensure these requirements 

do not create an incentive to make one 

type of QM loan rather than another. 

The Final Rule 

For the reasons stated below, the 

Bureau adopts in § 1026.43(e)(7)(i)(B) 

the proposed prohibited product 

features and points and fees and 

underwriting requirements as part of the 

Seasoned QM definition. In this final 

rule, however, the Bureau is adopting 

those additional criteria by direct crossreference to the provisions in 

§ 1026.43(e)(2)(i) through (v) of the 

General QM loan definition, rather than 

by indirectly cross-referencing the same 

requirements as adopted in 

§ 1026.43(e)(5)(i)(A) and (B) for Small 

Creditor QMs, as the Bureau had 

proposed.137 The General QM Final 

Rule issued simultaneously with this 

final rule revises the General QM loan 

definition. As a result of these changes, 

the Bureau concludes that referencing 

the General QM criteria directly in 

§ 1026.43(e)(7)(i)(B) is preferable. The 

General QM criteria will be widely used 

by creditors in connection with General 

QMs, and creditors will be able to apply 

those criteria consistently in connection 

with Seasoned QMs. 

In addition to applying the previously 

established criteria, discussed above, 

that a Seasoned QM be a first-lien 

covered transaction with a mortgage that 

has a fixed rate and fully amortizing 

payments, applying the relevant criteria 

in § 1026.43(e)(2)(i) through (v) will 

mean that a covered transaction can 

qualify as a Seasoned QM only if: 

1. The covered transaction provides 

for regular periodic payments that are 

substantially equal; 

2. There is no negative amortization 

and no interest-only or balloon 

payment; 

3. The loan term does not exceed 

30years; 

4. The total points and fees generally 

do not exceed 3 percent of the loan 

amount; and 

5. The creditor considers the 

consumer’s DTI ratio or residual 

income, income or assets other than the 

value of the dwelling, and debts and 

verifies the consumer’s income or assets 

other than the value of the dwelling and 

the consumer’s debts.138

The Bureau concludes that these 

additional criteria deriving from the 

statutory definition of QM best assure 

that consumers have a reasonable ability 

to repay their Seasoned QMs. With few 

exceptions, commenters did not raise 

issues about whether these criteria 

should be applied to Seasoned QMs and 

were supportive of their inclusion. As 

discussed above, in response to 

commenter requests the Bureau is 

revising and adopting comment 

43(e)(7)(i)(A)–2 to clarify that 

§ 1026.43(e)(7)(i)(A) does not prohibit a 

qualifying change that is entered into 

during or after a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency, even if the qualifying 

change involves a balloon payment or 

lengthened loan term. 

The Bureau declines to remove or 

adjust the requirement for Seasoned 

QMs to meet the points-and-fees cap as 

set out in § 1026.43(e)(2)(iii) of the 

General QM loan definition. Only one 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86425 

139 Dodd-Frank Act section 1414, adding TILA 

section 129C(c), 15 U.S.C. 1639c(c). 140Pursuant to § 1026.43(g)(1), a covered 

transaction must not include a prepayment penalty 

unless: (1) The prepayment penalty is otherwise 

permitted by law; and (2) the transaction: (A) has 

an annual percentage rate that cannot increase after 

consummation; (B) is a qualified mortgage under 

§ 1026.43(e)(2), (4), (5), (6), or (f); and (C) is not a 

higher-priced mortgage loan, as defined in 

§ 1026.35(a). 

141See 12 CFR part 1026, appendix Q. The 

effective date of the General QM Final Rule is 60 

days after publication in the Federal Register, 

although creditors will not have to comply with the 

revised requirements until July 1, 2021. The 

effective date of this final rule is discussed in part 

VII below. 

142See comment 43(e)(2)(v)(A)–2 in the General 

QM Final Rule. 

143 I.e., consistent with § 1026.43(c)(3) (debt, 

alimony, and child support) and (4) (income and 

assets). 

144The General QM Final Rule provides the 

verification safe harbor in connection with 

specified provisions of the GSE, FHA, VA, and 

USDA underwriting manuals. 

commenter recommended that the 

points-and-fees cap be eliminated for 

Seasoned QMs, and the commenter did 

not provide supporting rationale or data. 

Changes recommended by a few 

commenters relate to a calculation 

methodology for points and fees that is 

beyond the scope of this rule. The 

Bureau also declines to revise the 

proposal to address the statutory 

prepayment penalty restrictions added 

separately by the Dodd-Frank Act and 

codified in § 1026.43(g).139 Those 

restrictions continue to apply in 

accordance with that section and are not 

affected by the addition of a Seasoned 

QM definition that includes a 

requirement for a seasoning period of at 

least 36 months.140

By incorporating the requirements of 

§ 1026.43(e)(2)(iv) and (v), this final rule 

implements the QM definition 

requirements in TILA section 

129C(b)(2)(A)(iii) and (iv). TILA section 

129C(b)(2)(A)(iii) includes a 

requirement for verifying and 

documenting the income and financial 

resources relied upon to qualify the 

obligors on the loan. For a fixed-rate 

QM, TILA section 129C(b)(2)(A)(iv) 

requires in part that the underwriting 

process take into account all applicable 

taxes, insurance, and assessments. The 

Bureau also finds that incorporation of 

the requirements in § 1026.43(e)(2)(v) is 

authorized by TILA section 

129C(b)(2)(A)(vi), which permits, but 

does not require, the Bureau to adopt 

guidelines or regulations relating to 

DTIs or alternative measures of ability to 

pay regular expenses after payment of 

total monthly debt. 

In the General QM Final Rule issued 

separately today, the Bureau modifies 

the requirements for General QMs 

relating to consideration of the 

consumer’s DTI ratio or residual 

income, income or assets other than the 

value of the dwelling, and debts and 

verification of the consumer’s income or 

assets other than the value of the 

dwelling and the consumer’s debts. The 

Bureau is adopting those same 

requirements for Seasoned QMs in this 

final rule. As such, it should be clear 

that, in defining Seasoned QMs as a new 

category of QMs, the Bureau is not 

substituting performance requirements 

applicable during a seasoning period for 

the underwriting requirements 

applicable at or before consummation. 

Rather, the Bureau concludes that a 

sustained period of successful 

payments, combined with underwriting 

requirements and product restrictions, 

supports presuming that the creditor 

complied with ATR requirements at 

consummation and made loans that 

warrant QM status. Unlike other QM 

definitions that confer QM status upon 

consummation, though, the Seasoned 

QM definition confers QM status only 

after the consumer makes on-time 

payments, with limited exceptions, for 

at least 36 months. 

The Bureau continues to believe that 

sufficient consideration of a consumer’s 

DTI ratio or residual income, income or 

assets other than the value of the 

dwelling, and debts is fundamental to 

any determination of ability to repay. 

Neither the General QM Final Rule nor 

this final rule requires that creditors 

apply specific DTI ratios or pricing 

thresholds in their underwriting criteria 

in order for their loans to be eligible for 

QM status. Stakeholders are encouraged 

to review the section-by-section 

analyses of § 1026.43(e)(2)(v) and (v)(A) 

and (B) in the General QM Final Rule, 

as well as the regulatory text and 

accompanying commentary for those 

sections, for a more complete discussion 

of the consider and verify requirements 

as they are being incorporated in this 

final rule. 

The General QM Final Rule requires 

a creditor to consider the consumer’s 

DTI ratio or residual income and to 

consider and verify the debt and income 

used to calculate DTI or residual income 

as part of the General QM loan 

definition. When this final rule and the 

General QM revisions take effect, 

creditors will no longer be required to 

consider and verify this information in 

accordance with complex rules set out 

as appendix Q to Regulation Z.141

Instead, to comply with the revised 

General QM consider requirements, a 

creditor is required to take into account 

income, assets, debt obligations, 

alimony, child support, and monthly 

DTI ratio or residual income in its ATR 

determination. 

The revised General QM requirements 

do not prescribe how a creditor must 

take these factors into account, but a 

creditor must maintain written policies 

and procedures for how it takes into 

account the factors and retain 

documentation showing how it took 

into account the factors for a given loan. 

The General QM Final Rule also does 

not impose a particular standard or 

threshold applicable to the requirement 

that a creditor calculate and consider 

DTI or residual income, and it includes 

commentary to make clear that creditors 

have flexibility in how they consider 

income or assets, debt obligations, 

alimony, child support, and monthly 

DTI ratio or residual income.142 With 

the revisions made by the General QM 

Final Rule to the General QM loan 

definition, as adopted in the Seasoned 

QM definition, for purposes of 

determining the consumer’s monthly 

DTI or residual income, the consumer’s 

monthly payment on the covered 

transaction is calculated in accordance 

with § 1026.43(e)(2)(iv). 

Creditors are also required to verify 

income and debt consistent with the 

general ATR standard.143 Creditors will 

receive a safe harbor for compliance 

with the verification requirements if 

they comply with verification standards 

in manuals specified in the General QM 

Final Rule, as well as with revised 

versions of those manuals that are 

substantially similar.144 The General 

QM Final Rule also provides a safe 

harbor for compliance with the 

verification standards to creditors that 

‘‘mix and match’’ the verification 

standards in the specified manuals. The 

General QM Final Rule discusses that 

permitting creditors to mix and match 

standards for verifying income, assets, 

debt obligations, alimony, and child 

support from each of the manuals would 

provide creditors with greater flexibility 

without undermining consumer 

protection. Further, in the General QM 

Final Rule, the Bureau encourages 

stakeholders, including groups of 

stakeholders, to develop additional 

verification standards that it could 

review for inclusion in the verification 

safe harbor. 

The Bureau’s primary objective in 

providing the new Seasoned QM 

definition is to increase access to 

responsible and affordable credit by 

incentivizing the origination of non-QM 

loans for which creditworthy consumers 

have an ability to repay, but that may 

not otherwise be eligible for QM status 

for various reasons. The Bureau notes 

that the proposal included proposed 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86426 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

145 15 U.S.C. 1639(h). 146Under 12 CFR 1026.32(a), there are several 

ways that a loan secured by the consumer’s 

principal dwelling can be a high-cost mortgage 

subject to HOEPA. One is if the APR exceeds the 

relevant APOR by a specific amount, which is 6.5 

percentage points for most first-lien mortgages. The 

other ways relate to points and fees and prepayment 

penalties. 12 CFR 1026.32(a)(1). 

147 12 CFR 1026.34(a)(4) (exempting temporary or 

‘‘bridge’’ loans with terms of twelve months or less 

from this requirement). 

148According to HMDA data, there were only 

6,507 HOEPA loans total originated in 2019, and 

many of those loans would be ineligible for 

seasoning even if they were not subject to HOEPA 

due to other features (for example, because they 

have an adjustable rate or are secured by a 

subordinate lien). Bureau of Consumer Fin. Prot., 

Data Point: 2019 Mortgage Market Activity and 

Trends at 55 (June 2020), https://

files.consumerfinance.gov/f/documents/cfpb_2019- 

mortgage-market-activity-trends_report.pdf. 

149 15 U.S.C. 1639(p)(1) (authorizing the Bureau 

to make certain exemptions from HOEPA’s 

requirements, if the Bureau finds that the 

exemption ‘‘is in the interest of the borrowing 

public’’ and ‘‘will apply only to products that 

maintain and strengthen home ownership and 

equity protection’’). 

150This commenter asked the Bureau to clarify 

that certain delinquencies during the seasoning 

period are not counted for purposes of the 

performance criteria if they occur during or 

immediately preceding periods of forbearance. 

Several other industry commenters also suggested 

adjustments to the proposed definitions of 

delinquency, qualifying change, and temporary 

payment accommodation extended in connection 

with a disaster or pandemic-related national 

emergency. These comments are addressed in the 

section-by-section analysis of § 1026.43(e)(7)(iv)(A), 

(B), and (D) below. 

comment 43(e)(7)(i)(B)–1 as a possible 

clarification that a loan that complies 

with the consider and verify 

requirements of any other QM definition 

also would have complied with the 

consider and verify requirements in the 

Seasoned QM definition. In the proposal 

the Bureau also requested comment on 

whether the final rule should crossreference the consider and verify 

requirements for General QMs on which 

the General QM Proposal had requested 

comment. For the reasons discussed 

above, this final rule adopts the revised 

General QM consider and verify 

requirements, which the Bureau expects 

will facilitate consistent use in 

connection with Seasoned QMs, so the 

Bureau is not finalizing proposed 

comment 43(e)(7)(i)(B)–1. 

43(e)(7)(i)(C) and (D) 

The Bureau proposed 

§ 1026.43(e)(7)(i)(C) to include in the 

Seasoned QM criteria that covered 

transactions would have to meet certain 

performance requirements set out in 

detail in § 1026.43(e)(7)(ii). The Bureau 

proposed § 1026.43(e)(7)(i)(D) to include 

in the Seasoned QM criteria that 

covered transactions would also have to 

meet certain portfolio requirements set 

out in detail in § 1026.43(e)(7)(iii). 

The Bureau adopts 

§ 1026.43(e)(7)(i)(C) and (D) as 

proposed. The Bureau discusses the 

final performance requirements and 

related public comments more fully in 

the section-by-section analysis of 

§ 1026.43(e)(7)(ii) below. The Bureau 

discusses the final portfolio 

requirements and related public 

comments more fully in the section-bysection analysis of § 1026.43(e)(7)(iii) 

below. 

43(e)(7)(i)(E) 

Prior to the enactment of the DoddFrank Act, HOEPA amended TILA to 

add a prohibition against originating a 

high-cost mortgage without regard to a 

consumer’s repayment ability, as more 

specifically set out in TILA section 

129(h).145 The Dodd-Frank Act created 

a new ATR requirement for mortgage 

loans within TILA, as discussed above, 

but did not amend the HOEPA abilityto-repay provision relating specifically 

to high-cost mortgages. Regulation Z 

currently defines high-cost mortgage 146

and implements the HOEPA ability-torepay requirement for closed-end highcost mortgages by providing that a 

creditor must comply with the ATR/QM 

Rule’s repayment ability requirements 

set forth in § 1026.43.147 The proposal 

did not explicitly address whether 

Seasoned QM status would extend to 

high-cost mortgages subject to HOEPA, 

but the Bureau is adding 

§ 1026.43(e)(7)(i)(E) to clarify that it 

does not. 

Three consumer advocate commenters 

noted that the proposal did not 

explicitly address whether Seasoned 

QM status would extend to high-cost 

mortgages subject to HOEPA. These 

commenters also asserted that the 

Bureau had not made the necessary case 

to restrict remedies under HOEPA for 

violations of HOEPA’s ability-to-repay 

requirement. 

The Bureau’s purpose in this 

rulemaking is not to change the abilityto-repay requirement under HOEPA, 

which governs high-cost mortgages that 

constitute a very small percentage of the 

overall mortgage market.148 Although 

HOEPA gives the Bureau the authority 

to make certain exemptions from 

HOEPA’s requirements,149 the Bureau 

has not sought to use that authority in 

this rulemaking. To clarify the scope of 

the final rule, the Bureau is adding 

§ 1026.43(e)(7)(i)(E), which excludes 

high-cost mortgages as defined in 

§ 1026.32(a) from the Seasoned QM 

definition. 

43(e)(7)(ii) Performance Requirements 

Proposed § 1026.43(e)(7)(ii) set forth 

the following proposed performance 

criteria that a covered transaction must 

meet to be a Seasoned QM under 

proposed § 1026.43(e)(7): the covered 

transaction must have no more than two 

delinquencies of 30 or more days and no 

delinquencies of 60 or more days at the 

end of the seasoning period. In the 

proposal, the Bureau tentatively 

concluded that the proposed standard 

for the number and duration of 

delinquencies would strike the 

appropriate balance of allowing 

flexibility for issues unrelated to a 

consumer’s repayment ability while 

treating payment histories that more 

clearly signal potential issues with 

ability to repay as disqualifying. It also 

noted that the proposed performance 

standards would be consistent with the 

GSEs’ representation and warranty 

framework and the master policies of 

mortgage insurers, which reflect market 

experience. For the reasons set forth 

below, the Bureau adopts in the final 

rule these performance criteria as 

proposed. 

Comments Received 

The Bureau received a number of 

comments on the proposed performance 

criteria, expressing a variety of views. 

Among the commenters that supported 

the proposed performance criteria, 

several industry commenters and 

consumer advocate commenters 

expressed support for how the proposed 

criteria would be consistent with the 

GSEs’ representation and warranty 

framework. Another industry 

commenter agreed with the Bureau’s 

tentative conclusion that the proposed 

limits on the number of delinquencies 

during the seasoning period 

appropriately balanced the need to limit 

the Seasoned QM safe harbor to loans 

with strong evidence of a consumers’ 

ability to repay and the practical reality 

that some brief delinquencies do not 

indicate the consumer lacks the ability 

to repay. Additionally, some industry 

commenters joined several consumer 

advocate groups to urge the Bureau not 

to loosen the criteria in a final rule. 

Further, an industry commenter 

expressed general support for limiting 

the seasoning pathway to QM status to 

loans with three years of performance 

with minor delinquencies.150

With respect to commenters that did 

not support the criteria as proposed, 

several industry commenters asked the 

Bureau to increase the number of 

permissible 30-day delinquencies. An 

industry commenter suggested that the 

Bureau could increase the number of 30- 

day delinquencies to three or four 

because the Bureau’s own analysis in 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86427 

151Fannie Mae, Amended and Restated GSE 

Rescission Relief Principles for Implementation of 

Master Policy Requirement #28 (Rescission Relief/ 

Incontestability) (Sept. 10, 2018), https://

singlefamily.fanniemae.com/media/16331/display. 

152As discussed in the proposal and in part VIII 

below, the Bureau considered alternative seasoning 

periods and alternative performance requirements 

of allowable 30-day delinquencies. Each of the 

alternatives permits no 60-day delinquencies. The 

analysis of alternatives found that varying the 

number of allowable 30-day delinquencies could 

have some impact on foreclosure risk, even though 

the Bureau also found that varying the length of the 

seasoning period may have a greater impact. 

153The term ‘‘foreclosure start rate’’ used in this 

final rule refers to the rate at which mortgage loans 

first entered into any one of the following: 

Foreclosure proceeding, deed in lieu of foreclosure, 

foreclosure, voluntary surrender, or repossession, as 

tracked by the NMDB. 

the proposal showed that such an 

increase would have modest effects on 

the number of loans that would season 

while providing for additional 

flexibility during the seasoning period. 

Another industry commenter asserted 

that increasing the number of 

permissible 30-day delinquencies to 

three would benefit consumers whose 

jobs involve travel and who may miss 

payments because they have limited 

access to technology on job-rated travel. 

Several industry commenters urged the 

Bureau to increase the number of 

permissible 30-day delinquencies to 

three or four, asserting that such 

increase would accommodate 

consumers who need additional 

flexibility due to the COVID–19 

pandemic’s negative economic impacts. 

One industry commenter argued that 

there should be no restriction on the 

number of delinquencies as long as a 

consumer cures them before the end of 

the seasoning period. 

On the other hand, two consumer 

advocate commenters expressed the 

concern that the proposed performance 

criteria would not be restrictive enough. 

They stated that the Bureau should 

clarify that rolling delinquencies (i.e., 

certain delinquencies that continue 

month after month) would not be 

permitted. They also suggested that the 

Bureau revise the proposed performance 

standards to limit permissible late 

payments to no more than two 

payments outside of a loan’s grace 

period. 

Lastly, an industry commenter 

suggested that the Bureau undertake 

additional research to examine the risks 

of aligning the proposed performance 

standards with the existing GSE 

representation and warranty framework. 

It stated that it believes a careful market 

analysis must be done to consider 

empirical evidence of minor and severe 

delinquencies which later cure and that 

the Bureau and industry must 

understand the unintended 

consequences of potentially altered 

borrower behavior with a seasoning 

approach to QMs. 

The Final Rule 

The Bureau is adopting the 

performance standards as proposed. 

Final § 1026.43(e)(7)(ii) is adopted based 

on the legal authorities discussed in the 

section-by-section analysis of 

§ 1026.43(e)(7)(i) above. 

As explained in the proposal, the 

Bureau considered the existing practices 

of the GSEs and mortgage insurers in 

developing the 36-month period for 

successful payment history. As 

described in part V, each GSE generally 

provides creditors relief from its 

enforcement with respect to certain 

representations and warranties a 

creditor must make to the GSE regarding 

its underwriting of a loan. The GSEs 

generally provide creditors that relief 

after the first 36 monthly payments if 

the borrower had no more than two 30- 

day delinquencies and no delinquencies 

of 60 days or more. Similarly, the master 

policies of mortgage insurers generally 

provide that the mortgage insurer will 

not issue a rescission with respect to 

certain representations and warranties 

made by the originating lender if the 

borrower had no more than two 30-day 

delinquencies in the 36 months 

following the borrower’s first payment, 

among other requirements.151

The Bureau recognizes that the 

payment history conditions laid out in 

the GSEs’ representation and warranty 

framework and the mortgage insurers’ 

master policies reflect market 

experience. Consistent with the GSEs’ 

representation and warranty framework 

and the master policies of mortgage 

insurers, the final rule provides that 

more than two delinquencies of 30 days 

or more during the seasoning period or 

any delinquency of 60 days or more 

disqualifies a covered transaction from 

being a Seasoned QM under 

§ 1026.43(e)(7).152

The Bureau concludes that the 

number and duration of delinquencies 

set forth in the performance criteria 

requirement strike the best balance 

between allowing flexibility for issues 

unrelated to a consumer’s repayment 

ability (e.g., a missed payment due to 

vacation or to a mix-up over automatic 

withdrawals) and treating payment 

histories that more clearly signal 

potential issues with ability to repay as 

disqualifying. The Bureau disagrees 

with the industry commenter who 

suggested that there should be no 

restrictions on the number of 

delinquencies as long as a consumer 

cures them before the end of the 

seasoning period. The Bureau concludes 

that the ability of consumers to 

consistently make timely payments in 

accordance with a mortgage loan’s terms 

is an important indication of the 

consumer’s ability to repay. The Bureau 

also declines to increase the number of 

permissible 30-day delinquencies, 

because it concludes that market 

experience, as reflected through the 

GSEs’ representation and warranty 

framework and the master policies of 

mortgage insurers, strongly suggests that 

if a loan has more than two 30-day 

delinquencies in a 36-month period, it 

may indicate issues related to the 

underwriting of the loan. For the same 

reason, the Bureau also declines to 

adopt delinquency and performance 

standards that are based on a loan’s 

grace period, as suggested by some 

consumer advocate commenters. The 

Bureau has decided to base the 

definition of delinquency for purposes 

of § 1026.43(e)(7) on the date that 

payment becomes due, even if the 

consumer is afforded a period after the 

due date to pay before the servicer 

assesses a late fee. 

The Bureau’s adoption of the 

performance criteria as proposed is also 

informed by its analysis of potential 

impacts if the number of permissible 30- 

day delinquencies were increased from 

two to three or four 30-day 

delinquencies. As discussed in more 

detail in part VIII below, the Bureau 

concluded that in light of the General 

QM Final Rule, there would be little 

benefit in terms of access to credit from 

increasing the number of permissible 

30-day delinquencies, while there 

would be some negative impact in the 

form of increased foreclosure risk. The 

Bureau noted that increasing the 

number of allowable 30-day 

delinquencies by one increases the 

relative foreclosure start rate 153 between 

Seasoned QMs and loans that were safe 

harbor QM loans at consummation by 

approximately 4 percent. 

Further, with respect to commenters 

who suggested that the Bureau increase 

the number of permissible 30-day 

delinquencies to accommodate 

consumers who need additional 

flexibility due to the COVID–19 

pandemic’s economic impacts, the 

Bureau concludes that the final rule’s 

exclusion of periods of temporary 

payment accommodation due to a 

disaster or pandemic-related national 

emergency from the seasoning period 

pursuant to § 1026.43(e)(7)(iv)(C)(2) will 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86428 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

154The exclusion of any period during which the 

consumer is in a temporary payment 

accommodation extended in connection with a 

disaster or pandemic-related national emergency 

from the seasoning period is discussed more fully 

in the section-by-section analysis of 

§ 1026.43(e)(7)(iv)(C)(2). 

be sufficient in providing such 

requested flexibility.154

Lastly, the Bureau notes that the 

proposal would have not permitted, and 

the final rule does not permit, rolling 

delinquencies of 30 days or more. As 

further discussed in the section-bysection analysis of § 1026.43(e)(7)(iv)(A) 

below, a periodic payment is 60 days 

delinquent under this final rule if the 

consumer is more than 30 days 

delinquent on the first of two sequential 

scheduled periodic payments and does 

not make both sequential scheduled 

periodic payments before the due date 

of the next scheduled periodic payment 

after the two sequential scheduled 

periodic payments. Under the 

delinquency definition in 

§ 1026.43(e)(7)(iv)(A) and the 

performance requirements in 

§ 1026.43(e)(7)(ii), a loan could not 

season if, for example, a consumer was 

30 days or more delinquent on a 

monthly periodic payment due on 

January 1 and subsequently failed to 

make both the periodic payment due on 

January 1 and the periodic payment due 

on February 1 before March 1. In this 

example, if the consumer made the 

January 1 periodic payment on February 

5, but did not make the payment due on 

February 1 by March 1, the loan would 

be considered 60 days delinquent as of 

March 1 and therefore would not be 

eligible to become a Seasoned QM. 

Rolling delinquencies of 30 days or 

more are therefore not permitted under 

this final rule due to a combination of 

the definition of delinquency for 

purposes of the rule and the prohibition 

on any delinquencies of 60 days or 

more. 

43(e)(7)(iii) Portfolio Requirements 

Proposed § 1026.43(e)(7)(iii) set forth 

certain proposed portfolio requirements 

for a covered transaction to be a 

Seasoned QM. It provided that to be a 

Seasoned QM, the loan must satisfy the 

following requirements. First, at 

consummation, the loan must not have 

been subject to a commitment to be 

acquired by another person. Second, 

legal title to the loan could not be sold, 

assigned, or otherwise transferred to 

another person before the end of the 

seasoning period, except in 

circumstances specified in proposed 

§ 1026.43(e)(7)(iii)(B)(1) and (2). 

Proposed § 1026.43(e)(7)(iii)(B)(1) 

provided that the loan may be sold, 

assigned, or otherwise transferred to 

another person pursuant to a capital 

restoration plan or other action under 12 

U.S.C. 1831o; actions or instructions of 

any person acting as conservator, 

receiver, or bankruptcy trustee; an order 

of a State or Federal government agency 

with jurisdiction to examine the creditor 

pursuant to State or Federal law; or an 

agreement between the creditor and 

such an agency. Proposed 

§ 1026.43(e)(7)(iii)(B)(2) provided that 

the loan may be sold, assigned, or 

otherwise transferred pursuant to a 

merger of the creditor with another 

person or acquisition of the creditor by 

another person or of another person by 

the creditor. 

The Bureau also proposed to add 

comments 43(e)(7)(iii)–1 through –3 to 

clarify the proposed portfolio 

requirement. Proposed comment 

43(e)(7)(iii)–1 would have explained 

that a loan is not eligible to season into 

a QM under proposed § 1026.43(e)(7) if 

legal title to the debt obligation is sold, 

assigned, or otherwise transferred to 

another person before the end of the 

seasoning period, unless one of the 

exceptions in proposed 

§ 1026.43(e)(7)(iii)(B) applies. Proposed 

comment 43(e)(7)(iii)–2 would have 

clarified the application of proposed 

§ 1026.43(e)(7)(iii) to subsequent 

transferees. Proposed comment 

43(e)(7)(iii)–3 would have explained the 

impact of supervisory sales. For the 

reasons discussed below, the Bureau 

adopts proposed § 1026.43(e)(7)(iii) and 

comments 43(e)(7)(iii)–1 through –3 

with changes that allow a single transfer 

during the seasoning period provided 

that certain requirements are met, as 

discussed below. 

Comments Received 

Consumer advocate commenters and 

some industry commenters supported 

the proposed portfolio requirement and 

agreed with the Bureau’s rationale that 

the proposed requirement would 

provide an important incentive for 

creditors to make diligent ATR 

determinations at origination. Some 

consumer advocate commenters 

supported adopting the proposed 

portfolio requirement as proposed to 

mitigate some of the risks they 

anticipated in a Seasoned QM final rule. 

However, various industry 

commenters and a United States senator 

opposed the proposed portfolio 

requirement. They asserted that it 

would reduce the number of loans 

eligible to season and, as such, diminish 

the potential of the final rule to lower 

mortgage prices and increase market 

liquidity. They also asserted that the 

requirement would create an unfair 

playing field, disadvantaging non-bank 

lenders that rely on warehouse lending 

and secondary market sales for 

liquidity. Several commenters asserted 

that loan performance is sufficiently 

probative of a consumer’s ability to 

repay even without a portfolio 

requirement, and some suggested that 

the Bureau has not shown why the fact 

that a loan is held in portfolio is 

evidence that the consumer had the 

ability to repay the loan at 

consummation. Commenters also 

asserted that other factors would 

sufficiently ensure responsible lending 

by creditors, including the following: 

the proposed product restrictions and 

underwriting requirements for Seasoned 

QMs; the interagency credit risk 

retention rule; due diligence performed 

by loan aggregators; and originators’ 

concerns about indemnification and 

reputational risks that result if the loans 

they sell to third parties fail. One 

industry commenter asserted that if the 

final rule is limited to portfolio lenders, 

non-QM mortgage lending is likely to 

become dominated by portfolio lenders, 

which would lead to a system that is 

less diversified and in which risk is 

concentrated in certain market 

segments. 

An industry trade association and 

another industry commenter proposed 

broadening the portfolio requirement to 

include a one-time sale by the creditor 

to a third-party purchaser that then 

holds the loan for the requisite 36- 

month seasoning period. They asserted 

that a whole loan sale model as they 

described is considerably less risky than 

a securitization model for several 

reasons. Specifically, they noted that, as 

compared to investors in mortgagebacked securities, whole loan 

purchasers have a more direct 

relationship with the originator, are 

better positioned to understand and 

evaluate a loan’s underlying 

fundamentals, and have strong 

incentives to be prudent as they own all 

of the credit risk. One industry 

commenter also sought to broaden the 

list of proposed exceptions to the 

portfolio requirement to permit transfers 

pursuant to a creditor’s default or 

breach of loan covenants in situations 

where the loan serves as collateral 

securing the financing the creditor uses 

to fund the loan. 

Meanwhile, an academic commenter 

asserted that the proposed portfolio 

requirement would be substantially 

weaker than the EGRRCPA’s portfolio 

requirement because the proposal 

lacked the same resale restrictions that 

Congress established in the EGRRCPA. 

Moreover, the commenter asserted that 

the proposal did not contain evidence to 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86429 

155 Inside Mortg. Fin., Top Originators of 

Securitized Expanded-Credit Mortgages: 2019– 

3Q20, https://www.insidemortgagefinance.com/ 

products/300059-top-originators-of-securitizedexpanded-credit-mortgages-2019-3q20-pdf (last 

visited Nov. 19, 2020). The only depository 

institution included amongst the 10 largest non-QM 

originators is JPMorgan Chase. 

156Urban Inst., Housing Finance at a Glance, at 

17–18, (Oct. 2020), https://www.urban.org/sites/ 

default/files/publication/103123/october-chartbook2020_2.pdf. 

support the Bureau’s assertion that the 

proposed requirement would make 

creditors underwrite mortgages more 

carefully. An industry commenter 

referenced a study by the Board in 

which researchers found that large 

lenders were more apt to reduce quality 

and receive government bailouts in the 

2008 financial crisis. This commenter 

expressed concern that the proposed 

portfolio requirement may not be 

sufficient to incentivize large banks to 

engage in responsible lending because 

banks that are deemed too-big-to-fail do 

not face sufficient negative 

consequences if loans they hold in 

portfolio fail. 

Lastly, several industry commenters 

expressed concern that mortgage loans 

that bank creditors pledge as collateral 

to the Federal Home Loan Banks or the 

Board may not meet the proposed 

portfolio requirement and sought 

clarification or confirmation that such 

pledged loans are deemed to be held in 

the bank creditors’ portfolios. 

The Final Rule 

Under the proposal, for a covered 

transaction to become eligible for 

Seasoned QM status, the creditor that 

originates the transaction would have to 

hold the transaction in its portfolio, 

unless one of two exceptions, set forth 

in proposed § 1026.43(e)(7)(iii)(B)(1) 

(transfers of ownership pursuant to 

certain supervisory sales) or 

§ 1026.43(e)(7)(iii)(B)(2) (transfers of 

ownership pursuant to certain mergers 

or acquisitions), applied. Proposed 

§ 1026.43(e)(7)(iii)(B)(1) and (2) are 

adopted as proposed. 

However, the Bureau is adopting in 

§ 1026.43(e)(7)(iii)(B)(3) an additional 

exception, which provides that the 

covered transaction may be sold, 

assigned, or otherwise transferred once 

before the end of the seasoning period, 

so long as the covered transaction is not 

securitized as part of the sale, 

assignment, or transfer or at any other 

time before the end of the seasoning 

period. In light of this change, this final 

rule makes a related change to proposed 

§ 1026.43(e)(7)(iii)(A) to provide that 

§ 1026.43(e)(7)(iii)(B)(3) is an exception 

to the general prohibition against 

subjecting the covered transaction, at 

consummation, to a commitment to be 

acquired by another person to become a 

Seasoned QM under § 1026.43(e)(7). 

Conforming changes are also made to 

proposed comments 43(e)(7)(iii)-1 

through –3 in light of the adoption of 

§ 1026.43(e)(7)(iii)(B)(3). 

The exception in 

§ 1026.43(e)(7)(iii)(B)(3) may only be 

used one time for a covered transaction 

during the seasoning period. This means 

that until the end of the seasoning 

period, a purchaser that acquires the 

covered transaction pursuant to 

§ 1026.43(e)(7)(iii)(B)(3) may not 

subsequently transfer the covered 

transaction to any other entity and 

maintain the covered transaction’s 

eligibility to become a Seasoned QM, 

except that the purchaser may transfer 

the covered transaction pursuant to 

§ 1026.43(e)(7)(iii)(B)(1) or (2). Section 

1026.43(e)(7)(iii)(B)(3) also provides that 

the covered transaction may not be 

securitized as part of a transfer 

permitted under 

§ 1026.43(e)(7)(iii)(B)(3) or at any other 

time before the end of the seasoning 

period. For an illustrative example, a 

covered transaction is considered to be 

securitized under this final rule if it is 

transferred to an entity such as a 

securitization trust, and interests in the 

trust are held by investors, even if legal 

title to the covered transaction is 

retained by the securitization trust. 

As noted in the discussion of 

comments received on the proposed 

portfolio requirement, two industry 

commenters suggested the Bureau 

permit a one-time sale of the covered 

transaction to another purchaser as long 

as the owner or purchaser holds the 

covered transaction in its portfolio for 

the requisite 36-month seasoning period 

and does not securitize the covered 

transaction. The Bureau has concluded 

that a one-time transfer of a whole loan 

should not preclude the loan from 

becoming a Seasoned QM for the 

following reasons. First, a fundamental 

goal of creating the Seasoned QM 

category is to encourage creditors to 

increase the origination of non-QM 

loans in a responsible manner. Many 

creditors, particularly non-banks, rely 

on borrowed funds to make loans and 

then sell these loans in order to 

originate additional new loans. Further, 

non-banks are particularly active in the 

non-QM market, with only one 

depository institution included among 

the 10 largest non-QM originators.155

Allowing a one-time transfer as 

permitted in this final rule broadens the 

category of responsible, non-QM 

originations that could benefit from this 

final rule to include loans made by such 

creditors and thus furthers the Bureau’s 

goal of increasing such originations. 

Additionally, the Bureau notes that nonbanks play a key role in expanding 

access to credit as evidenced by the 

lower average FICO scores and higher 

DTIs associated with their loans as 

compared to depositories.156

Second, while allowing a single 

transfer may mean that the originating 

creditor has a somewhat weaker 

incentive to originate affordable loans, 

relative to the proposal, the Bureau 

concludes that requiring the purchaser 

of the covered transaction to hold the 

transaction in its portfolio until the end 

of the seasoning period will ensure that 

the originating creditor and the 

purchaser together have sufficient 

incentive to ensure that the originating 

creditor makes a diligent ATR 

determination. The whole-loan transfer 

puts the purchaser in a similar position 

to the original creditor in the legal and 

credit exposure the purchaser faces if a 

consumer defaults on the covered 

transaction. As such, to the extent that 

all or part of the seasoning period 

remains after the transfer, the purchaser 

will have an incentive to ensure the 

loan is high quality, which in turn will 

incentivize the creditor to make a 

diligent ATR determination at 

consummation. 

One of the industry commenters that 

suggested the single transfer exception 

indicated that, as part of the exception, 

the Bureau could specifically require 

the purchaser to hold the loan for 36 

months after the date of transfer. The 

type of transfers that 

§ 1026.43(e)(7)(iii)(B)(3) permits 

commonly occur before or around the 

due date for the first periodic payment. 

For such transactions, 

§ 1026.43(e)(7)(iii) as finalized requires 

the purchaser to hold the loan in 

portfolio for approximately 36 months 

after the date of transfer, because 

§ 1026.43(e)(7)(iv)(C) provides that the 

seasoning period does not end until at 

least 36 months after the due date for 

the first periodic payment. Additionally, 

as the proposal explained, given the 

increasing likelihood that intervening 

events contribute to delinquencies, the 

Bureau generally does not view 

delinquency after 36 months in the 

lifecycle of a loan product as 

undermining the presumption of 

creditor compliance with the ATR 

requirements at consummation. In light 

of these considerations, and the 

incentives discussed above that the 

initial 36-month seasoning period 

creates for the originating creditor and 

the purchaser, the Bureau has 

determined it is unnecessary to extend 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86430 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

157The QM definition is related to the definition 

of qualified residential mortgage (QRM). Section 

15G of the Securities Exchange Act of 1934, added 

by section 941(b) of the Dodd-Frank Act, generally 

requires the securitizer of asset-backed securities 

(ABS) to retain not less than 5 percent of the credit 

risk of the assets collateralizing the ABS. 15 U.S.C. 

78o-11. Six Federal agencies (not including the 

Bureau) are tasked with implementing this 

requirement. Those agencies are the Board, the 

OCC, the FDIC, the Securities and Exchange 

Commission, the FHFA, and HUD (collectively, the 

QRM agencies). Section 15G of the Securities 

Exchange Act of 1934 provides that the credit risk 

retention requirements shall not apply to an 

issuance of ABS if all of the assets that collateralize 

the ABS are QRMs. See 15 U.S.C. 78o– 

11(c)(1)(C)(iii), (4)(A) and (B). Section 15G requires 

the QRM agencies to jointly define what constitutes 

a QRM, taking into consideration underwriting and 

product features that historical loan performance 

data indicate result in a lower risk of default. See 

15 U.S.C. 78o–11(e)(4). Section 15G also provides 

that the definition of a QRM shall be ‘‘no broader 

than’’ the definition of a qualified mortgage, as the 

term is defined under TILA section 129C(b)(2), as 

amended by the Dodd-Frank Act, and regulations 

adopted thereunder. 15 U.S.C. 78o–11(e)(4)(C). In 

2014, the QRM agencies issued a final rule adopting 

the risk retention requirements. 79 FR 77601 (Dec. 

24, 2014). The final rule aligns the QRM definition 

with the QM definition defined by the Bureau in 

the ATR/QM Rule, effectively exempting securities 

comprised of loans that meet the QM definition 

from the risk retention requirement. The final rule 

also requires the agencies to review the definition 

of QRM no later than four years after the effective 

date of the final risk retention rules. In 2019, the 

QRM agencies initiated a review of certain 

provisions of the risk retention rule, including the 

QRM definition, and have extended the review 

period until June 20, 2021. 84 FR 70073 (Dec. 20, 

2019). Among other things, the review allows the 

QRM agencies to consider the QRM definition in 

light of any changes to the QM definition adopted 

by the Bureau. 

or reset the seasoning period for loans 

transferred after the first payment date 

pursuant to § 1026.43(e)(7)(iii)(B)(3) to 

include a period of 36 months beginning 

on the date of the transfer. 

The Bureau concludes that it is 

appropriate to exclude loans that are 

securitized because it recognizes whole 

loan purchasers will likely have a more 

direct relationship with the originator 

than investors in mortgage-backed 

securities and may therefore have more 

visibility into the seller’s underwriting 

process and be better positioned to use 

remedies to make the originating 

creditor buy back the loan if the loan 

performs poorly or is otherwise 

defective. The Bureau believes that a 

whole loan purchaser’s incentive 

remains regardless of whether there is a 

mandatory commitment between the 

seller and purchaser to deliver a 

mortgage loan at a predetermined price 

by a specified date. Even in the case of 

mandatory commitments, the seller has 

an obligation to deliver the loan in 

accordance with the investor 

requirements and in compliance with 

applicable State and Federal 

requirements. The Bureau acknowledges 

that purchasers are often incentivized to 

preserve their business relationship by 

attempting to cure loan defects without 

requiring the seller to repurchase the 

loan. However, in the event of a material 

and uncurable defect, purchasers can 

and do exercise remedies requiring the 

seller to repurchase the loan, rather than 

assume the liability of a non-compliant 

loan or retain a defective loan in 

portfolio that they anticipate will 

perform worse than expected. 

The Bureau declines to adopt a final 

rule without any portfolio requirement, 

as a number of industry commenters 

urged the Bureau to do. As discussed in 

greater detail in the section-by-section 

analysis of § 1026.43(e)(7)(i) above, the 

final rule does not impose a DTI limit 

or a pricing limit on loans that are 

eligible to become Seasoned QMs. In 

this respect, the Seasoned QM 

definition is similar to some other QM 

definitions such as the Small Creditor 

QM definition. While covered 

transactions are subject to certain 

product restrictions, limitations on 

points and fees, and underwriting 

requirements, in the absence of a 

specific DTI or pricing limit applicable 

at consummation, the Bureau has 

decided to impose a portfolio 

requirement to help ensure the creditor 

makes a reasonable determination that 

the loan is within the consumer’s ability 

to repay. As discussed above, it is 

conceivable that under certain 

circumstances, the record of a 

consumer’s payments could make it 

appear that the consumer had the ability 

to repay at consummation even when 

that is not in fact the case. Other 

provisions of this final rule attempt to 

reduce that possibility (such as by 

providing that payments made by a 

servicer or from a consumer’s escrowed 

funds are not considered as on-time 

payments), but the Bureau has decided 

to provide further assurance that the 

creditor’s ATR determination at 

consummation was a diligent and 

reasonable one by including a portfolio 

requirement. 

Further, although the Bureau 

recognizes that the interagency credit 

risk retention rule 157 provides an 

indirect incentive to originate 

responsible and affordable loans for sale 

and securitization in the secondary 

markets, the Bureau concludes that 

limiting the Seasoned QM definition to 

loans that are held in portfolio by the 

originating creditor or first purchaser 

will provide stronger incentives to 

originate responsible and affordable 

loans. 

Moreover, while not necessary for the 

Bureau’s conclusion to retain a portfolio 

requirement, that conclusion is 

consistent with the Bureau’s analysis of 

the foreclosure start rates of mortgage 

loans originated between 2003 and 2015 

that were designated to be held in 

portfolio at origination and mortgage 

loans originated during the same time 

period that were designated for privatelabel securitization. The loans the 

Bureau evaluated had fixed interest 

rates, were first-lien transactions, were 

not high-cost mortgages subject to 

HOEPA, and did not have any features 

that disqualified them from being QMs. 

The results are shown in Figure 1 

below. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86431 

158The numbers of loans designated for privatelabel securitization from 2011 through 2015 that 

met the criteria described above (i.e., non-HOEPA, 

first-lien, fixed-rate loans that did not have features 

that would make them ineligible to be QMs) were 

as follows: 9,700, 17,500, 25,720, 22,900, and 

16,800. In contrast, the numbers of loans designated 

to be held in portfolio during those years and that 

met the same criteria were between 1.4 and 2.2 

million. 

Figure 1 shows that loans designated 

to be held in portfolio at origination 

consistently foreclosed at lower rates for 

eight of the 13 years that made up the 

period of time that the Bureau 

evaluated, from 2003 through 2010. 

Although the foreclosure start rates in 

the years 2011 through 2015 of loans 

designated to be held in portfolio and 

loans designated for private-label 

securitization appear to be similar, the 

number of such securitized loans during 

those years is too small to be 

informative.158 These data further 

support the Bureau’s determination that 

creditors are more likely to do diligent 

ATR determinations when loans are 

held in portfolio rather than securitized. 

The Bureau also declines to create an 

additional exception in 

§ 1026.43(e)(7)(iii) to permit transfers 

pursuant to a creditor’s default or 

breach of loan covenants in situations in 

which the loan serves as collateral 

securing the financing the creditor uses 

to fund the loan, as one industry 

commenter requested. Such transfers 

may fall within the single-transfer 

exception in § 1026.43(e)(7)(iii)(B)(3) if 

the requirements for that exception are 

met, and the Bureau concludes an 

additional exception for circumstances 

involving default or breach of loan 

covenants is not warranted. 

Lastly, the Bureau has decided that no 

change to the proposal is required to 

address whether loans pledged as 

collateral to the Federal Home Loan 

Banks or the Board are deemed to be 

held in the bank creditors’ portfolios for 

purposes of the Seasoned QM portfolio 

requirement. Whether a given covered 

transaction meets the portfolio 

requirement depends generally on (1) 

whether the transaction is subject, at 

consummation, to a commitment to be 

acquired by another person and (2) 

whether legal title is sold, assigned, or 

otherwise transferred to another person 

before the end of the seasoning period, 

outside of the specified exceptions. This 

general test is modeled on the test set 

forth in the Small Creditor QM and 

Balloon Payment QM definitions, and, 

as explained above, the Bureau has also 

added a single-transfer exception to the 

Seasoned QM portfolio requirement if 

the standards articulated above are met. 

If loans pledged to the Federal Home 

Loan Banks or the Board comply with 

the general test or comply with any of 

the three specified exceptions set forth 

in § 1026.43(e)(7)(iii)(B), then they are 

considered to be held in portfolio until 

the end of the seasoning period 

pursuant to § 1026.43(e)(7)(iii). 

43(e)(7)(iv) Definitions 

The Bureau proposed to adopt several 

definitions for purposes of proposed 

§ 1026.43(e)(7). The Bureau solicited 

comments on all of its proposed 

definitions. The Bureau addresses each 

of the proposed definitions in turn 

below. 

Paragraph 43(e)(7)(iv)(A) 

As explained above, 

§ 1026.43(e)(7)(i)(C) and (ii) as finalized 

provides that only covered transactions 

that have no more than two 

delinquencies of 30 or more days and no 

delinquencies of 60 or more days at the 

end of the seasoning period can become 

Seasoned QMs. Proposed 

§ 1026.43(e)(7)(iv)(A) would have 

defined delinquency as the failure to 


KHAMMOND on DSKJM1Z7X2PROD with RULES4ER29DE20.400</GPH>
86432 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

make a periodic payment (in one full 

payment or in two or more partial 

payments) sufficient to cover principal, 

interest, and, if applicable, escrow by 

the date the periodic payment is due 

under the terms of the legal obligation. 

The proposed definition in 

§ 1026.43(e)(7)(iv)(A) would have 

excluded other amounts, such as late 

fees, from the definition. Proposed 

§ 1026.43(e)(7)(iv)(A)(1) through (5) 

would have addressed additional, 

specific aspects of the definition of 

delinquency, which are discussed in the 

section-by-section analyses that follow. 

Proposed comment 43(e)(7)(iv)(A)–1 

would have clarified that, in 

determining whether a scheduled 

periodic payment is delinquent for 

purposes of proposed § 1026.43(e)(7), 

the due date is the date the payment is 

due under the terms of the legal 

obligation, without regard to whether 

the consumer is afforded a period after 

the due date to pay before the servicer 

assesses a late fee. 

Industry commenters generally 

supported proposed 

§ 1026.43(e)(7)(iv)(A), while consumer 

advocate commenters opposed the 

Seasoned QM Proposal as a whole. Both 

industry and consumer advocate 

commenters raised concerns about 

specific aspects of the definition that are 

discussed in the section-in-section 

analyses of § 1026.43(e)(7)(iv)(A)(1), (2), 

and (4) below. The Bureau did not 

receive comments on proposed 

comment 43(e)(7)(iv)(A)–1. 

The Bureau concludes that the 

definition of delinquency in 

§ 1026.43(e)(7)(iv)(A) provides a clear 

method of assessing delinquency for 

purposes of § 1026.43(e)(7). 

Accordingly, the Bureau is finalizing 

§ 1026.43(e)(7)(iv)(A) and comment 

43(e)(7)(iv)(A)–1 as proposed, with 

minor technical changes and one 

modification to § 1026.43(e)(7)(iv)(A)(4) 

as discussed below. 

Paragraphs 43(e)(7)(iv)(A)(1) and (2) 

Proposed § 1026.43(e)(7)(iv)(A)(1) and 

(2) specified when periodic payments 

are 30 days delinquent and 60 days 

delinquent, respectively, for purposes of 

proposed § 1026.43(e)(7)(iv). Proposed 

§ 1026.43(e)(7)(iv)(A)(1) provided that a 

periodic payment would be 30 days 

delinquent if it is not paid before the 

due date of the following scheduled 

periodic payment. Proposed 

§ 1026.43(e)(7)(iv)(A)(2) provided that a 

periodic payment would be 60 days 

delinquent if the consumer is more than 

30 days delinquent on the first of two 

sequential scheduled periodic payments 

and does not make both sequential 

scheduled periodic payments before the 

due date of the next scheduled periodic 

payment after the two sequential 

scheduled periodic payments. Proposed 

comment 43(e)(7)(iv)(A)(2)–1 provided 

an illustrative example of the meaning 

of 60 days delinquent for purposes of 

proposed § 1026.43(e)(7). 

The Bureau received a few comments 

that related to proposed 

§ 1026.43(e)(7)(iv)(A)(1) and (2). An 

industry commenter noted that the 

proposed definition of delinquency 

refers to 30 and 60-day delinquency 

periods and asked the Bureau to modify 

proposed § 1026.43(e)(7)(iv)(A) to 

account for non-monthly payments 

schedules (e.g., bi-weekly or quarterly 

payment schedules). Two consumer 

advocate commenters stated that the 

Bureau should provide clarifying 

commentary to address rolling 

delinquencies. They explained that it is 

very common for struggling 

homeowners to have rolling 

delinquencies, paying somewhat late 

month after month, but never bringing 

the loan current. These commenters 

indicated that borrowers who pay 29 or 

30 days late every month maintain a 

persistent delinquency, showing clear 

signs of financial distress, and not 

demonstrating an ability to repay. 

The Bureau concludes that the 

approach set forth in proposed 

§ 1026.43(e)(7)(iv)(A)(1) and (2) and 

proposed comment 43(e)(7)(iv)(A)(2)–1 

provide appropriate standards for 

determining whether a periodic 

payment is 30 or 60 days delinquent 

that would be relatively easy to apply. 

The Bureau also finds that proposed 

§ 1026.43(e)(7)(iv)(A) is flexible enough 

to account for non-monthly payment 

schedules and therefore declines to 

provide additional flexibilities to 

account for non-monthly payment 

schedules. Proposed 

§ 1026.43(e)(7)(iv)(A)(1) and (2) define 

30 days delinquent and 60 days 

delinquent based on whether payments 

are made before the next periodic 

payment due date. Thus, under the 

proposed § 1026.43(e)(7)(iv)(A)(1), a biweekly or quarterly periodic payment 

would be 30 days delinquent when the 

periodic payment is not paid before the 

due date of the following bi-weekly or 

quarterly payment. Similarly, under 

proposed § 1026.43(e)(7)(iv)(A)(2), a biweekly or quarterly periodic payment 

would be 60 days delinquent if the 

consumer is more than 30 days 

delinquent, as defined under proposed 

§ 1026.43(e)(7)(iv)(A)(1), on the first of 

two sequential scheduled periodic 

payments and does not make both 

sequential scheduled periodic payments 

before the due date of the next 

scheduled periodic payment after the 

two sequential scheduled periodic 

payments. The Bureau also does not 

believe any change is necessary to 

address rolling delinquencies because 

the performance standards in 

§ 1026.43(e)(7)(ii) and the definition of 

60 days delinquent in 

§ 1026.43(e)(7)(iv)(A)(2) already capture 

rolling delinquencies, as discussed in 

the section-by-section analysis of 

§ 1026.43(e)(7)(ii) above. Comment 

43(e)(7)(iv)(A)(2)-1 illustrates the 

meaning of 60 days delinquent for 

purposes of § 1026.43(e)(7) by providing 

an example. The Bureau is adopting 

§ 1026.43(e)(7)(iv)(A)(1) and (2) and 

comment 43(e)(7)(iv)(A)(2)-1 as 

proposed, with minor technical changes 

in the comment. 

Paragraph 43(e)(7)(iv)(A)(3) 

As the Bureau noted in the proposal, 

some servicers elect or may be required 

to treat consumers as having made a 

timely payment even if the payment is 

a small amount less than the full 

periodic payment. For purposes of 

proposed § 1026.43(e)(7), proposed 

§ 1026.43(e)(7)(iv)(A)(3) provided that 

for any given billing cycle for which a 

consumer’s payment is less than the 

periodic payment due, a consumer is 

not delinquent if: (1) The servicer 

chooses not to treat the payment as 

delinquent for purposes of any section 

of subpart C of Regulation X, 12 CFR 

part 1024, if applicable, (2) the payment 

is deficient by $50 or less, and (3) there 

are no more than three such deficient 

payments treated as not delinquent 

during the seasoning period. The 

Bureau did not receive any comments 

on proposed § 1026.43(e)(iv)(A)(3) and, 

for the reasons explained below, is now 

finalizing § 1026.43(e)(iv)(A)(3) as 

proposed. 

The Bureau concludes that the 

approach to small periodic payment 

deficiencies in § 1026.43(e)(iv)(A)(3) 

will result in less burden for financial 

institutions seeking to avail themselves 

of the Seasoned QM definition, in the 

event that their servicing systems and 

practices already make allowances for 

treating a payment as not delinquent 

when the payment is deficient by a 

small amount. For example, a servicer 

may have systems in place to accept 

minimally deficient payments and not 

count them as delinquent for purposes 

of calculating delinquency under 

subpart C of Regulation X, 12 CFR part 

1024. Further, the Bureau is concerned 

that, absent § 1026.43(e)(7)(iv)(A)(3), 

creditors might find it very unlikely that 

many of their loans would fully meet 

the requirements to be a Seasoned QM, 

undermining the rule’s objectives. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86433 

159Fannie Mae, Servicing Guide 218–19 (July 15, 

2020), https://singlefamily.fanniemae.com/media/ 

23346/display (July 2020 Servicing Guide); Freddie 

Mac, Seller/Servicer Guide at 8103–3 (Aug. 5, 2020), 

https://guide.freddiemac.com/ci/okcsFattach/get/ 

1002095_2. 160 July 2020 Servicing Guide, supra note 159, at 

218–19. 161See, e.g., United States v. Bank of Am. Corp., 

No. 1:12-cv-00361–RMC, 2012 U.S. Dist. LEXIS 

188892, at *32 (D.D.C. Apr. 4, 2012). 162The Bureau also notes that a deficient periodic 

payment does not trigger a delinquency of 30 days 

or more under § 1026.43(e)(7)(iv)(A)(1) if the 

consumer pays the deficient amount before the next 

periodic payment comes due. 

163The Bureau is not requiring that the escrow 

amount (if applicable) be considered in determining 

whether a delinquency exists for purposes of 

§ 1026.43(e)(7) be the amount disclosed to the 

consumer at consummation, because escrow 

payments are subject to changes over time. 

Required periodic payments for 

covered transactions can vary over time 

as tax and insurance amounts change. 

For example, a consumer could 

overlook an annual escrow statement 

reflecting an escrow payment increase 

and pay the previously required amount 

instead of the new amount. The Bureau 

believes that small deficiencies in a 

limited amount of periodic payments 

often do not mean that the consumer 

was unable to repay the loan at the time 

of consummation. 

The Bureau has decided, however, 

that unless limits are imposed, servicers 

and creditors could use payment 

tolerances to mask unaffordability in a 

way that might undermine the purposes 

of this final rule. The Bureau 

understands that Fannie Mae and 

Freddie Mac servicing guidance allows 

servicers to apply periodic payments 

that are short by $50 or less.159 Fannie 

Mae limits the usage of the payment 

tolerance to three monthly payments 

during a 12-month period,160 while the 

National Mortgage Settlement generally 

required acceptance of at least two 

periodic payments that were short by 

$50 or less.161 In light of these practices 

and the considerations discussed above, 

the Bureau is adopting a cap of no more 

than three periodic payment 

deficiencies of $50 or less during the 

seasoning period to ensure that use of 

payment tolerances does not mask 

unaffordability. The Bureau concludes 

that allowing up to three payments 

deficient by $50 or less over the course 

of the seasoning period provides 

appropriate flexibility for small 

deficiencies such as those related to 

variations in tax and insurance 

amounts.162

Paragraph 43(e)(7)(iv)(A)(4) 

Proposed § 1026.43(e)(7)(iv)(A)(4) 

provided that unless a qualifying change 

is made to the loan obligation, the 

principal and interest used in 

determining the date a periodic 

payment sufficient to cover principal, 

interest, and, if applicable, escrow 

becomes due and unpaid are the 

principal and interest payment amounts 

established by the terms and payment 

schedule of the loan obligation at 

consummation. Proposed 

§ 1026.43(e)(7)(iv)(A)(4) focused on the 

principal and interest payment amounts 

established by the terms and payment 

schedule of the loan obligation at 

consummation because the performance 

requirements in proposed 

§ 1026.43(e)(7)(ii) were designed to 

assess whether the creditor made a 

reasonable and good faith determination 

of the consumer’s ability to repay at the 

time of consummation.163

The Bureau concludes that using a 

principal and interest amount that has 

been modified or adjusted after 

consummation would not provide a 

basis for presuming that the creditor 

made such a determination. For 

example, if a consumer has a modified 

payment that is much lower than the 

original contractual payment amount, 

the consumer might be able to make the 

modified payments even though the 

contractual terms at consummation 

were not affordable. 

The Bureau recognizes, however, that 

certain unusual circumstances involving 

disasters or pandemic-related national 

emergencies warrant using a principal 

and interest amount that has been 

modified or adjusted after 

consummation. Accordingly, the Bureau 

proposed that if a qualifying change as 

defined in proposed 

§ 1026.43(e)(7)(iv)(B) is made to the loan 

obligation, the principal and interest 

used in determining the date a periodic 

payment sufficient to cover principal, 

interest, and, if applicable, escrow 

becomes due and unpaid would be the 

principal and interest payment amounts 

established by the terms and payment 

schedule of the loan obligation at 

consummation as modified by the 

qualifying change. The Bureau is 

finalizing § 1026.43(e)(7)(iv)(A)(4) with 

one modification as explained below 

and minor technical changes. 

Although the Bureau did not receive 

many comments relating to proposed 

§ 1026.43(e)(7)(iv)(A)(4), one industry 

commenter cautioned that proposed 

§ 1026.43(e)(7)(iv)(A)(4) was not flexible 

enough to apply to a small subset of 

loans the Bureau intended to cover 

within the scope of the proposal. 

Specifically, an industry trade 

association pointed out that proposed 

§ 1026.43(e)(7)(iv)(A)(4), which relies on 

the first payment due date in the legal 

obligation at consummation to 

determine when a loan could be first 

delinquent, would not account for 

changes in the first payment due date 

typically associated with the delivery of 

new manufactured housing. This 

commenter also noted that proposed 

§ 1026.43(e)(7)(iv)(A) would not account 

for courtesy due date changes extended 

by creditors, such as from the 1st to the 

5th of the month for a borrower who 

receives Social Security benefits on the 

3rd of the month. 

After considering the comments 

received, the Bureau is finalizing 

§ 1026.43(e)(7)(iv)(A)(4) with minor 

technical changes and one modification 

as described below to address the 

commenter’s concern that creditors 

making loans for the purchase of new 

manufactured homes often estimate the 

first payment due date in the legal 

obligation signed at consummation. 

These dates may be uncertain at 

consummation due to potential delays 

involved with the delivery, set up, and 

availability for occupancy of the 

dwelling that secures the loan. The 

Bureau understands that, in these 

circumstances, creditors may modify the 

first payment date after consummation 

when those dates become clear so that 

the first payment date is not due until 

after the consumer occupies the home. 

Proposed § 1026.43(e)(7)(iv)(A)(4) 

required delinquency to be calculated 

based on the first payment due date 

established by the terms and payment 

schedule of the loan obligation at 

consummation. Thus, a loan to purchase 

a new manufactured home might be 

considered delinquent under proposed 

§ 1026.43(e)(7)(iv)(A)(4), even though 

the consumer has not missed a payment 

under the terms of a modified 

agreement. 

A primary objective of the proposal 

was to ensure the availability of 

responsible and affordable credit by 

incentivizing the origination of non-QM 

loans that otherwise might not be made. 

In the proposal, the Bureau noted that 

half of manufactured housing 

originations are rebuttable presumption 

QM loans, and that large banks tend to 

originate only safe harbor QM loans that 

are held in portfolio. The Bureau 

concludes that modifying proposed 

§ 1026.43(e)(7)(iv)(A)(4) to allow 

creditors to modify the first payment 

due date in certain limited 

circumstances furthers the objective of 

the proposal. Accordingly, if, due to 

reasons related to the timing of delivery, 

set up, or availability for occupancy of 

the dwelling securing the obligation, the 

creditor modifies the first payment due 

date before the first payment due date 

under the legal obligation at 

consummation, the modified first 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86434 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

164For example, in addition to imposing 

conditions around the number and duration of 

delinquencies, Fannie Mae’s lender selling 

representation and warranty framework provides 

that: 

With the exception of mortgage loans with 

temporary buydowns, neither the lender nor a third 

party with a financial interest in the performance 

of the loan . . . can escrow or advance funds on 

behalf of the borrower to be used for payment of 

any principal or interest payable under the terms 

of the mortgage loan for the purpose of satisfying 

the payment history requirement. 

Fannie Mae, Selling Guide at 56 (Aug. 5, 2020), 

https://singlefamily.fanniemae.com/media/23641/ 

display (Selling Guide). 

payment due date, rather than the first 

payment due date under the legal 

obligation at consummation, is used in 

determining whether a periodic 

payment is delinquent. 

The Bureau declines to make any 

changes to proposed 

§ 1026.43(e)(7)(iv)(A)(4) to 

accommodate courtesy due date changes 

extended by creditors. As stated in the 

section-by-section analysis of 

§ 1026.43(e)(7)(ii), a loan that seasons 

into QM status may not have more than 

two delinquencies of 30 or more days or 

any delinquencies of 60 or more days at 

the end of the seasoning period. The 

Bureau concludes that this performance 

standard already provides sufficient 

flexibility to accommodate courtesy 

shifts to a different date within a month 

(such as from the 1st to the 5th of the 

month), because delinquencies of less 

than 30 days do not affect whether a 

loan can season under 

§ 1026.43(e)(7)(ii). 

Paragraph 43(e)(7)(iv)(A)(5) 

Proposed § 1026.43(e)(7)(iv)(A)(5) 

addressed how to handle payments 

made from certain third-party sources in 

assessing delinquency for purposes of 

proposed § 1026.43(e)(7). Specifically, 

proposed § 1026.43(e)(7)(iv)(A)(5) 

provided that, except for making up the 

deficiency amount set forth in proposed 

§ 1026.43(e)(7)(iv)(A)(3)(ii), payments 

from the following sources would not be 

considered in assessing delinquency 

under proposed § 1026.43(e)(7)(iv)(A): 

(1) Funds in escrow in connection with 

the covered transaction, or (2) funds 

paid on behalf of the consumer by the 

creditor, servicer, or assignee of the 

covered transaction, or any other person 

acting on behalf of such creditor, 

servicer, or assignee. 

In the proposal, the Bureau tentatively 

concluded that proposed 

§ 1026.43(e)(7)(iv)(A)(5) would help to 

ensure that payments made by 

consumers during the seasoning period 

actually reflect the consumer’s ability to 

repay. The Bureau further noted 

similarities between the proposed 

provision and the GSEs’ representation 

and warranty framework. As discussed 

below, the Bureau is adopting 

§ 1026.43(e)(7)(iv)(A)(5) as proposed in 

this final rule. 

Comments Received 

The Bureau received two comments 

on this aspect of the proposal from 

industry commenters. One commenter 

agreed with the Bureau’s rationale for 

the proposed requirement. The other 

commenter stated that the proposed 

provision adequately addressed its 

suggestion in response to the ANPR that 

the Bureau impose a requirement that 

mortgage payments come from 

consumers’ own funds. 

The Final Rule 

The Bureau is finalizing 

§ 1026.43(e)(7)(iv)(A)(5) as proposed 

because it concludes that 

§ 1026.43(e)(7)(iv)(A)(5) helps to ensure 

that the performance history considered 

in assessing delinquency for purposes of 

§ 1026.43(e)(7) reflects the consumer’s 

ability to repay rather than payments 

made by the creditor, servicer, or 

assignee or persons acting on their 

behalf that could mask a consumer’s 

inability to repay. As the Bureau 

explained in the proposal, the GSEs’ 

representation and warranty framework 

generally prohibits lenders and third 

parties with a financial interest in the 

performance of a loan escrowing or 

advancing funds on a borrower’s behalf 

to be used to make principal and 

interest payments to satisfy the 

framework’s payment history 

requirement.164 Similar to the GSEs’ 

representation and warranty framework, 

the Bureau concludes that payments 

made from escrow accounts established 

in connection with the loan should not 

be considered in assessing performance 

for seasoning purposes because a 

creditor could escrow funds from the 

loan proceeds to cover payments during 

the seasoning period even if the loan 

payments were not actually affordable 

for the consumer on an ongoing basis. 

If a creditor needs to take funds from an 

escrow account to cover a periodic 

payment that is due on the account, the 

Bureau does not believe that the 

payment from escrow indicates the 

consumer is able to make the periodic 

payment. 

Accordingly, pursuant to 

§ 1026.43(e)(7)(iv)(A)(5), any payment 

received from one of the identified 

sources is not considered in assessing 

delinquency, except for making up the 

deficiency amount set forth in proposed 

§ 1026.43(e)(7)(iv)(A)(3)(ii). Thus, for 

example, if a creditor or servicer 

advances $800 to cover a specific 

periodic payment on the consumer’s 

behalf, it is treated as if the advanced 

$800 were not paid for purposes of 

assessing whether that periodic 

payment is delinquent under proposed 

§ 1026.43(e)(7). However, 

§ 1026.43(e)(7)(iv)(A)(5) does not 

prohibit creditors from making up a 

deficiency amount as part of a payment 

tolerance of $50 or less under the 

circumstances set forth in 

§ 1026.43(e)(7)(iv)(A)(3)(ii). 

Paragraph 43(e)(7)(iv)(B) 

Proposed § 1026.43(e)(7)(iv)(C)(2) 

provided that the seasoning period does 

not include certain periods during 

which the consumer is in a temporary 

payment accommodation extended in 

connection with a disaster or pandemicrelated national emergency, provided 

that during or at the end of the 

temporary payment accommodation 

there is a qualifying change or the 

consumer cures the loan’s delinquency 

under its original terms. Proposed 

§ 1026.43(e)(7)(iv)(C)(2) provided that, 

under those circumstances, the 

seasoning period consists of the period 

before the accommodation begins and 

an additional period immediately after 

the accommodation ends, which 

together must equal at least 36 months. 

Proposed § 1026.43(e)(7)(iv)(B) defined 

a qualifying change as an agreement that 

meets the following conditions: (1) The 

agreement is entered into during or after 

a temporary payment accommodation in 

connection with a disaster or pandemicrelated national emergency as defined in 

§ 1026.43(e)(7)(iv)(D), and must end any 

pre-existing delinquency on the loan 

obligation when the agreement takes 

effect; (2) the amount of interest charged 

over the full term of the loan does not 

increase as a result of the agreement; (3) 

the servicer does not charge any fee in 

connection with the agreement; and (4) 

the servicer waives all existing late 

charges, penalties, stop payment fees, or 

similar charges promptly upon the 

consumer’s acceptance of the 

agreement. The Bureau is finalizing 

§ 1026.43(e)(7)(iv)(B) largely as 

proposed, with modifications to the fees 

and charges that must be waived 

pursuant to § 1026.43(e)(7)(iv)(B)(3) and 

additional commentary to clarify that an 

agreement can be a qualifying change 

even if it is not in writing and that the 

inclusion of a balloon payment or 

lengthened loan term as part of a 

qualifying change does not disqualify a 

loan from seasoning. The Bureau is also 

making minor technical revisions to 

§ 1026.43(e)(7)(iv)(B). 

Many commenters supported the 

proposal’s approach of restarting the 

seasoning period if the loan undergoes 

a qualifying change. Some industry 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86435 

commenters suggested modifying 

proposed § 1026.43(e)(7)(iv)(B)(4) so 

that an agreement can meet the 

definition of a qualifying change even if 

the servicer does not waive charges, 

penalties, and fees that were incurred 

prior to a delinquency caused by a 

disaster or pandemic-related national 

emergency. Some industry commenters 

asked that the Bureau clarify whether an 

agreement needs to be in writing in 

order to constitute a qualifying change. 

Some industry commenters also 

suggested that the Bureau clarify 

whether the inclusion of a balloon 

payment or an extension of the loan 

term beyond 30 years as part of a 

qualifying change would disqualify the 

loan from seasoning. Lastly, one 

industry commenter urged the Bureau to 

modify § 1026.43(e)(7)(iv)(B)(2) to allow 

for the amount of interest charged over 

the full term of the loan to increase in 

certain circumstances, such as when 

certain amounts are capitalized into a 

new loan balance. 

The Bureau understands that a variety 

of options may be available to bring 

current a loan that is subject to a 

temporary payment accommodation 

extended in connection with a disaster 

or pandemic-related national 

emergency. These options include, but 

are not limited to, curing the 

delinquency according to the terms of 

the original obligation, entering into a 

repayment plan, or entering into a 

permanent modification. In determining 

how to define a qualifying change, the 

Bureau seeks to establish standards that 

will reasonably ensure that any changes 

in the terms of a loan re-entering the 

seasoning period after a temporary 

payment accommodation extended in 

connection with a disaster or pandemicrelated national emergency will not 

significantly change the affordability of 

the loan as compared to the loan terms 

at consummation. Accordingly, the 

Bureau concludes that such a qualifying 

change must end any pre-existing 

delinquency, must not add to the 

amount of interest charged over the full 

term of the loan, and must not involve 

an additional fee charged to the 

consumer in connection with the 

change. 

Section 1026.43(e)(7)(iv)(B) references 

an agreement that must meet specific 

conditions in order to meet the 

definition of a qualifying change. Some 

commenters expressed concern that the 

term agreement could be interpreted to 

mean that a qualifying change is 

required to be in writing. Section 

1026.43(e)(7)(iv)(B) does not require that 

an agreement be in writing in order for 

it to meet the definition of a qualifying 

change. The Bureau is adding comment 

43(e)(7)(iv)(B)–1 to clarify that an 

agreement that meets the conditions 

specified in § 1026.43(e)(7)(iv)(B) is a 

qualifying change even if it is not in 

writing. 

Some commenters expressed concern 

that the inclusion of a balloon payment 

or lengthened loan term as part of a 

qualifying change may disqualify a loan 

from seasoning due to the product 

restrictions listed in proposed 

§ 1026.43(e)(7)(i)(A). Proposed comment 

43(e)(7)(i)(A)–2 explained that proposed 

§ 1026.43(e)(7)(i)(A) would not prohibit 

a qualifying change as defined in 

§ 1026.43(e)(7)(iv)(B). In response to 

commenter concerns, the Bureau is 

adding additional language to comment 

43(e)(7)(i)(A)–2 to clarify more 

specifically that § 1026.43(e)(7)(i)(A) 

does not disqualify a loan from 

seasoning eligibility if the loan 

undergoes a qualifying change as 

defined in § 1026.43(e)(7)(iv)(B), even if 

such a qualifying change involves a 

balloon payment or lengthened loan 

term. Although one commenter 

suggested that the Bureau address the 

applicability of certain loss mitigation 

protections under Regulation X in this 

final rule, the Bureau concludes it is not 

necessary to do so. Section 

1026.43(e)(7)(iv)(B) defines qualifying 

change solely for purposes of the 

Seasoned QM definition in the ATR/QM 

Rule and does not affect other 

requirements, such as those in 

Regulation X, that may affect the 

servicing of a loan. 

One commenter suggested that the 

Bureau should allow an agreement to 

meet the definition of a qualifying 

change even if the agreement allows for 

the capitalization of delinquent amounts 

and thereby causes the amount of 

interest charged over the full loan term 

to increase. As stated in the proposal, in 

establishing standards for a qualifying 

change, the Bureau sought to reasonably 

ensure that any such change would not 

significantly change the affordability of 

the loan as compared to the loan terms 

at consummation. Proposed 

§ 1026.43(e)(7)(iv)(B)(2) would have 

required that, to meet the definition of 

a qualifying change, the amount of 

interest charged over the full term of the 

loan could not increase as a result of the 

agreement. The Bureau concludes that 

capitalization which leads to an 

increase in the total amount of interest 

charged as compared to the loan terms 

at consummation would make loans less 

affordable, such that the loans should 

not be eligible for seasoning. The 

Bureau is therefore adopting 

§ 1026.43(e)(7)(iv)(B)(2) as proposed. 

Proposed § 1026.43(e)(7)(iv)(B)(4) 

would have required the waiver of all 

existing late charges, penalties, stop 

payment fees, or similar charges 

promptly upon the consumer’s 

acceptance of the agreement in order for 

the agreement to meet the definition of 

a qualifying change. As with the other 

criteria outlined in 

§ 1026.43(e)(7)(iv)(B), the Bureau 

proposed this provision in the 

definition of a qualifying change to 

ensure that loans that ultimately become 

Seasoned QMs remain affordable after a 

temporary payment accommodation 

extended in connection with a disaster 

or pandemic-related national 

emergency. 

The Bureau has decided to modify 

proposed § 1026.43(e)(7)(iv)(B)(4) to 

allow an agreement to meet the 

definition of a qualifying change even if 

servicers do not waive fees, penalties, 

and charges incurred prior to a 

delinquency caused by a disaster or 

pandemic-related national emergency. 

Adopting this change suggested by 

commenters is unlikely to significantly 

impact the affordability of a loan that 

enters into a qualifying change for two 

reasons. 

First, loans with large balances for 

fees and charges related to delinquency 

(such as foreclosure preparation 

expenses) will likely already be 

disqualified from seasoning eligibility 

based on the performance requirements 

in § 1026.43(e)(7)(ii). Second, even if 

such fees are capitalized, 

§ 1026.43(e)(7)(iv)(B)(2) will ensure that 

the amount of interest charged over the 

full term of the loan cannot increase as 

a result of the agreement. For these 

reasons, the Bureau is finalizing 

§ 1026.43(e)(7)(iv)(B)(4) to provide that 

an agreement can meet the definition of 

a qualifying change if, in addition to the 

other requirements outlined in 

§ 1026.43(e)(7)(iv)(B), promptly upon 

the consumer’s acceptance of the 

agreement, the servicer waives a more 

limited set of charges than those listed 

in proposed § 1026.43(e)(7)(iv)(B)(4). 

Specifically, § 1026.43(e)(7)(iv)(B)(4) as 

finalized lists the following charges: All 

late charges, penalties, stop payment 

fees, or similar charges incurred during 

a temporary payment accommodation in 

connection with a disaster or pandemicrelated national emergency, as well as 

all late charges, penalties, stop payment 

fees, or similar charges incurred during 

the delinquency that led to a temporary 

payment accommodation in connection 

with a disaster or pandemic-related 

national emergency. 

Paragraph 43(e)(7)(iv)(C) 

Section 1026.43(e)(7) requires that, to 

become a Seasoned QM, a covered 

transaction must meet certain 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86436 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

165A loan is eligible to season under the 

performance requirements in § 1026.43(e)(7)(ii) only 

if it has no more than two delinquencies of 30 or 

more days and no delinquencies of 60 or more days 

at the end of the seasoning period. 

166As further discussed in the section-by-section 

analysis of § 1026.43(e)(7)(iv)(D) below, the Bureau 

is defining a temporary payment accommodation 

extended in connection with a disaster or 

pandemic-related national emergency as temporary 

payment relief granted to a consumer due to 

financial hardship caused directly or indirectly by 

a presidentially declared emergency or major 

disaster under the Robert T. Stafford Disaster Relief 

and Emergency Assistance Act, Public Law 93–288, 

88 Stat. 143 (1974), or a presidentially declared 

pandemic-related national emergency under the 

National Emergencies Act, Public Law 94–412, 90 

Stat. 1255 (1976). 

requirements during and at the end of 

the seasoning period. Proposed 

§ 1026.43(e)(7)(iv)(C) defined the 

seasoning period as a period of 36 

months beginning on the date on which 

the first periodic payment is due after 

consummation of the covered 

transaction, except that: (1) If there is a 

delinquency of 30 days or more at the 

end of the 36th month of the seasoning 

period, the seasoning period does not 

end until there is no delinquency; and 

(2) the seasoning period does not 

include any period during which the 

consumer is in a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency, provided that during or at 

the end of the temporary payment 

accommodation there is a qualifying 

change or the consumer cures the loan’s 

delinquency under its original terms. 

The Bureau is adopting 

§ 1026.43(e)(7)(iv)(C) largely as 

proposed. 

Many industry commenters expressed 

support for the proposed general 

seasoning period of 36 months. These 

commenters agreed with the Bureau’s 

rationale relating to consistency with 

the GSEs’ representation and warranty 

framework, and expressed a belief, 

consistent with the Bureau’s proposal, 

that default after 36 months is not likely 

to be related to underwriting 

deficiencies. Some industry commenters 

joined several consumer advocate 

groups to express general opposition to 

the adoption of a Seasoned QM rule, 

and these commenters urged the Bureau 

not to adopt a shorter seasoning period 

if it finalized such a rule. Some 

consumer advocate commenters 

generally asserted that three years of 

performance history was not sufficient 

to establish that a creditor had made a 

reasonable determination of ability to 

repay at origination. These commenters 

pointed to anecdotal and survey 

evidence of loans that were unaffordable 

at origination but did not default until 

after three years. These commenters did 

not suggest a longer seasoning period, 

but instead expressed opposition to the 

adoption of any Seasoned QM rule. One 

industry commenter advocated for a 

shorter seasoning period of two years, 

but only for Small Creditor QMs. 

As explained in the proposal, in 

defining the length of the seasoning 

period, the Bureau seeks to balance two 

objectives. First, it seeks to ensure that 

safe harbor QM status accrues to loans 

for which the history of sustained, 

timely payments is long enough to 

conclusively presume that the consumer 

had the ability to repay at 

consummation. Second, in 

accomplishing its first objective, the 

Bureau seeks to avoid making the 

seasoning period so long that the 

Seasoned QM definition fails to 

incentivize increased access to credit, 

especially through increased 

originations of non-QM loans to 

consumers with the ability to repay 

them. 

As explained in part V above, in 

evaluating the length of a seasoning 

period that is long enough to 

demonstrate a consumer’s ability to 

repay, the Bureau considered the 

practices of market participants. These 

market participants typically require 

loans to meet certain requirements, such 

as a timely payment history, for a period 

of at least three years before releasing 

the loans’ creditors from potential 

penalties and other remedies for 

deficiencies in underwriting practices. 

The Bureau also focused on the timing 

of the first disqualifying event from the 

Seasoned QM definition as well as the 

rate at which loans terminate, either 

through prepayment or foreclosure, to 

assess the potential population of loans 

that would be eligible to benefit from 

this proposal, as discussed in part V 

above and illustrated in Figures 2 and 

3 of part VIII below. Based on these 

considerations and for the reasons 

discussed in part V above, the Bureau 

has decided to define the seasoning 

period generally as a period of at least 

36 months, beginning on the date on 

which the first periodic payment is due 

after consummation. The Bureau 

declines to generally shorten or 

lengthen the proposed seasoning period. 

The Bureau concludes that the practices 

of market participants and the available 

loan performance data generally support 

a seasoning period of 36 months. 

Paragraph 43(e)(7)(iv)(C)(1) 

The Bureau proposed a seasoning 

period generally of 36 months beginning 

on the date on which the first periodic 

payment is due after consummation, 

unless an exception applies. The first 

proposed exception extended the 

seasoning period if the loan is 30 days 

or more delinquent at the point when 

the seasoning period would otherwise 

end. Specifically, proposed 

§ 1026.43(e)(7)(iv)(C)(1) provided that if 

there is a delinquency of 30 days or 

more at the end of the 36th month of the 

seasoning period, the seasoning period 

does not end until there is no 

delinquency. The Bureau did not 

receive comments specifically 

addressing proposed 

§ 1026.43(e)(7)(iv)(C)(1). For the reasons 

explained below, the Bureau is adopting 

§ 1026.43(e)(7)(iv)(C)(1) as proposed. 

If a delinquency of 30 days or more 

exists in the last month of the seasoning 

period, it is possible that the 

delinquency will be resolved quickly 

after the seasoning period ends or that 

the delinquency will continue for an 

extended period. In situations in which 

the delinquency is not resolved quickly, 

the Bureau concludes that the loan does 

not become a Seasoned QM, because the 

extended delinquency, if considered 

with the consumer’s prior payment 

history, suggests that the creditor failed 

to make a reasonable, good faith 

determination of ability to repay at 

consummation. The Bureau is, 

therefore, extending the seasoning 

period under these circumstances until 

the loan is no longer delinquent. The 

loan would then have to meet the 

performance requirements under 

§ 1026.43(e)(7)(ii) at the conclusion of 

the extended seasoning period based on 

performance over the entire, extended 

seasoning period.165 The Bureau 

believes that extending the seasoning 

period until any delinquency of 30 days 

or more is resolved will help to ensure 

that loans for which a creditor failed to 

make a reasonable, good faith 

determination of ability to repay at 

consummation do not season into QMs 

under this final rule. As finalized, 

§ 1026.43(e)(7)(iv)(C)(1) provides that, 

notwithstanding any other provision of 

§ 1026.43(e)(7), if there is a delinquency 

of 30 days or more at the end of the 36th 

month of the seasoning period, the 

seasoning period does not end until 

there is no delinquency. 

Paragraph 43(e)(7)(iv)(C)(2) 

The Bureau proposed 

§ 1026.43(e)(7)(iv)(C)(2) to address how 

the time during which a loan is subject 

to a temporary payment accommodation 

extended in connection with a disaster 

or pandemic-related national 

emergency 166 affects the seasoning 

period. Proposed 

§ 1026.43(e)(7)(iv)(C)(2) provided that 

any period during which the consumer 

is in a temporary payment 

accommodation extended in connection 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86437 

167As further discussed in the section-by-section 

analysis of § 1026.43(e)(7)(iv)(B) above, the Bureau 

is establishing specific requirements for the type of 

qualifying change that can restart the seasoning 

period. 

168Fannie Mae’s Selling Guide states that loans 

subject to non-disaster related payment 

accommodations ‘‘may be eligible [for 

representation and warranty enforcement relief] on 

the basis of a quality control review of the loan file’’ 

if certain other requirements are met. See Selling 

Guide, supra note 164, at 56. For purposes of 

representation and warranty enforcement relief, the 

GSEs allow disaster-related forbearance plans to 

count as part of seasoning periods, but only if the 

subject loan is brought current (via reinstatement, 

a repayment plan, or a permanent modification) 

after the forbearance plan ends. See id. at 57; 

Freddie Mac, Seller/Servicer Guide at 1301–19 

(Aug. 5, 2020), https://guide.freddiemac.com/ci/ 

okcsFattach/get/1002095_2. 

169Although both the GSEs and mortgage insurers 

appear to count time spent in a disaster-related 

forbearance plan towards the 36-month time period, 

the Bureau believes that excluding temporary 

payment accommodations related to a disaster or 

pandemic-related national emergency from the 

seasoning period will best advance its goal of 

ensuring that the seasoning period allows enough 

time to assess whether the creditor made a 

reasonable determination of the consumer’s ability 

to repay at consummation. 

with a disaster or pandemic-related 

national emergency would not be 

counted as part of the seasoning period. 

Proposed § 1026.43(e)(7)(iv)(C)(2) also 

stated that, if the seasoning period is 

paused due to a temporary payment 

accommodation defined in proposed 

§ 1026.43(e)(7)(iv)(D), a loan must 

undergo a qualifying change 167 or the 

consumer must cure the delinquency 

under the loan’s original terms before 

the seasoning period can resume. 

Proposed § 1026.43(e)(7)(iv)(C)(2) 

further explained that, under these 

circumstances, the seasoning period 

consists of the period from the date on 

which the first periodic payment was 

due after consummation of the covered 

transaction to the beginning of the 

temporary payment accommodation and 

an additional period immediately after 

the temporary payment accommodation 

ends, which together must equal at least 

36 months. For the reasons discussed 

below, the Bureau is finalizing 

§ 1026.43(e)(7)(iv)(C)(2) as proposed. 

Many commenters were supportive of 

the Bureau’s proposal to pause the 

seasoning period during a temporary 

payment accommodation extended in 

connection with a disaster or pandemicrelated national emergency. Some 

industry commenters suggested that the 

Bureau allow the seasoning period to 

pause as soon as a delinquency occurs 

that is related to the type of disaster or 

pandemic-related national emergency 

defined in proposed 

§ 1026.43(e)(7)(iv)(D), regardless of 

whether the consumer enters into a 

temporary payment accommodation. 

These commenters noted that after a 

disaster or emergency, consumers may 

not immediately enter a temporary 

payment accommodation, or they may 

not be placed in a temporary payment 

accommodation prior to receiving a 

permanent modification. 

The Bureau has decided to exclude 

the period of time during which a loan 

is subject to certain temporary payment 

accommodations from the seasoning 

period for the three primary reasons 

stated in the proposal. First, the Bureau 

concludes that financial hardship 

experienced as a result of a disaster or 

pandemic-related national emergency is 

not likely to be indicative of a 

consumer’s inability to afford a loan at 

consummation. Second, the Bureau 

concludes that the assessment of an 

entire 36-month seasoning period 

during which the consumer is obligated 

to make full periodic payments 

(whether based on the terms of the 

original obligation or a qualifying 

change) is necessary to demonstrate that 

the consumer was able to afford the loan 

at consummation. The Bureau 

concludes that a loan’s performance 

during time spent in a temporary 

payment accommodation due to a 

disaster or pandemic-related national 

emergency should be excluded from this 

period because such accommodations 

typically involve reduced payments or 

no payment and are therefore not likely 

to assist in determining whether the 

creditor made a reasonable assessment 

of the consumer’s ability to repay at 

consummation. Third, absent the 

exclusion of periods of such temporary 

payment accommodations from the 

seasoning period definition, financial 

institutions might have an incentive to 

delay offering these types of 

accommodations to consumers. 

The Bureau concludes that not 

making payments because of financial 

hardship experienced as a result of a 

disaster or pandemic-related national 

emergency is not likely to be indicative 

of the consumer’s inability to afford the 

loan at consummation. The consumer’s 

failure to make payments does not 

indicate that the creditor did not 

comply with the ATR requirements at 

the time of consummation, because the 

disaster or pandemic-related national 

emergency is a change in the 

consumer’s circumstances after 

consummation that the creditor could 

not have reasonably anticipated at 

consummation. This determination is 

consistent with the ATR/QM Rule’s 

distinction between failure to repay due 

to a consumer’s inability to repay at the 

loan’s consummation, versus a 

consumer’s subsequent inability to 

repay due to unforeseeable changes in 

the consumer’s circumstances. 

Comment 43(c)(1)–2 states that ‘‘[a] 

change in the consumer’s circumstances 

after consummation . . . that cannot be 

reasonably anticipated from the 

consumer’s application or the records 

used to determine repayment ability is 

not relevant to determining a creditor’s 

compliance with the rule.’’ As such, the 

Bureau determines that periods of 

temporary payment accommodation 

attributable to financial hardship related 

to a disaster or pandemic-related 

national emergency should not 

jeopardize the possibility of the loan 

seasoning into a QM if the consumer 

brings the loan current or enters into a 

qualifying change. 

In evaluating how to treat periods of 

temporary payment accommodation for 

purposes of the seasoning period, the 

Bureau also considered how market 

participants address temporary payment 

accommodations with respect to 

penalties and other remedies for 

deficiencies in underwriting practices. 

The GSEs generally treat temporary and 

permanent payment accommodations as 

disqualifying for purposes of 

representation and warranty 

enforcement relief, but they make 

certain exceptions for accommodations 

related to disasters.168 Similarly, the 

master policies of mortgage insurers 

generally provide rescission relief after 

36 months of satisfactory payment 

performance, but a loan that has been 

subject to a temporary or permanent 

payment accommodation is typically 

not eligible for 36-month rescission 

relief, unless the accommodation was 

the result of a disaster. These practices, 

which extend to a significant portion of 

covered transactions, suggest that the 

GSEs and mortgage insurers have 

concluded, based on their experience, 

that payment accommodations resulting 

from disasters are not likely to be 

attributed to underwriting.169

Temporary payment accommodations 

entered into for reasons other than 

disasters or emergencies meeting the 

definition in § 1026.43(e)(7)(iv)(D) may 

be a sign of ongoing consumer financial 

distress that could indicate that the 

creditor did not make a reasonable 

assessment of the consumer’s ability to 

repay at consummation. As such, the 

Bureau has decided to treat periods of 

temporary payment accommodation for 

reasons other than disasters or 

pandemic-related national emergencies 

as part of the seasoning period. 

In defining limits for the types of 

temporary payment accommodations 

that qualify to be excluded from the 

seasoning period, the Bureau is also 

mindful of its goal of ensuring access to 

responsible, affordable mortgage credit 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86438 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

170See, e.g., Bureau of Consumer Fin. Prot., 

Statement on Bureau Supervisory and Enforcement 

Response to COVID–19 Pandemic (Mar. 26, 2020), 

https://files.consumerfinance.gov/f/documents/ 

cfpb_supervisory-enforcement-statement_covid-19_

2020-03.pdf; Press Release, Bureau of Consumer 

Fin. Prot., Agencies Provide Additional Information 

to Encourage Financial Institutions to Work with 

Borrowers Affected by COVID–19 (Mar. 22, 2020), 

https://www.consumerfinance.gov/about-us/ 

newsroom/agencies-provide-additionalinformation-encourage-financial-institutions-workborrowers-affected-covid-19; see also 85 FR 39055 

(June 30, 2020) (the Bureau’s June 2020 interim 

final rule amending Regulation X to allow mortgage 

servicers to finalize loss mitigation options without 

collecting a complete application in certain 

circumstances). 

by establishing requirements which 

enable a financial institution to obtain a 

reasonable degree of certainty as to 

whether a loan has met the definition of 

a Seasoned QM at the end of the 

seasoning period. The Bureau is 

concerned that establishing a broader 

exclusion from the seasoning period 

(such as, for example, excluding a 

period of temporary payment 

accommodation entered into as the 

result of financial hardship arising from 

circumstances not foreseeable at 

origination) could lead to an uncertain 

standard whereby financial hardships 

resulting in temporary payment 

accommodations would need to be 

evaluated on a case-by-case basis to 

determine whether a loan subject to 

such accommodations could season into 

a QM. Therefore, the Bureau has 

decided to exclude from the seasoning 

period temporary payment 

accommodations only for disasters and 

pandemic-related national emergencies 

meeting the definition in 

§ 1026.43(e)(7)(iv)(D). Some commenters 

raised concerns related to how the 

Bureau proposed to define the types of 

temporary payment accommodations 

that would be excluded from the 

seasoning period. Those comments, as 

well as the Bureau’s responses to them, 

are addressed in the section-by-section 

analysis of § 1026.43(e)(7)(iv)(D). 

The Bureau also emphasizes that, 

absent the exclusion of periods of 

temporary payment accommodations 

extended in connection with a disaster 

or pandemic-related national emergency 

from the seasoning period definition, 

financial institutions may be 

disincentivized from promptly offering 

these types of accommodations to 

consumers. Specifically, financial 

institutions may delay the provision of 

such payment accommodations until 

and unless affected loans are 

disqualified from seasoning into QM 

status due to accumulating two 

delinquencies of 30 or more days or one 

delinquency of 60 or more days. This 

final rule’s exclusion of temporary 

payment accommodations related to a 

disaster or pandemic-related national 

emergency from the seasoning period is 

consistent with the Bureau’s prior 

statements and actions encouraging 

financial institutions to move quickly to 

assist consumers affected by the urgent 

circumstances surrounding these types 

of events.170

At the same time, the Bureau 

recognizes that QM status is typically 

reserved for loans that meet various 

requirements designed to ensure 

affordability and wants to ensure that 

loans that season into QMs are 

affordable. For that reason, the Bureau 

is allowing loans to re-enter the 

seasoning period after a temporary 

payment accommodation ends only 

when the consumer cures the loan’s 

delinquency under its original terms or 

specific qualifying changes are made to 

the loan obligation. As discussed further 

in the section-by-section analysis of 

§ 1026.43(e)(7)(iv)(C), the limitation to 

qualifying changes is meant to ensure 

that any changes made to the loan terms 

after a temporary payment 

accommodation related to a disaster or 

pandemic-related national emergency 

do not make loans unaffordable. The 

Bureau is also requiring a seasoning 

period generally of 36 months, 

excluding the period of temporary 

payment accommodation, to ensure that 

there is sufficient information to 

evaluate the consumer’s performance 

history using the performance 

requirements in § 1026.43(e)(7)(ii). 

As noted above, some commenters 

suggested that delinquencies 

attributable to disasters or pandemicrelated national emergencies should 

pause the seasoning period regardless of 

whether the consumer enters into a 

temporary payment accommodation. In 

developing the proposal, the Bureau 

evaluated the practices of market 

participants, such as mortgage insurers 

and the GSEs, with respect to penalties 

and other remedies for deficiencies in 

underwriting practices. Though 

mortgage insurers and the GSEs make 

allowances for temporary payment 

accommodations related to certain 

disasters, they do not extend these 

allowances to disaster-related 

delinquencies absent a temporary 

payment accommodation. 

Additionally, as previously noted, the 

Bureau wants to avoid discouraging 

servicers from providing timely 

temporary payment accommodations 

after disasters or emergencies. Allowing 

for the seasoning period to pause for 

delinquencies related to disasters or 

emergencies even if consumers are not 

in a temporary payment accommodation 

may reduce the incentive of servicers to 

timely provide temporary payment 

accommodations. 

Finally, the Bureau reiterates its goal 

of establishing requirements that enable 

financial institutions to obtain a 

reasonable degree of certainty as to 

whether a loan has met the definition of 

a Seasoned QM at the end of the 

seasoning period. Allowing an 

exclusion from the seasoning period for 

delinquencies related to certain 

disasters or emergencies without tying 

the exclusion to a temporary payment 

accommodation may introduce 

uncertainty as to whether a loan 

qualifies to season. Temporary payment 

accommodations are typically 

documented (for example, in servicing 

notes). Absent a temporary payment 

accommodation, it may be difficult for 

a creditor to retroactively demonstrate 

when a particular delinquency that was 

related to a disaster or pandemic-related 

national emergency began. For these 

reasons, the Bureau declines to adopt 

commenters’ suggestion that 

delinquency relating to a disaster or 

pandemic-related national emergency be 

excluded from the seasoning period 

even if the consumer does not enter into 

a temporary payment accommodation. 

Proposed comment 43(e)(7)(iv)(C)(2)– 

1 provided an example illustrating 

when the seasoning period begins, 

pauses, resumes, and ends for a loan 

that enters a temporary payment 

accommodation extended in connection 

with a disaster or pandemic-related 

national emergency. The example used 

a three-month temporary payment 

accommodation and subsequent 

qualifying change to illustrate that, in 

such circumstances, the seasoning 

period would end at least three months 

later than originally anticipated at the 

loan’s consummation. The Bureau did 

not receive any substantive comments 

addressing proposed comment 

43(e)(7)(iv)(C)(2)–1 and is finalizing 

comment 43(e)(7)(iv)(C)(2)–1 as 

proposed, with minor changes to 

conform to § 1026.43(e)(7)(iv)(C)(1). 

Paragraph 43(e)(7)(iv)(D) 

Proposed § 1026.43(e)(7)(iv)(D) 

addressed how a temporary payment 

accommodation made in connection 

with a disaster or pandemic-related 

national emergency is defined. The 

definition of the seasoning period in 

proposed § 1026.43(e)(7)(iv)(C)(2) does 

not include the period of time during 

which a consumer has been granted 

temporary payment relief due to a 

temporary payment accommodation 

made in connection with a disaster or 

pandemic-related national emergency. 

Proposed § 1026.43(e)(7)(iv)(D) defined 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86439 

171Stafford Act section 102(1) and (2), 88 Stat. 

144. 

172Proclamation No. 9994, 85 FR 15337 (Mar. 13, 

2020). The Stafford Act was also invoked to declare 

an emergency due to the COVID–19 pandemic. See 

Press Release, The White House, Letter from 

President Donald J. Trump on Emergency 

Determination Under the Stafford Act (Mar. 13, 

2020), https://www.whitehouse.gov/briefingsstatements/letter-president-donald-j-trumpemergency-determination-stafford-act/. 

a temporary payment accommodation in 

connection with a disaster or pandemicrelated national emergency to mean 

temporary payment relief granted to a 

consumer due to financial hardship 

caused directly or indirectly by a 

presidentially declared emergency or 

major disaster under the Robert T. 

Stafford Disaster Relief and Emergency 

Assistance Act (Stafford Act) or a 

presidentially declared pandemicrelated national emergency under the 

National Emergencies Act. 

Several commenters stated that they 

supported the Bureau’s proposed 

approach of excluding from the 

seasoning period time spent in a 

temporary payment accommodation 

made in connection with a disaster or 

pandemic-related national emergency. 

Some industry commenters 

recommended that the Bureau expand 

the definition of a temporary payment 

accommodation to include 

accommodations related to disasters and 

emergencies declared on the State and 

local level. Some industry commenters 

requested that the Bureau expand the 

definition of a temporary payment 

accommodation to include 

accommodations related to more general 

financial emergencies, such as sudden 

job loss due to the closure of a 

consumer’s place of employment. 

The Bureau is finalizing 

§ 1026.43(e)(7)(iv)(D) as proposed to 

refer only to presidentially declared 

emergencies or major disasters under 

the Stafford Act or presidentially 

declared pandemic-related national 

emergencies under the National 

Emergencies Act. The Bureau believes 

that defining a temporary payment 

accommodation in this way is necessary 

to provide sufficient certainty for 

financial institutions to ascertain what 

events can lead to financial hardships 

that result in temporary payment 

accommodations qualifying to be 

excluded from the seasoning period. 

The Stafford Act, which has been used 

for over 30 years to facilitate Federal 

disaster response, including disaster 

response for emergencies and major 

disasters affecting only certain States or 

localities, contains detailed definitions 

of what are considered to be 

emergencies or major disasters under 

that statute.171 The National 

Emergencies Act, which has been in 

place for more than 40 years, was 

invoked to declare a national emergency 

due to the COVID–19 pandemic.172 The 

Bureau has decided that referring to 

these two statutes is necessary to 

provide sufficient certainty for financial 

institutions to ascertain what events can 

lead to financial hardships that result in 

temporary payment accommodations 

qualifying to be excluded from the 

seasoning period. 

Furthermore, the Bureau’s intent is 

that Seasoned QM eligibility standards 

apply clearly and consistently on the 

national level. The Bureau notes that the 

Stafford Act has frequently been 

invoked to declare emergencies and 

major disasters that affect only certain 

States or localities. The Bureau intends 

to include such federally declared 

emergencies and major disasters in 

§ 1026.43(e)(7)(iv)(D)’s definition, using 

the nationally applicable definitions 

outlined in the Stafford Act. However, 

while the Stafford Act and National 

Emergencies Act provide nationally 

applicable standards for emergency and 

disaster declarations, State and local 

standards for emergency and disaster 

declarations vary widely. Expanding the 

definition in § 1026.43(e)(7)(iv)(D) to 

State and local emergency and disaster 

declarations would therefore make 

Seasoned QM eligibility inconsistently 

available based on the location of the 

consumer’s property. And as discussed 

above, expanding the definition to 

encompass a more general financial 

emergency standard would lead to 

uncertainty as to whether a loan 

qualifies to become a Seasoned QM. The 

Bureau therefore declines to expand the 

definition in § 1026.43(e)(7)(iv)(D) to 

include State and local emergency and 

disaster declarations or a more general 

financial emergency standard and is 

adopting § 1026.43(e)(7)(iv)(D) as 

proposed. 

Proposed comment 43(e)(7)(iv)(D)–1 

provided a non-exclusive list of 

examples of the types of temporary 

payment accommodations in connection 

with a disaster or pandemic-related 

national emergency that can be 

excluded from the seasoning period if 

they meet the definition in proposed 

§ 1026.43(e)(7)(iv)(D) and the 

requirements of proposed 

§ 1026.43(e)(7)(iv)(C)(2). The Bureau did 

not receive comments addressing 

proposed comment 43(e)(7)(iv)(D)–1 and 

is finalizing comment 43(e)(7)(iv)(D)–1 

as proposed. 

VII. Effective Date 

The Bureau proposed that a final rule 

relating to this proposal would take 

effect on the same date as a final rule 

amending the General QM loan 

definition. In the General QM Proposal, 

the Bureau proposed that the effective 

date of a final rule relating to the 

General QM Proposal would be six 

months after publication in the Federal 

Register. The Bureau proposed that both 

the Seasoned QM Final Rule and the 

General QM Final Rule would apply to 

covered transactions for which creditors 

receive an application on or after the 

effective date. 

Several commenters supported 

aligning this final rule’s effective date 

with that of the General QM Final Rule. 

An industry commenter requested that 

the Bureau make this final rule 

immediately effective to take advantage 

of the benefits as soon as possible, while 

another industry commenter suggested 

that this final rule not take effect until 

18 to 24 months after issuance to allow 

time for implementation. 

Many industry commenters requested 

that the Bureau apply this final rule to 

loans existing before the effective date. 

Such commenters noted, for example, 

that the proposal included robust 

consumer protections and suggested 

that such protections would apply 

equally well to existing loans as they do 

to future loans. On the other hand, 

consumer advocate commenters urged 

the Bureau not to apply the rule to loans 

in existence before the effective date, 

suggesting that doing so would likely 

violate the vested rights of non-QM 

borrowers. 

This final rule will take effect 60 days 

after publication in the Federal 

Register, which aligns with the effective 

date provided in the General QM Final 

Rule. The Bureau declines to adopt a 

later effective date because the Bureau 

concludes that 60 days will provide 

creditors and the secondary market 

adequate implementation time for this 

final rule, which adds a new QM 

definition but does not require creditors 

or other stakeholders to take any action 

if they do not intend to rely upon the 

new QM definition. The Bureau also 

declines to make the rule effective 

earlier than 60 days after publication in 

the Federal Register, because it wants to 

ensure that creditors and other 

stakeholders have adequate time to 

become familiar with this final rule 

before it takes effect. 

Consistent with many of the industry 

comments received, the Bureau does not 

believe that there is any reason to 

conclude that the inference to be drawn 

as to ability to repay is any different 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86440 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

173As indicated in the proposal, the Bureau also 

recognizes that there could be legal issues related 

to the application of rules governing mortgage 

origination to loans existing prior to the effective 

date. See, e.g., Landgraf v. USI Film Prods., 511 U.S. 

244, 269 (1994) (holding that a rule is 

impermissibly retroactive when it ‘‘takes away or 

impairs vested rights acquired under existing laws, 

or creates a new obligation, imposes a new duty, 

or attaches a new disability, in respect to 

transactions or considerations already past’’) 

(citation omitted); Bowen v. Georgetown Univ. 

Hosp., 488 U.S. 204, 208 (1988) (holding that an 

agency cannot ‘‘promulgate retroactive rules unless 

that power is conveyed by Congress in express 

terms’’). 

174Public Law 94–200, tit. III, 89 Stat. 1125 

(1975). HMDA requires many financial institutions 

to maintain, report, and publicly disclose loan-level 

information about mortgages. These data help show 

whether creditors are serving the housing needs of 

their communities; they give public officials 

information that helps them make decisions and 

policies; and they shed light on lending patterns 

that could be discriminatory. HMDA was originally 

enacted by Congress in 1975 and is implemented 

by Regulation C. See Bureau of Consumer Fin. Prot., 

https://www.consumerfinance.gov/data-research/ 

hmda (last visited Nov. 30, 2020). 

175The NMDB, jointly developed by the FHFA 

and the Bureau, provides de-identified loan 

characteristics and performance information for a 5 

percent sample of all mortgage originations from 

1998 to the present, supplemented by de-identified 

loan and borrower characteristics from Federal 

administrative sources and credit reporting data. 

See Bureau of Consumer Fin. Prot., Sources and 

Uses of Data at the Bureau of Consumer Financial 

Protection at 55–56 (Sept. 2018), https://

www.consumerfinance.gov/documents/6850/bcfp_

sources-uses-of-data.pdf. Differences in total market 

size estimates between NMDB data and HMDA data 

are attributable to differences in coverage and data 

construction methodology. 

depending on whether a 36-month 

successful payment history begins 

before or after the effective date. 

However, the Bureau continues to 

believe that parties to loans existing at 

the time of the effective date may have 

significant reliance interests related to 

the QM status of those loans.173 In light 

of these potential reliance interests, the 

Bureau has decided not to apply the 

final rule to loans in existence prior to 

the effective date. Thus, this final rule 

applies to covered transactions for 

which creditors receive an application 

on or after the effective date. 

An industry trade association also 

asked that the Bureau use the definition 

found in the TILA–RESPA Integrated 

Disclosure Rule (TRID) to provide 

clarification on the meaning of 

‘‘application date’’ in this final rule. The 

General QM Final Rule adds comment 

43–2 to Regulation Z, which clarifies 

that, for transactions subject to TRID, 

creditors determine the date the creditor 

received the consumer’s application, for 

purposes of the General QM Final Rule’s 

effective date and mandatory 

compliance date, in accordance with 

§ 1026.2(a)(3)(ii), which is the definition 

of application that applies to 

transactions subject to TRID. Comment 

43–2 also clarifies that, for transactions 

that are not subject to TRID, creditors 

can determine the date the creditor 

received the consumer’s application, for 

purposes of the General QM Final Rule’s 

effective date and mandatory 

compliance date, in accordance with 

either § 1026.2(a)(3)(i) or (ii). The 

Extension Final Rule added a similar 

comment (comment 43(e)(4)–4) for 

purposes of § 1026.43(e)(4)(iii)(B), as 

revised by the Extension Final Rule, 

which takes effect on December 28, 

2020. For purposes of the effective date 

of this final rule, the Bureau is using 

‘‘application’’ in a manner consistent 

with new comments 43–2 and 43(e)(4)– 

4. Thus, for transactions subject to 

§ 1026.19(e), (f), or (g), creditors 

determine the date the creditor received 

the consumer’s application for purposes 

of the effective date of this final rule in 

accordance with TRID’s definition of 

application in § 1026.2(a)(3)(ii). For 

transactions that are not subject to TRID, 

creditors can determine the date the 

creditor received the consumer’s 

application for purposes of the effective 

date of this final rule in accordance with 

either § 1026.2(a)(3)(i) or (ii). 

VIII. Dodd-Frank Act Section 1022(b) 

Analysis 

A. Overview 

In developing this final rule, the 

Bureau has considered the potential 

benefits, costs, and impacts as required 

by section 1022(b)(2)(A) of the DoddFrank Act. Specifically, section 

1022(b)(2)(A) of the Dodd-Frank Act 

requires the Bureau to consider the 

potential benefits and costs of a 

regulation to consumers and covered 

persons, including the potential 

reduction of access by consumers to 

consumer financial products or services, 

the impact on depository institutions 

and credit unions with $10 billion or 

less in total assets as described in 

section 1026 of the Dodd-Frank Act, and 

the impact on consumers in rural areas. 

The Bureau consulted with appropriate 

prudential regulators and other Federal 

agencies regarding the consistency of 

this final rule with prudential, market, 

or systemic objectives administered by 

such agencies as required by section 

1022(b)(2)(B) of the Dodd-Frank Act. 

This final rule defines a new category 

of QMs for first-lien, fixed-rate, covered 

transactions that have fully amortizing 

payments and do not have loan features 

proscribed by the statutory QM 

requirements, such as balloon 

payments, interest-only features, terms 

longer than 30 years, or points and fees 

above prescribed amounts. High-cost 

mortgages subject to HOEPA are not 

eligible to season. Creditors will have to 

satisfy consider and verify requirements 

and keep the loans in portfolio until the 

end of the seasoning period, excepting 

a single whole-loan transfer, transfers 

related to mergers and acquisitions, and 

certain supervisory sales during the 

seasoning period. The loans will also 

have to meet certain performance 

requirements. Specifically, loans can 

have no more than two delinquencies of 

30 or more days and no delinquencies 

of 60 or more days at the end of the 

seasoning period. Covered transactions 

that satisfy the Seasoned QM 

requirements will receive a safe harbor 

from ATR liability at the end of the 

seasoning period. 

As discussed above, a goal of this 

final rule is to enhance access to 

responsible, affordable mortgage credit. 

This final rule incentivizes the 

origination of non-QM and rebuttable 

presumption QM loans that a creditor 

expects to demonstrate a sustained and 

timely mortgage payment history by 

providing a separate path to safe harbor 

QM status for these loans if creditors’ 

expectations are fulfilled. This final rule 

therefore may encourage meaningful 

innovation and lending to broader 

groups of creditworthy consumers that 

would otherwise not occur. 

1. Data and Evidence 

The impact analyses rely on data from 

a range of sources. These include data 

collected or developed by the Bureau, 

including the Home Mortgage 

Disclosure Act of 1975 (HMDA) 174 and 

National Mortgage Database (NMDB) 175

data as well as data obtained from 

industry, other regulatory agencies, and 

other publicly available sources. The 

Bureau also conducted the Assessment 

and issued the Assessment Report as 

required under section 1022(d) of the 

Dodd-Frank Act. The Assessment 

Report provides quantitative and 

qualitative information on questions 

relevant to the analysis that follows, 

including the share of lenders that 

originate non-QM loans. Consultations 

with other regulatory agencies, industry, 

and research organizations inform the 

Bureau’s impact analyses. 

The data the Bureau relied upon 

provide detailed information on the 

number, characteristics, pricing, and 

performance of mortgage loans 

originated in recent years. In response to 

the Seasoned QM Proposal, the Bureau 

did not receive additional information 

or data that could inform quantitative 

estimates such as APRs or other costs 

like those associated with private 

mortgage insurance. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86441 

176Thus, the analysis estimates the maximum 

number of loans under each baseline that would 

become Seasoned QMs if the loans met the 

performance and portfolio requirements. The 

Bureau has discretion in any rulemaking to choose 

an appropriate scope of analysis with respect to 

benefits, costs, and impacts, as well as an 

appropriate baseline or baselines. 

177Analysis of HMDA data for Baseline 1 

excludes loans where rate spread is not observed. 

178EGRRCPA section 101 provides that loans 

must be originated and retained in portfolio by a 

covered institution, except for limited permissible 

transfers. Although EGRRCPA section 101 took 

effect upon enactment, the Bureau has not 

undertaken rulemaking to address any statutory 

ambiguities in Regulation Z. 

179Note that the analysis uses 2018 data, but this 

final rule does not apply to these loans since this 

final rule applies to covered transactions for which 

creditors receive an application on or after the 

effective date. 

180The Bureau assumes solely for purposes of 

this section 1022(b) analysis that all loans 

originated under the EGRRCPA QM definition will 

obtain a safe harbor in the form of a conclusive 

presumption of compliance with the ATR 

requirements. To the extent some subset of such 

loans should qualify for a lesser presumption, 

however, these loans would comprise a third group 

for consideration here, since these loans would 

benefit if they met the performance and portfolio 

requirements of the seasoning period. 

The data provide only limited 

information on the costs to creditors of 

uncertainty related to legal liability that 

this final rule may mitigate. As a result, 

the analysis of impacts of this final rule 

on creditor costs from reduced 

uncertainty related to legal liability 

relies on simplifying assumptions and 

qualitative information as well as the 

limited data that are available. This 

analysis indicates the relative 

magnitude of the potential effects of this 

final rule on these costs. 

Finally, as discussed further below, 

the analysis of the impacts of this final 

rule requires the Bureau to use current 

data to predict the number of 

originations of certain types of non-QM 

loans and the performance of these 

loans. It is possible, however, that the 

market for mortgage originations may 

shift in unanticipated ways given the 

changes considered below. 

2. Description of the Baselines 

The Bureau considers the benefits, 

costs, and impacts of the final rule 

against two baselines. The first baseline 

(Baseline 1) takes into account that the 

Bureau’s final rule amending the 

General QM loan definition is adopted. 

The second baseline (Baseline 2) 

assumes that the Bureau does not 

amend the General QM loan definition 

and the Temporary GSE QM loan 

definition expires when the GSEs cease 

to operate under conservatorship. 

Under each baseline, there are 

different numbers of loans that would 

be originated, and which would meet all 

of the requirements for a Seasoned QM 

at consummation except for the 

performance and portfolio requirements 

of this final rule. These are the loans 

under each baseline that are first-lien, 

fixed-rate covered transactions that 

comply, as described above, with 

certain general restrictions on product 

features, points-and-fees limits, and 

underwriting requirements. Further, 

only some of these loans would benefit 

if they met the performance and 

portfolio requirements for a Seasoned 

QM, meaning that as a result of meeting 

those requirements, they would obtain 

QM status or a stronger presumption of 

compliance, or would not need to 

satisfy the portfolio retention 

requirements that would be necessary to 

maintain safe harbor QM status under 

the EGRRCPA. The analysis below 

predicts the annual number of loan 

originations under each baseline, in 

years similar to 2018, that would meet 

all of the requirements of a Seasoned 

QM at consummation (except for the 

performance and portfolio 

requirements) and would benefit if they 

met the performance and portfolio 

requirements during the seasoning 

period. Upon satisfying all the 

requirements of the Seasoned QM 

definition, these loans would obtain QM 

status or a stronger presumption of 

compliance, or would not need to 

satisfy the portfolio retention 

requirements of the EGRRCPA.176

Relative to the proposal, the Bureau has 

updated its methodology in two ways. 

First, the estimates for Baseline 1 have 

been updated to reflect updates to the 

pricing thresholds in the General QM 

Final Rule. Second, the Bureau has also 

adjusted its analysis to reflect an 

improved methodology to identify 

creditors eligible to originate loans as 

small creditors under § 1026.43(e)(5), 

consistent with the section 1022(b) 

analysis accompanying the General QM 

Final Rule. 

As stated above, under Baseline 1, the 

General QM Final Rule is adopted. 

Consider first all of the non-QM loans 

under Baseline 1 that would meet all of 

the requirements at consummation for a 

Seasoned QM and would benefit if they 

met the performance and portfolio 

requirements of the seasoning period.177

To count these loans, the Bureau used 

2018 HMDA data to identify all 

residential first-lien, fixed-rate 

conventional loans for one-to-four unit 

housing that do not have prohibited 

features or other disqualifying 

characteristics; are not Small Creditor 

QMs or entitled to a presumption of 

compliance under the EGRRCPA QM 

definition; 178 and for which the APR 

exceeds APOR by the amounts specified 

in the General QM Final Rule’s 

amendments to § 1026.43(e)(2)(vi)(A) 

through (F). The Bureau estimates that 

there are 21,269 of these loans. These 

loans would benefit from this final rule 

by obtaining safe harbor QM status if 

they meet the performance and portfolio 

requirements of the seasoning period, 

and not otherwise.179

Consider next all of the rebuttable 

presumption QM loans under Baseline 1 

that would meet all of the requirements 

at consummation for a Seasoned QM 

and would benefit if they met the 

performance and portfolio requirements 

of the seasoning period. To count these 

loans, the Bureau has used 2018 HMDA 

data to identify two groups of loans. The 

first group is all fixed-rate, higherpriced covered transactions that meet 

the proposed General QM loan 

definition but are not Small Creditor 

QM loans or loans entitled to a 

presumption of compliance under the 

EGRRCPA QM definition. The Bureau 

estimates that there are 108,020 of these 

loans. The second group is all fixed-rate 

rebuttable presumption Small Creditor 

QMs. The Bureau estimates that there 

are 3,137 of these loans. Thus, the 

Bureau estimates that 111,157 loans 

would benefit from this final rule by 

obtaining safe harbor QM status instead 

of rebuttable presumption QM status if 

they meet the performance and portfolio 

requirements of the seasoning period, 

and not otherwise.180

Finally, consider all of the loans 

under Baseline 1 that are entitled to a 

presumption of compliance under the 

EGRRCPA QM definition and that (1) 

meet all of the requirements at 

consummation for a Seasoned QM and 

(2) do not otherwise satisfy the criteria 

to qualify for a safe harbor under the 

General QM Final Rule or the Small 

Creditor QM definition. The Bureau 

estimates that there are 23,200 loans in 

this category. This set of loans could 

obtain a safe harbor as Seasoned QMs 

without satisfying the portfolio 

retention requirements that would be 

necessary to obtain protection from 

liability under the EGRRCPA, provided 

they meet the performance and portfolio 

requirements of the seasoning period, 

and not otherwise. 

Thus, under Baseline 1, 

approximately 155,626 loans would 

meet all of the requirements at 

consummation for Seasoned QMs and 

would obtain QM status or a stronger 

presumption of compliance, or would 

not need to satisfy the portfolio 

retention requirements of the EGRRCPA, 

if they subsequently meet the 

performance and portfolio requirements 

of the seasoning period. This is the 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86442 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

181The Bureau cannot reliably measure the full 

expansionary effect of this final rule on loan 

originations. One effect might be that this final rule 

would cause the share of loan applications that lead 

to originations of non-QM loans under the baseline 

(88 percent) to match the overall share (95 percent 

for loan applications for which Bureau data include 

the rate spread). This would lead to an additional 

1,800 non-QM originations not accounted for above. 

182Analysis of HMDA data for Baseline 2 

excludes loans where rate spread or DTI are not 

observed. 

183The same caveat with respect to EGRRCPA 

section 101 discussed for Baseline 1 applies here as 

well. 

expected annual number of loan 

originations under Baseline 1 in years 

similar to 2018 that meet all of the 

requirements of a Seasoned QM at 

consummation and would benefit if 

they met the performance and portfolio 

requirements of the seasoning period. 

Some of these loans very likely will 

meet those performance and portfolio 

requirements, and some very likely will 

not.181

Now consider Baseline 2. As stated 

above, under Baseline 2, no 

amendments to the General QM loan 

definition are adopted, and the 

Temporary GSE QM loan definition 

expires when the GSEs cease to operate 

under conservatorship. The Bureau 

estimates effects under Baseline 2 

subsequent to the expiration of the 

Temporary GSE QM loan definition. 

While there is not a fixed date on which 

the Temporary GSE QM loan definition 

will expire in the absence of the final 

rule amending the General QM 

requirements, the Bureau anticipates 

that the GSEs will eventually cease to 

operate under conservatorship. Consider 

first all of the non-QM loans under 

Baseline 2 that would meet all of the 

requirements at consummation for a 

Seasoned QM and would benefit if they 

met the performance and portfolio 

requirements of the seasoning period.182

To count these loans, the Bureau has 

used 2018 HMDA data to identify all 

residential first-lien, fixed-rate 

conventional loans for one-to-four unit 

housing that do not have prohibited 

features or other disqualifying 

characteristics; are not Small Creditor 

QMs or originated under the EGRRCPA 

QM definition; and do not satisfy the 

DTI requirement specified in 

§ 1026.43(e)(2)(vi) of the current General 

QM loan definition. The Bureau 

estimates that there are 718,509 of these 

loans. These loans would benefit from 

this final rule by obtaining safe harbor 

QM status if they meet the performance 

and portfolio requirements of the 

seasoning period, and not otherwise. 

Consider next all of the rebuttable 

presumption QM loans under Baseline 2 

that would meet all of the requirements 

at consummation for a Seasoned QM 

and would benefit if they met the 

performance and portfolio requirements 

of the seasoning period. To count these 

loans, the Bureau has used 2018 HMDA 

data to identify two groups of loans. The 

first group is all first-lien, fixed-rate 

higher-priced covered transactions that 

meet the current General QM loan 

definition, but which are not Small 

Creditor QMs or loans entitled to a 

presumption of compliance under the 

EGRRCPA QM definition. The Bureau 

estimates that there are 87,122 of these 

loans. The second group is all first-lien, 

fixed-rate rebuttable presumption Small 

Creditor QMs. The Bureau estimates 

that there are 3,137 of these loans. Thus, 

the Bureau estimates that 90,259 loans 

would obtain safe harbor QM status 

instead of rebuttable presumption QM 

status if they meet the performance and 

portfolio requirements of the seasoning 

period, and not otherwise.183

Finally, consider all of the loans 

under Baseline 2 that are entitled to a 

presumption of compliance under the 

EGRRCPA QM definition and that (1) 

meet all of the requirements at 

consummation for a Seasoned QM and 

(2) do not otherwise satisfy the criteria 

to qualify for a safe harbor under the 

General QM Final Rule or the Small 

Creditor QM definition. The Bureau 

estimates that there are 123,875 loans 

that would fall into this category. This 

set of loans could obtain a safe harbor 

as Seasoned QMs without satisfying the 

portfolio retention requirements that 

would be necessary to obtain protection 

from liability under the EGRRCPA, 

provided they meet the performance 

and portfolio requirements of the 

seasoning period, and not otherwise. 

Thus, under Baseline 2, 

approximately 932,643 loans would 

meet all of the requirements at 

consummation for Seasoned QMs and 

would obtain QM status, a stronger 

presumption of compliance, or relief 

from portfolio retention requirements, if 

they subsequently meet the performance 

and portfolio requirements of the 

seasoning period. This is the expected 

annual number of loan originations 

under the baseline in years similar to 

2018 that meet all of the requirements 

of a Seasoned QM and would benefit if 

they met the performance and portfolio 

requirements of the seasoning period. 

Some of these loans very likely will 

meet those performance and portfolio 

requirements, and some very likely will 

not. 

B. Potential Benefits and Costs to 

Covered Persons and Consumers 

This final rule reduces the chance a 

consumer will assert or succeed when 

asserting violations of ATR 

requirements in a defense to foreclosure. 

This section considers the potential 

benefits and costs of this final rule on 

creditors first and then consumers. The 

analysis begins by assessing how this 

final rule could potentially affect 

creditors’ litigation risk, cost of 

origination, and the price of borrowing, 

holding originations constant. The 

analysis then considers the potential 

impacts of this final rule on originations 

and the benefits and costs of this effect. 

The Bureau cannot reliably quantify this 

effect, so the analysis considers 

qualitatively the potential benefits to 

both creditors and consumers of market 

expansion. 

Several commenters noted that the 

proposal lacked an analysis that 

quantified market expansion and 

subsequently weighed the consumer 

value of those effects against the 

consumer value of changes to 

foreclosure defense. The Bureau agrees 

that it would be valuable to conduct 

such an analysis. However, the Bureau 

is not aware of data that would permit 

it to reliably do so. One would first need 

to estimate how this final rule will 

change creditors’ cost savings by 

decreasing litigation risk. Second, one 

needs to estimate how much of those 

cost savings will be passed through to 

consumers, for which consumers, and 

via which mortgage products. Third, 

one needs to estimate how many new 

consumers would obtain mortgage loans 

and which loans they would obtain. 

Fourth, one would need to estimate how 

much these new consumers value their 

newfound access to credit. Fifth, an 

analysis needs two pieces of 

information for two classes of 

borrowers: Those who would borrow 

regardless of whether the Bureau 

promulgates this final rule and those 

who are induced to borrow as a result 

of it. For each class, one would need to 

estimate the rate at which such 

borrowers experience foreclosure and 

the value to such borrowers of an ATR 

defense in foreclosure. If the Bureau 

does not have the data that would be 

needed to produce these estimates, the 

Bureau provides a qualitative discussion 

below based on economic principles 

and the Bureau’s experience within and 

expertise in the mortgage markets. 

1. Benefits and Costs to Covered Persons 

Benefits From Reduced Litigation Risk 

Covered persons, specifically 

mortgage creditors, primarily benefit 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86443 

184NMDB data do not permit one to ascertain the 

number of times ownership of privately held loans 

that were not securitized was transferred between 

institutions. Whereas the analysis in the proposal 

assumed that unsecuritized, privately held loans 

were held in portfolio by a single party, this 

analysis assumes that the same loans were not 

transferred more than once. 

from decreased litigation risk under this 

final rule. Generally, the statute of 

limitations for a private action for 

damages for a violation of the ATR 

requirement is three years after the date 

on which the violation occurs. In the 

proposal, the Bureau anticipated that 

the Seasoned QM definition would not 

curtail the ability of consumers to bring 

affirmative claims seeking damages for 

alleged violations of the ATR 

requirements because the proposed 

seasoning period would generally 

coincide with the statute of limitations. 

One academic commenter indicated that 

under the proposal, loans could season 

during pending litigation, cutting off 

claims filed within the three-year statute 

of limitations period. The Bureau 

acknowledges that because litigation 

takes time, it is possible that some loans 

could season under § 1026.43(e)(7) after 

an ATR/QM claim is timely filed, 

cutting off claims filed prior to the 

statute of limitations. Nevertheless, the 

aggregate effects of consumers’ loans 

seasoning during litigation are likely to 

be small under current levels of 

originations and rates of affirmative 

claims. However, because the Bureau 

does not have either the data to quantify 

the new loans that will be originated as 

a result of the final rule nor the rate at 

which claims will be brought against 

creditors of those loans, it also cannot 

reliably forecast these economic impacts 

on consumers in the case of market 

expansion or changing market 

conditions. 

TILA also authorizes a consumer to 

assert a violation of the ATR 

requirements as a defense in the event 

of a foreclosure without regard for the 

time limit on a private action for 

damages for such a violation. For 

Seasoned QMs that are non-QM loans or 

rebuttable presumption QM loans at 

consummation, this final rule will 

effectively limit the consumer’s ability 

to establish non-compliance with the 

ATR requirements after the seasoning 

period has run as a general matter. 

The creditors’ economic value of the 

reduction of litigation risk is related to 

how each of three factors changes with 

this final rule relative to the baseline: (1) 

The fraction of consumers that enter 

foreclosure, (2) the likelihood that ATR 

defenses are successful in foreclosure 

lawsuits, and (3) the costs associated 

with the lawsuits. The Bureau analyzed 

NMDB data to assess the first factor and, 

in the Seasoned QM Proposal, sought 

pertinent information related to ATR 

defenses in foreclosure proceedings and 

related costs. One consumer advocate 

commenter argued that the value of ATR 

defense can be ascertained from past 

experiences with ATR litigation. Noting 

only a single case of ATR litigation 

since the ATR/QM Rule went into 

effect, the commenter offered several 

case studies from prior to the January 

2013 Final Rule. Given the differences 

in legal circumstances between before 

and after the Dodd-Frank Act, it is not 

clear that ATR litigation from prior to 

the Dodd-Frank Act provides a sound 

basis for assessing changes in aggregate 

litigation risk from this final rule. 

An academic commenter asserted that 

if the proposal were adopted, the 

resulting new non-QM originations 

could reflect riskier features and 

suggested that, as a result, those that 

would season would also enter 

foreclosure at a rate higher than the 

Bureau’s foreclosure analysis suggests. 

The Bureau acknowledges that its 

foreclosure analysis reflects 

characteristics of loans originated in the 

past and not necessarily those that 

would be originated as a result of this 

final rule. However, the Bureau does not 

agree with the commenter’s premise that 

if this final rule resulted in an 

expansion of credit, the new loans 

would necessarily reflect riskier 

features, and default and foreclosure 

start rates would increase. 

Accompanying the consider and verify 

requirements, product restrictions (such 

as the limitation to first-lien, fixed-rate 

loans), and points-and-fees restrictions 

of this final rule, the portfolio and 

performance requirements incentivize 

creditors to originate loans that will 

perform, since otherwise they will not 

season and obtain a safe harbor. 

Nonetheless, the Bureau is unaware of 

data that would allow it to forecast new 

originations’ characteristics or the 

fraction that would meet the 

performance requirements to become 

Seasoned QMs. Correspondingly, the 

Bureau cannot assess how the 

foreclosure start rate of the subsequent 

non-QM loans, seasoned or otherwise, 

would differ from the foreclosure start 

rate of loans originated in the past. 

Finally, the overall foreclosure start rate 

reflects foreclosure starts of both loans 

that would be originated as a result of 

this final rule’s expansion of credit and 

those that would be originated 

regardless. If this final rule results in an 

expansion of credit of only a few loans, 

the foreclosure analysis would be 

relatively unaffected regardless of the 

foreclosure risk of those loans. 

Conversely, the Bureau’s foreclosure 

analysis may be less reliable if this final 

rule results in a major expansion of 

credit. As stated previously, the Bureau 

is unaware of data that would allow it 

to quantify the size of market expansion. 

The full NMDB data are a nationally 

representative sample of mortgages from 

1998 to 2020, covering periods with 

differing economic and interest rate 

environments. Of these mortgages, the 

analysis focuses on conventional, fixedrate purchase and refinance loans with 

no prohibited features that were 

privately held at consummation. Due to 

data limitations in the NMDB, the 

analysis of loan performance makes 

three assumptions. First, loans would 

continue to be originated under each 

baseline with the same characteristics 

regardless of QM status. Second, 

potentially seasonable loans are 

ineligible for the portfolio requirements 

of the EGRRCPA and thus can only 

achieve safe harbor status via this final 

rule. The proposal would have required 

that loans be held in portfolio unless 

transfers are related to mergers and 

acquisitions and certain supervisory 

sales during the seasoning period. This 

final rule additionally allows a single 

whole-loan transfer. The change does 

not affect the analysis.184

The likely quantitative impact of this 

final rule depends in part on the rate of 

attrition for loans during the first three 

years, as well as on the performance of 

the loans that are active for at least three 

years. Figure 2 plots the fraction of 

higher-priced loans, those with an 

interest rate 150 basis points or more 

over the Primary Mortgage Market 

Survey (PMMS), that were open after 

three years between 2004 and 2013 in 

order to provide context for the 

quantitative foreclosure analysis that 

follows. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86444 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

Figure 2 serves as a reminder that, 

over time, the effects of this final rule 

will depend on trends in interest rates. 

Loans originated between 2004 and 

2009 were typically originated at higher 

interest rates and therefore would 

receive a significant benefit from 

refinancing when interest rates declined 

during and after the 2008 financial 

crisis. Loans originated in these same 

years also experienced elevated 

foreclosure start rates during the 2008 

financial crisis. As a result, a lower 

share of loans remained active beyond 

three years, and so the potential effects 

of this final rule would be smaller. This 

contrasts to post-crisis origination years 

where initial mortgage rates and 

foreclosure start rates remained low and 

a larger share of loans remained active 

beyond three years. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4ER29DE20.401</GPH>
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86445 

185The NMDB data do not enable the Bureau to 

ascertain whether loans were originated by 

creditors that meet the size criteria for originating QM loans under the Small Creditor QM or 

EGRRCPA QM definitions. 

Figure 3 provides additional context 

for the quantitative foreclosure analysis. 

The figure considers higher-priced loans 

originated between 1998 to 2008, all of 

which incur sufficient late payments or 

delinquencies to disqualify them from 

seasoning depending on the specified 

length of the seasoning period. Figure 3 

shows, for example, that 66 percent of 

loans with these performance problems 

would have been disqualified from 

seasoning under this final rule’s 

seasoning period of 36 months. This 

compares to 53 percent of such loans if 

the seasoning period were 24 months 

and 76 percent if the seasoning period 

were 48 months. 

Foreclosure Risk of Loans That Meet 

Seasoned QM’s Performance 

Requirements in Baseline 1 

To assess this final rule’s potential 

effect on foreclosure risk, the Bureau 

analyzed data from the NMDB on the 

1,275,480 conventional fixed-rate, firstlien loans that were originated between 

2012 and 2013 without prohibited 

features. The loans potentially would 

have met this final rule’s Seasoned QM 

performance criteria in 2015 and 2016. 

The analyses first classify loans by 

whether they would have satisfied the 

General QM Final Rule’s requirements 

for safe harbor and rebuttable 

presumption in Baseline 1 at 

consummation.185 Ten percent of loans 

would have been either rebuttable 

presumption or non-QM loans and 

would have potentially benefited from 

the Seasoned QM definition’s pathway 

to safe harbor if they had met the final 

rule’s performance requirements. 

TABLE 1—SHARE OF LOANS UNDER BASELINE 1 THAT WERE OPEN AND HAD NOT ENTERED FORECLOSURE AFTER

THREE YEARS AND WOULD HAVE MET PERFORMANCE CRITERIA

Type of loan 

Open and 

had not 

entered 

foreclosure 

after three 

years 

(percent) 

Met 

performance 

criteria 

(cond. 

on open) 

(percent) 

Safe Harbor ............................................................................................................................................................. 78 99 

Seasonable Loans ................................................................................................................................................... 78 92 

Rebuttable Presumption ................................................................................................................................... 81 94 

Non-QM ............................................................................................................................................................ 73 86 

Missing Rate Spread ............................................................................................................................................... 61 87 


KHAMMOND on DSKJM1Z7X2PROD with RULES4ER29DE20.402</GPH>
86446 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

186 85 FR 53568, 53596 n.154 (Aug. 28, 2020). 

TABLE 1—SHARE OF LOANS UNDER BASELINE 1 THAT WERE OPEN AND HAD NOT ENTERED FORECLOSURE AFTER

THREE YEARS AND WOULD HAVE MET PERFORMANCE CRITERIA—Continued 

Type of loan 

Open and 

had not 

entered 

foreclosure 

after three 

years 

(percent) 

Met 

performance 

criteria 

(cond. 

on open) 

(percent) 

All Loans .................................................................................................................................................................. 77 97 

Classifying loans according to their 

status under Baseline 1, Table 1 reports 

the fraction of loans that were open and 

had not entered foreclosure after three 

years and of those open loans, the 

fraction that would have met the 

performance criteria of this final rule. 

Seventy-eight percent of loans that 

would have been originated as either 

rebuttable presumption QM loans or 

non-QM loans were still open after three 

years, and of those, 92 percent satisfied 

the performance criteria to qualify for 

Seasoned QM status under this final 

rule. By way of comparison, the 

corresponding fractions for loans 

originated as safe harbor were 78 

percent and 99 percent, respectively. 

Altogether, 71 percent of the loans that 

would have been rebuttable 

presumption QM loans and non-QM 

loans under Baseline 1 would have 

performed well enough to gain safe 

harbor status via Seasoned QM under 

this final rule. 

The relief from litigation risk depends 

in part on the fraction of these loans that 

would eventually enter foreclosure 

proceedings. Table 2 reports the share of 

loans under Baseline 1 that entered 

foreclosure between origination and the 

first quarter of 2020 among all loans 

consummated between 2012 and 2013, 

those that were still open and had not 

entered foreclosure three years after 

origination, and those that met the 

performance criteria of this final rule. 

0.2 percent of loans open for at least 

three years enter foreclosure 

proceedings before March 2020. Among 

the loans that would have satisfied this 

final rule’s Seasoned QM performance 

requirements, foreclosure proceedings 

began for 1.6 percent of loans that 

would be non-QM loans in Baseline 1 

and for 0.5 percent of loans that would 

be rebuttable presumption QM loans 

under Baseline 1. Combined, 0.8 percent 

of loans that met the performance 

requirements and were potentially 

seasonable at consummation would 

have started foreclosure proceedings. By 

comparison, for loans that were still 

open, had not entered foreclosure after 

three years, and would have been 

originated as safe harbor under Baseline 

1, only 0.1 percent of loans entered 

foreclosure after year three. Thus, the 

average foreclosure start rate among 

open loans with safe harbor status after 

three years—either from General QM 

status at consummation or from 

Seasoned QM status—would be higher 

than under Baseline 1, reflecting the 

inclusion of Seasoned QMs. 

TABLE 2—SHARE OF LOANS THAT ENTERED FORECLOSURE UNDER BASELINE 1 

Type of loan All loans 

(percent) 

. . . open 

and had not 

entered 

foreclosure 

after 3 years 

(percent) 

. . . and met 

performance 

criteria 

(percent) 

Safe Harbor ................................................................................................................................. 0.3 0.2 0.1 

Seasonable Loans ....................................................................................................................... 2.3 2.3 0.8 

Rebuttable Presumption ....................................................................................................... 1.1 1.1 0.5 

Non-QM ................................................................................................................................ 4.5 4.7 1.6 

Missing Rate Spread ................................................................................................................... 3.8 1.8 0.4 

All Loans ...................................................................................................................................... 0.7 0.5 0.2 

The Bureau analyzed loans originated 

in 2012 and 2013 instead of other 

periods for several reasons. This period 

likely predicts the benefits and costs of 

this final rule during a period of normal 

economic expansion. The Bureau 

excluded later vintages because the 

analysis requires both a minimum threeyear look-forward period to assess 

Seasoned QM’s performance 

requirements as well as additional time 

to see whether foreclosures eventually 

emerge. As the Bureau explained in the 

proposal,186 the Bureau excluded earlier 

vintages whose loan performance may 

have been affected by the 2008 financial 

crisis. The crisis years were somewhat 

unusual in the high number of homes 

with negative equity and the slow pace 

of the subsequent economic recovery. 

Thus, the number of loans that would 

have disqualifying events would be 

overstated compared to those in a 

typical business cycle. Using data from 

an even earlier cycle of expansion and 

contraction might be more informative 

about average benefits and costs over 

the long term, but older data would also 

reflect the features of the housing and 

mortgage markets of an earlier time that 

may no longer be relevant to current 

market conditions. The analysis below 

should be understood with this 

background in mind. 

Notwithstanding these considerations, 

one commenter asserted that the narrow 

selection of vintages would lead one to 

overstate the effectiveness of the 

proposed Seasoned QM performance 

criteria in limiting foreclosure. Instead, 

the Bureau’s analysis of loan vintages 

from periods of economic distress such 

as the 2008 financial crisis suggests that 

their exclusion had the opposite effect. 

Continuing to limit the analysis to 

conventional, fixed-rate purchase and 

refinance loans with no prohibited 

features that were privately held at 

consummation, open, and had not 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86447 

entered foreclosure after three years, 

Figure 4 plots the difference in 

foreclosure start rates between loans 

that would have had a safe harbor at 

origination under Baseline 1 with loans 

that would have met the performance 

criteria of this final rule and obtained a 

safe harbor from Seasoned QM status. 

Among loans that were originated 

between 2005 and 2009, those that 

would have obtained a safe harbor from 

seasoning entered foreclosure at a lower 

rate than loans that would have 

obtained a safe harbor from satisfying 

the General QM requirements at 

origination. Loan vintages from the 2008 

financial crisis overstate rather than 

understate this final rule’s effectiveness 

for two reasons. First, a greater share of 

potentially seasonable loans became 

delinquent within 36 months, and thus 

a smaller share of potentially seasonable 

loans met the performance criteria of 

this final rule. Second, while the 

remainder did enter foreclosure at a 

higher rate than in other periods, lower 

priced loans that would have had a safe 

harbor from origination became 

delinquent and entered foreclosure at an 

even higher rate. 

Foreclosure Risk of Loans That Meet 

Seasoned QM’s Performance 

Requirements in Baseline 2 

Paralleling the analyses of this final 

rule relative to Baseline 1, the analyses 

here classify loans by whether they 

would have satisfied the General QM 

requirements for safe harbor and 

rebuttable presumption QM loans in 

Baseline 2 and whether they would 

have satisfied the performance 

requirements of this final rule. Eight 

percent of analyzed loans would have 

been non-QM loans or rebuttable 

presumption QM loans at 

consummation under Baseline 2 and 

would have potentially gained safe 

harbor status if they had met this final 

rule’s Seasoned QM performance 

criteria. Most of these loans (92 percent) 

would be non-QM at consummation. 

These estimates likely overestimate the 

fraction of non-QM loans that would be 

originated under Baseline 2. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4ER29DE20.403</GPH>
86448 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

187One commenter contrasted the proposal’s 

analysis with that from the January 2013 Final Rule, 

78 FR 6408, 6569 (Jan. 30, 2013). The 2013 

analysis’s conclusion of a 10 basis point and $212 

cost associated with non-QM litigation risk came 

from three assumptions: 1.5 percent of loans would 

foreclose, 20 percent of consumers who entered 

foreclosure would claim violations of ATR as a 

defense, and consumers would succeed 20 percent 

of the time. As noted previously, to the Bureau’s 

knowledge there has been a single ATR claim made 

in litigation, a rate of litigation far smaller than that 

implied by the assumptions. The Bureau cannot 

reliably forecast the rate of ATR defenses in 

foreclosure litigation under expanded non-QM 

lending that would arise if litigation risk were 

curtailed. 

TABLE 3—SHARE OF LOANS UNDER BASELINE 2 THAT WERE OPEN AND HAD NOT ENTERED FORECLOSURE AFTER

THREE YEARS AND MEET PERFORMANCE CRITERIA

Type of loan 

Open and 

had not 

entered 

foreclosure 

after three 

years 

(percent) 

Met 

performance 

criteria 

(cond. 

on open) 

(percent) 

Safe harbor .............................................................................................................................................................. 85 99 

Seasonable loans .................................................................................................................................................... 86 98 

Rebuttable presumption ................................................................................................................................... 58 92 

Non-QM ............................................................................................................................................................ 89 99 

Missing rate spread ................................................................................................................................................. 76 97 

All loans ................................................................................................................................................................... 77 97 

Classifying loans according to their 

status under Baseline 2, Table 3 reports 

the fraction of loans that were open and 

had not entered foreclosure after three 

years and of those open loans, the 

fraction that would have met the 

performance criteria of this final rule. 

Eighty-six percent of the loans that 

would have been potentially seasonable 

at consummation under Baseline 2 were 

still open after three years, of which 98 

percent would have satisfied this final 

rule’s Seasoned QM performance 

requirements. 

Table 4 reports the share of loans 

under Baseline 2 that entered 

foreclosure between origination and the 

first quarter of 2020 among all loans 

consummated between 2012 and 2013, 

those that were still open and had not 

entered foreclosure three years after 

origination, and those that met the 

performance criteria of this final rule. 

Among the loans that satisfied this final 

rule’s performance requirements, 

foreclosure proceedings began for 0.2 

percent of loans that would have been 

potentially seasonable at consummation 

under Baseline 2. By comparison, 0.1 

percent of loans that would have 

already met General QM’s safe harbor 

requirements entered foreclosure after 

year three. 

TABLE 4—SHARE OF LOANS THAT ENTER FORECLOSURE UNDER BASELINE 2 

Type of loan All loans 

. . . open and 

had not 

entered 

foreclosure 

after 3 

years 

(percent) 

. . . and met 

performance 

criteria 

(percent) 

Safe Harbor ................................................................................................................................. 0.2 0.2 0.1 

Seasonable Loans ....................................................................................................................... 0.4 0.5 0.2 

Rebuttable Presumption ....................................................................................................... 2.3 4.0 0.0 

Non-QM ................................................................................................................................ 0.2 0.2 0.2 

Missing Rate Spread ................................................................................................................... 0.7 0.5 0.2 

All Loans ...................................................................................................................................... 0.7 0.5 0.2 

The analysis suggests that the 

foreclosure start rate for open loans with 

safe harbor status after three years— 

either from General QM at 

consummation or from Seasoned QM— 

would not be appreciably different than 

under Baseline 2. 

As explained above, the Bureau 

cannot translate the reduction in 

foreclosure start rates into dollar savings 

on litigation costs because the Bureau 

lacks data on the likelihood each 

consumer would successfully challenge 

foreclosure and on the cost of each 

subsequent case of litigation. In the 

January 2013 Final Rule, the Bureau 

estimated litigation costs under the 

ability-to-repay standards for non-QM 

loans. The Bureau concluded that to 

reflect the expected value of these 

litigation costs, the costs of non-QM 

loans would increase by 10 basis points 

or $212 for a $210,000 loan.187

However, the estimates set forth in the 

January 2013 Final Rule do not predict 

changes in costs from Baseline 1 on 

non-QM loans that obtain QM status by 

seasoning or on the remaining non-QM 

loans. In response to the Seasoned QM 

Proposal, the Bureau did not receive 

comments on methods or data that 

would allow the Bureau to quantify 

potential changes in costs. 

Benefits to Covered Persons From 

Market Expansion 

The Bureau’s analysis of the NMDB 

holds constant the quantity and 

composition of loans. However, 

creditors could potentially gain from 

originating loans that would not be 

profitable without this final rule. Such 

loans may be directly more profitable 

because they are less costly due to the 

decreased litigation risk discussed in 

the previous section. Among these 

loans, loans that achieve a stronger 

presumption of compliance via 

seasoning may also be indirectly more 

profitable because they can more easily 

be sold on the secondary market, 

creating liquidity for creditors. 

Increased liquidity may come from both 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86449 

188Assessment Report, supra note 47, at 117. In 

the Assessment Report, the Bureau estimated that 

the ATR/QM Rule eliminated between 63 and 70 

percent of non-GSE eligible, high DTI loans for 

home purchase over the period of 2014 to 2016, 

accounting for 9,000 to 12,000 loans. The Bureau 

does not believe it can reliably estimate whether the 

number of additional loans would be less than, the 

same as, or more than those that the Assessment 

Report found were lost as a result of the ATR/QM 

Rule. The pool of loans analyzed in the Assessment 

Report is somewhat different from the 150,628 

loans in Baseline 1 that would meet all of the 

requirements at consummation for Seasoned QMs 

derived above, and the benefit of seasoning would 

vary across these loans. 

189One academic study examined how lower 

secondary market costs passed through to 

consumers in markets with different amounts of 

competition. David S. Scharfstein & Adi Sunderam, 

Market Power in Mortgage Lending and the 

Transmission of Monetary Policy, Mimeo (Aug. 

2016), https://www.hbs.edu/faculty/ 

Publication%20Files/Market%20Power%20

in%20Mortgage%20Lending%20and%20the%20

Transmission%20of%20Monetary%20Policy_

8d6596e6-e073-4d11-83da-3ae1c6db6c28.pdf. 

loans that were non-QM from 

origination and loans that achieved a 

safe harbor by fulfilling the portfolio 

requirements of the EGRRCPA. The 

Assessment Report found that while 

non-depository institutions sold nonQM loans on the secondary market, 

almost all surveyed depository 

institutions kept non-QM loans in their 

portfolio. 

Altogether, the Bureau cannot reliably 

predict how many additional loans 

would be originated under this final 

rule’s additional incentives and 

subsequently how much potential profit 

creditors would accrue relative to either 

baseline.188 In the Seasoned QM 

Proposal, the Bureau sought comment as 

to whether these effects could be 

ascertained but received no additional 

data to quantify the effects. One 

academic commenter expressed 

skepticism that the proposal would 

provide enough incentive to generate 

more non-QM lending because lenders 

would still be potentially liable for ATR 

violations in the first three years. 

However, several industry commenters 

indicated that they would increase nonQM lending as a result of this final rule. 

Other Costs to Covered Persons 

The Bureau concludes that this final 

rule will not directly impose additional 

costs to creditors relative to the 

baseline. This final rule offers a 

pathway for performing mortgages to 

gain a safe harbor presumption. Loans 

meeting this final rule’s Seasoned QM 

definition will have at least as much of 

a presumption of compliance as under 

either baseline. However, if this final 

rule succeeds in expanding non-QM 

loans originations by causing new 

creditors to enter the market for non-QM 

loans, existing creditors’ profits may be 

eroded by competitive pressures. 

2. Benefits and Costs to Consumers 

Consumers will primarily benefit 

from this final rule indirectly via the 

potential expansion of rebuttable 

presumption and non-QM loans 

originated due to decreased litigation 

risk to creditors. As noted in the January 

2013 Final Rule, increased legal 

certainty may benefit consumers if it 

encourages creditors to make loans that 

satisfy the QM criteria, as such loans 

cannot have certain risky features and 

have a cap on upfront costs. 

Furthermore, increased certainty may 

result in loans with a lower cost than 

would be charged in a context of legal 

uncertainty. Thus, a safe harbor may 

also allow creditors to provide 

consumers additional or more affordable 

access to credit by reducing their 

expected total litigation costs. Applied 

here, for consumers that choose to 

pursue high APR loans without safe 

harbor QM status at origination, 

borrowing may be cheaper or more 

widely available relative to either 

baseline. However, the Bureau cannot 

ascertain the additional number of 

consumers who would choose loans 

without safe harbor QM status under 

this final rule relative to the baselines as 

stated in the previous section. 

Consumers who would select loans 

without safe harbor QM status under 

either baseline and this final rule may 

or may not benefit from this final rule. 

On the one hand, decreased litigation 

risk may translate into lower costs in 

competitive mortgage markets.189

However, decreased litigation risk for 

creditors would come from limiting the 

ability of consumers who make 

payments throughout the seasoning 

period to raise violations of ATR 

requirements as defenses, should they 

enter foreclosure after the third year. 

The Bureau neither has the data to 

estimate consumers’ value of using such 

violations in foreclosure defense, nor to 

estimate this final rule’s potential to 

decrease loan prices. 

Several industry commenters 

suggested that workers who earn income 

via sources not reportable on W–2 forms 

(e.g., self-employed or gig economy 

workers) would potentially benefit from 

expanded access to credit. Others 

argued that ATR arguments in 

foreclosure defense can be pivotal to the 

outcome of individual cases, and thus 

very valuable to individual consumers, 

but that in aggregate, there is not enough 

foreclosure litigation to substantially 

lower costs that would be passed on to 

consumers en masse. Even in markets 

where mortgage lending is competitive 

and cost savings are passed to 

consumers, evaluating the benefits to 

consumers in the form of increased 

access to credit against the costs to 

consumers in terms of eliminating 

potentially winning arguments in 

foreclosure defense requires information 

on how consumers and creditors value 

litigation risk. The Bureau is not aware 

of data that would allow it to quantify 

how consumers and creditors value 

litigation risk, and the commenters did 

not offer supplementary evidence to 

quantify those effects. 

3. Consideration of Alternatives 

The Bureau considered alternative 

seasoning periods of various numbers of 

years and alternative performance 

requirements of various numbers of 

allowable 30-day delinquencies. None 

of the alternatives permits 60-day 

delinquencies. The Bureau assesses 

each alternative along two different 

measures: (1) The estimated fraction of 

loans that would be originated as nonQM or rebuttable presumption QM 

loans in each baseline that would satisfy 

the performance requirements; and (2) 

the differences in foreclosure start rates 

between those loans that would gain 

safe harbor status and those that were 

safe harbor at consummation. 

Mirroring the approach of the 

foreclosure analysis in part VIII.B.1 

above, the Bureau analyzes the same 

data on conventional, fixed-rate, firstlien purchase and refinance mortgage 

loans without prohibited features that 

were originated in 2012 and 2013 and 

held privately in portfolio at 

consummation. The analyses of 

alternatives also make the same 

assumptions on how loans with certain 

characteristics can obtain safe harbor 

status and hold constant the quantity 

and composition of the loans. 

Specifically, the consideration of 

alternatives is similar to the analysis of 

this final rule in that the Bureau cannot 

reliably predict how many additional 

loans would have been originated under 

its alternatives. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86450 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

TABLE 5—PERCENTAGE OF POTENTIALLY SEASONABLE LOANS UNDER BASELINE 1 THAT WOULD HAVE SATISFIED THIS

FINAL RULE’S SEASONED QM PERFORMANCE CRITERIA UNDER ALTERNATIVE SEASONING PERIODS AND ALLOWABLE

30-DAY DELINQUENCIES

Seasoning period 

(months) 

Allowable 30-day delinquencies 

0 

(percent) 

1 

(percent) 

2 

(percent) 

3 

(percent) 

4 

(percent) 

5 

(percent) 

12 ...................................................................................................................... 91.7 93.1 93.9 94.3 94.4 94.5 

24 ...................................................................................................................... 79.5 81.3 82.4 82.8 83.0 83.4 

36 ...................................................................................................................... 68.1 70.4 71.3 71.7 72.2 72.5 

48 ...................................................................................................................... 57.3 59.7 60.7 61.3 61.7 61.9 

60 ...................................................................................................................... 47.7 49.7 50.7 51.4 51.8 52.1 

Table 5 reports the fraction of loans 

originated as either non-QM or 

rebuttable presumption QM loans under 

the General QM standards of Baseline 1 

that would have met the seasoning 

requirements under various alternatives. 

Allowing for different 30-day 

delinquencies has modest effects on the 

fraction of loans that would have 

seasoned. In contrast, varying the 

seasoning period from 12 months to 60 

months captures vastly different 

numbers of loans that would have 

seasoned. 

Some industry commenters noted that 

similar analyses of alternatives in the 

Seasoned QM Proposal showed only 

minor differences in the estimated 

fraction of seasonable loans that meet 

the performance criteria under two, 

three, or four 30-day delinquencies. 

Accordingly, the commenters suggested 

increasing the number of allowable 30- 

day delinquencies. The Bureau 

interprets the same data to suggest that 

there also would be little benefit in 

terms of access to credit from expanding 

the proposed performance criteria to 

allow more delinquencies and 

encompass more loans. Instead, 

inconsistent repayment reflected in 

more than two 30-day delinquencies 

could signal borrower distress or 

difficulties with ability to repay that do 

not necessarily culminate in foreclosure. 

TABLE 6—DIFFERENCE IN PERCENTAGE POINTS OF LOANS UNDER BASELINE 1 THAT ENTERED FORECLOSURE BETWEEN

POTENTIALLY SEASONABLE LOANS THAT MEET THIS FINAL RULE’S SEASONED QM PERFORMANCE CRITERIA AND

LOANS THAT HAD SAFE HARBOR FROM CONSUMMATION AND WERE OPEN AND HAD NOT ENTERED FORECLOSURE

AFTER THREE YEARS

Seasoning period 

(months) 

Allowable 30-day delinquencies 

0 1 2 3 4 5 

12 ...................................................................................................................... 1.00 1.13 1.31 1.38 1.41 1.41 

24 ...................................................................................................................... 0.56 0.61 0.74 0.78 0.82 0.90 

36 ...................................................................................................................... 0.32 0.46 0.47 0.49 0.51 0.53 

48 ...................................................................................................................... 0.10 0.20 0.23 0.25 0.25 0.27 

60 ...................................................................................................................... ¥0.07 0.00 0.03 0.06 0.06 0.06 

Varying the number of allowable 30- 

day delinquencies does have some 

impact on foreclosure risk. Table 6 

reports the difference in the share of 

foreclosures among loans that would 

have qualified for Seasoned QM status 

under this final rule with the share of 

foreclosures among loans that would 

have been originated as safe harbor QM 

loans under Baseline 1. For example, 

under this final rule, among loans that 

were open for at least three years, the 

Bureau estimates that with a 

performance standard of no more than 

two 30-day delinquencies, 0.47 of a 

percentage point more Seasoned QMs 

would enter foreclosure proceedings 

than would loans that had safe harbor 

status from consummation. 

Holding constant the seasoning 

period, decreasing the number of 

allowable 30-day delinquencies by one 

decreases the differences in foreclosure 

share between loans that would have 

seasoned and loans that were safe 

harbor QM loans from origination by 

approximately 4 percent. Similarly, 

increasing the number of allowed 30- 

day delinquencies by one increases the 

difference by approximately 4 percent. 

Changing the length of the seasoning 

period generally has a larger effect on 

the relative foreclosure start rate than 

does changing the number of allowable 

30-day delinquencies. 

TABLE 7—PERCENTAGE OF POTENTIALLY SEASONABLE LOANS UNDER BASELINE 2 THAT WOULD HAVE SATISFIED THIS

FINAL RULE’S SEASONED QM PERFORMANCE CRITERIA UNDER ALTERNATIVE SEASONING PERIODS AND ALLOWABLE

30-DAY DELINQUENCIES

Seasoning period 

(months) 

Allowable 30-day delinquencies—(percent) 

0 1 2 3 4 5 

12 ...................................................................................................................... 96.3 96.5 96.7 96.7 96.7 96.7 

24 ...................................................................................................................... 91.1 91.6 91.8 92.2 92.2 92.2 

36 ...................................................................................................................... 83.3 84.6 84.6 84.6 84.8 84.8 

48 ...................................................................................................................... 76.1 77.6 77.6 77.6 77.8 77.8 

60 ...................................................................................................................... 71.0 72.6 72.6 72.8 73.0 73.0 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86451 

190 5 U.S.C. 601 et seq. 191Public Law 104–121, tit. II, 110 Stat. 857 

(1996). 192 5 U.S.C. 601(3) (stating also that the Bureau 

may establish an alternative definition after 

consultation with the Small Business 

Administration and an opportunity for public 

comment). 

193 5 U.S.C. 603 through 605. 

194 5 U.S.C. 609. 

Table 7 repeats the analysis of Table 

5 using Baseline 2. A larger fraction of 

loans—about 13 percentage points— 

originated as either non-QM or 

rebuttable presumption QM loans under 

the General QM standards would have 

met the seasoning requirements under 

this final rule. This reflects the fact that 

not only are there significantly more 

non-QM loans under Baseline 2 than 

under Baseline 1 but also that the 

additional non-QM loans have relatively 

stronger credit characteristics at 

consummation. The amendments to the 

General QM loan definition will provide 

many of these loans with a pathway to 

QM status. 

TABLE 8—DIFFERENCE IN PERCENTAGE POINTS OF LOANS UNDER BASELINE 2 THAT ENTERED FORECLOSURE BETWEEN

POTENTIALLY SEASONABLE LOANS THAT MEET THIS FINAL RULE’S SEASONED QM PERFORMANCE CRITERIA AND

LOANS THAT HAD SAFE HARBOR FROM CONSUMMATION AND WERE OPEN AND HAD NOT ENTERED FORECLOSURE

AFTER THREE YEARS

Seasoning period 

(months) 

Allowable 30-day delinquencies 

0 1 2 3 4 5 

12 ...................................................................................................................... 0.06 0.06 0.26 0.26 0.26 0.26 

24 ...................................................................................................................... 0.08 0.08 0.08 0.08 0.08 0.08 

36 ...................................................................................................................... 0.13 0.13 0.13 0.13 0.13 0.13 

48 ...................................................................................................................... ¥0.09 ¥0.09 ¥0.09 ¥0.09 ¥0.09 ¥0.09 

60 ...................................................................................................................... ¥0.09 ¥0.09 ¥0.09 ¥0.09 ¥0.09 ¥0.09 

Table 8 shows that under Baseline 2, 

non-QM and rebuttable presumption 

QM loans that would have achieved safe 

harbor status through this final rule or 

alternatives with a seasoning period of 

at least three years have a 0.13 

percentage point higher foreclosure start 

rate than open loans that were safe 

harbor QM loans at consummation. The 

difference in the foreclosure start rates 

does not dramatically vary with 

different numbers of allowable 30-day 

delinquencies. 

C. Potential Impact on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets, as 

Described in Section 1026 

Depository institutions and credit 

unions that are also creditors making 

covered loans (depository creditors) 

with $10 billion or less in total assets 

are expected to benefit from this final 

rule. As stated above, under each 

baseline, smaller institutions can 

originate Small Creditor QM loans or 

QM loans under the requirements of the 

EGRRCPA. Thus, they will likely not 

benefit from this final rule’s providing 

a pathway to safe harbor status for nonQM loans, but they will benefit from the 

pathway to safe harbor status for 

rebuttable presumption QM loans. As a 

result of this final rule, certain loans 

that have a safe harbor from origination 

from the EGRRCPA would not have to 

continue to be held in portfolio after the 

seasoning period to maintain that safe 

harbor status if they meet the 

requirements to be a Seasoned QM. 

D. Potential Impact on Rural Areas 

As with the analysis of this final 

rule’s benefits and costs overall, the 

Bureau can generally not predict how 

much or how little this final rule will 

cause the market in rural areas to 

expand under either Baseline 1 or 

Baseline 2. The Bureau analyzed HMDA 

data mirroring the description of the 

baselines in part VIII.A.2, continuing to 

assume that loans continue to be 

originated under each baseline with the 

same characteristics. Under Baseline 1, 

relatively more loans in rural areas than 

in urban areas will achieve only a 

stronger presumption of compliance or 

relief from portfolio retention 

requirements by meeting the 

performance criteria of this final rule. 

This share of loans is 9 percent for rural 

markets relative to 5 percent of the 

market overall. The rural share includes 

relatively more loans that do not meet 

the portfolio requirements under the 

EGRRCPA that will be either rebuttable 

presumption QMs under the revised 

General QM loan definition’s 

requirements or non-QM (7.9 percent vs. 

4.0 percent) and loans that will meet the 

portfolio and other requirements under 

the EGRRCPA (1.5 percent vs. 0.7 

percent). 

However, under Baseline 2, the 

difference in the share of potentially 

seasonable loans between rural areas 

(27.5 percent) and the market as a whole 

(27.8 percent) is relatively modest. This 

reflects relatively fewer loans being 

originated without QM status or with a 

rebuttable presumption that would gain 

the stronger presumption of compliance 

of safe harbor if they met the 

performance requirements of this final 

rule than under Baseline 2 alone (22.8 

percent vs. 24.2 percent) and relatively 

more that were originated under the 

EGRRCPA QM definition and could 

potentially gain relief from the portfolio 

requirements (4.7 percent vs. 3.7 

percent). 

IX. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act 

(RFA),190 as amended by the Small 

Business Regulatory Enforcement 

Fairness Act of 1996,191 requires each 

agency to consider the potential impact 

of its regulations on small entities, 

including small businesses, small 

governmental units, and small not-forprofit organizations. The RFA defines a 

‘‘small business’’ as a business that 

meets the size standard developed by 

the Small Business Administration 

pursuant to the Small Business Act.192

The RFA generally requires an agency 

to conduct an initial regulatory 

flexibility analysis (IRFA) and a final 

regulatory flexibility analysis (FRFA) of 

any rule subject to notice-and-comment 

rulemaking requirements, unless the 

agency certifies that the rule would not 

have a significant economic impact on 

a substantial number of small entities 

(SISNOSE).193 The Bureau also is 

subject to certain additional procedures 

under the RFA involving the convening 

of a panel to consult with small 

business representatives before 

proposing a rule for which an IRFA is 

required.194

Neither an IRFA nor a small business 

review panel was required for the 

proposal, because the Director certified 

that the proposal, if adopted, would not 

have a SISNOSE. 

Similarly, a FRFA is not required for 

this final rule, because this final rule 

will not have a SISNOSE. The Bureau 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86452 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

195 44 U.S.C. 3501 et seq. 

196 5 U.S.C. 801 et seq. 

does not expect that this final rule will 

impose costs on small entities relative to 

any of the baselines. This final rule 

defines a new category of QMs. All 

methods of compliance with the ATR 

requirements under a particular baseline 

will remain available to small entities 

under this final rule. Thus, a small 

entity that is in compliance with the 

rules under a given baseline will not 

need to take any different or additional 

action under this final rule. 

Accordingly, the Director certifies that 

this final rule will not have a SISNOSE. 

X. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

of 1995 (PRA),195 Federal agencies are 

generally required to seek, prior to 

implementation, approval from the 

Office of Management and Budget 

(OMB) for information collection 

requirements. Under the PRA, the 

Bureau may not conduct or sponsor, 

and, notwithstanding any other 

provision of law, a person is not 

required to respond to, an information 

collection unless the information 

collection displays a valid control 

number assigned by OMB. 

The Bureau has determined that this 

final rule does not contain any new or 

substantively revised information 

collection requirements other than those 

previously approved by OMB under 

OMB control number 3170–0015. This 

final rule will amend 12 CFR part 1026 

(Regulation Z), which implements TILA. 

OMB control number 3170–0015 is the 

Bureau’s OMB control number for 

Regulation Z. 

XI. Congressional Review Act 

Pursuant to the Congressional Review 

Act,196 the Bureau will submit a report 

containing this rule and other required 

information to the U.S. Senate, the U.S. 

House of Representatives, and the 

Comptroller General of the United 

States prior to the rule’s published 

effective date. The Office of Information 

and Regulatory Affairs has designated 

this rule as not a ‘‘major rule’’ as 

defined by 5 U.S.C. 804(2). 

XII. Signing Authority 

The Director of the Bureau, Kathleen 

L. Kraninger, having reviewed and 

approved this document, is delegating 

the authority to electronically sign this 

document to Grace Feola, a Bureau 

Federal Register Liaison, for purposes of 

publication in the Federal Register. 

List of Subjects in 12 CFR Part 1026 

Advertising, Banks, banking, 

Consumer protection, Credit, Credit 

unions, Mortgages, National banks, 

Reporting and recordkeeping 

requirements, Savings associations, 

Truth-in-lending. 

Authority and Issuance 

For the reasons set forth above, the 

Bureau amends Regulation Z, 12 CFR 

part 1026, as set forth below: 

PART 1026—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 1026 

continues to read as follows: 

Authority: 12 U.S.C. 2601, 2603–2605, 

2607, 2609, 2617, 3353, 5511, 5512, 5532, 

5581; 15 U.S.C. 1601 et seq. 

Subpart E—Special Rules for Certain 

Home Mortgage Transactions 

■ 2. Amend § 1026.43 by revising 

paragraphs (e)(1) and (e)(2) introductory 

text and adding paragraph (e)(7) to read 

as follows: 

§ 1026.43 Minimum standards for 

transactions secured by a dwelling. 

* * * * * 

(e) Qualified mortgages—(1) Safe 

harbor and presumption of 

compliance—(i) Safe harbor for loans 

that are not higher-priced covered 

transactions and for seasoned loans. A 

creditor or assignee of a qualified 

mortgage complies with the repayment 

ability requirements of paragraph (c) of 

this section if: 

(A) The loan is a qualified mortgage 

as defined in paragraph (e)(2), (4), (5), 

(6), or (f) of this section that is not a 

higher-priced covered transaction, as 

defined in paragraph (b)(4) of this 

section; or 

(B) The loan is a qualified mortgage as 

defined in paragraph (e)(7) of this 

section, regardless of whether the loan 

is a higher-priced covered transaction. 

* * * * * 

(2) Qualified mortgage defined— 

general. Except as provided in 

paragraph (e)(4), (5), (6), (7), or (f) of this 

section, a qualified mortgage is a 

covered transaction: 

* * * * * 

(7) Qualified mortgage defined— 

seasoned loans—(i) General. 

Notwithstanding paragraph (e)(2) of this 

section, and except as provided in 

paragraph (e)(7)(iv) of this section, a 

qualified mortgage is a first-lien covered 

transaction that: 

(A) Is a fixed-rate mortgage as defined 

in § 1026.18(s)(7)(iii) with fully 

amortizing payments as defined in 

paragraph (b)(2) of this section; 

(B) Satisfies the requirements in 

paragraphs (e)(2)(i) through (v) of this 

section; 

(C) Has met the requirements in 

paragraph (e)(7)(ii) of this section at the 

end of the seasoning period as defined 

in paragraph (e)(7)(iv)(C) of this section; 

(D) Satisfies the requirements in 

paragraph (e)(7)(iii) of this section; and 

(E) Is not a high-cost mortgage as 

defined in § 1026.32(a). 

(ii) Performance requirements. To be 

a qualified mortgage under this 

paragraph (e)(7) of this section, the 

covered transaction must have no more 

than two delinquencies of 30 or more 

days and no delinquencies of 60 or more 

days at the end of the seasoning period. 

(iii) Portfolio requirements. To be a 

qualified mortgage under this paragraph 

(e)(7) of this section, the covered 

transaction must satisfy the following 

requirements: 

(A) The covered transaction is not 

subject, at consummation, to a 

commitment to be acquired by another 

person, except for a sale, assignment, or 

transfer permitted by paragraph 

(e)(7)(iii)(B)(3) of this section; and 

(B) Legal title to the covered 

transaction is not sold, assigned, or 

otherwise transferred to another person 

before the end of the seasoning period, 

except that: 

(1) The covered transaction may be 

sold, assigned, or otherwise transferred 

to another person pursuant to a capital 

restoration plan or other action under 12 

U.S.C. 1831o, actions or instructions of 

any person acting as conservator, 

receiver, or bankruptcy trustee, an order 

of a State or Federal government agency 

with jurisdiction to examine the creditor 

pursuant to State or Federal law, or an 

agreement between the creditor and 

such an agency; 

(2) The covered transaction may be 

sold, assigned, or otherwise transferred 

pursuant to a merger of the creditor with 

another person or acquisition of the 

creditor by another person or of another 

person by the creditor; or 

(3) The covered transaction may be 

sold, assigned, or otherwise transferred 

once before the end of the seasoning 

period, provided that the covered 

transaction is not securitized as part of 

the sale, assignment, or transfer or at 

any other time before the end of the 

seasoning period as defined in 

§ 1026.43(e)(7)(iv)(C). 

(iv) Definitions. For purposes of 

paragraph (e)(7) of this section: 

(A) Delinquency means the failure to 

make a periodic payment (in one full 

payment or in two or more partial 

payments) sufficient to cover principal, 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86453 

interest, and escrow (if applicable) for a 

given billing cycle by the date the 

periodic payment is due under the 

terms of the legal obligation. Other 

amounts, such as any late fees, are not 

considered for this purpose. 

(1) A periodic payment is 30 days 

delinquent when it is not paid before 

the due date of the following scheduled 

periodic payment. 

(2) A periodic payment is 60 days 

delinquent if the consumer is more than 

30 days delinquent on the first of two 

sequential scheduled periodic payments 

and does not make both sequential 

scheduled periodic payments before the 

due date of the next scheduled periodic 

payment after the two sequential 

scheduled periodic payments. 

(3) For any given billing cycle for 

which a consumer’s payment is less 

than the periodic payment due, a 

consumer is not delinquent as defined 

in this paragraph (e)(7) if: 

(i) The servicer chooses not to treat 

the payment as delinquent for purposes 

of any section of subpart C of Regulation 

X, 12 CFR part 1024, if applicable; 

(ii) The payment is deficient by $50 or 

less; and 

(iii) There are no more than three such 

deficient payments treated as not 

delinquent during the seasoning period. 

(4) The principal and interest used in 

determining the date a periodic 

payment sufficient to cover principal, 

interest, and escrow (if applicable) for a 

given billing cycle becomes due and 

unpaid are the principal and interest 

payment amounts established by the 

terms and payment schedule of the loan 

obligation at consummation, except: 

(i) If a qualifying change as defined in 

paragraph (e)(7)(iv)(B) of this section is 

made to the loan obligation, the 

principal and interest used in 

determining the date a periodic 

payment sufficient to cover principal, 

interest, and escrow (if applicable) for a 

given billing cycle becomes due and 

unpaid are the principal and interest 

payment amounts established by the 

terms and payment schedule of the loan 

obligation at consummation as modified 

by the qualifying change. 

(ii) If, due to reasons related to the 

timing of delivery, set up, or availability 

for occupancy of the dwelling securing 

the obligation, the first payment due 

date is modified before the first payment 

due date in the legal obligation at 

consummation, the modified first 

payment due date shall be considered in 

lieu of the first payment due date in the 

legal obligation at consummation in 

determining the date a periodic 

payment sufficient to cover principal, 

interest, and escrow (if applicable) for a 

given billing cycle becomes due and 

unpaid. 

(5) Except for purposes of making up 

the deficiency amount set forth in 

paragraph (e)(7)(iv)(A)(3)(ii) of this 

section, payments from the following 

sources are not considered in assessing 

delinquency under paragraph 

(e)(7)(iv)(A) of this section: 

(i) Funds in escrow in connection 

with the covered transaction; or 

(ii) Funds paid on behalf of the 

consumer by the creditor, servicer, or 

assignee of the covered transaction, or 

any other person acting on behalf of 

such creditor, servicer, or assignee. 

(B) Qualifying change means an 

agreement that meets the following 

conditions: 

(1) The agreement is entered into 

during or after a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency as defined in paragraph 

(e)(7)(iv)(D) of this section and ends any 

pre-existing delinquency on the loan 

obligation upon taking effect; 

(2) The amount of interest charged 

over the full term of the loan does not 

increase as a result of the agreement; 

(3) The servicer does not charge any 

fee in connection with the agreement; 

and 

(4) Promptly upon the consumer’s 

acceptance of the agreement, the 

servicer waives all late charges, 

penalties, stop payment fees, or similar 

charges incurred during a temporary 

payment accommodation in connection 

with a disaster or pandemic-related 

national emergency, as well as all late 

charges, penalties, stop payment fees, or 

similar charges incurred during the 

delinquency that led to a temporary 

payment accommodation in connection 

with a disaster or pandemic-related 

national emergency. 

(C) Seasoning period means a period 

of 36 months beginning on the date on 

which the first periodic payment is due 

after consummation of the covered 

transaction, except that: 

(1) Notwithstanding any other 

provision of this section, if there is a 

delinquency of 30 days or more at the 

end of the 36th month of the seasoning 

period, the seasoning period does not 

end until there is no delinquency; and 

(2) The seasoning period does not 

include any period during which the 

consumer is in a temporary payment 

accommodation extended in connection 

with a disaster or pandemic-related 

national emergency, provided that 

during or at the end of the temporary 

payment accommodation there is a 

qualifying change as defined in 

paragraph (e)(7)(iv)(B) of this section or 

the consumer cures the loan’s 

delinquency under its original terms. If 

during or at the end of the temporary 

payment accommodation in connection 

with a disaster or pandemic-related 

national emergency there is a qualifying 

change or the consumer cures the loan’s 

delinquency under its original terms, 

the seasoning period consists of the 

period from the date on which the first 

periodic payment was due after 

consummation of the covered 

transaction to the beginning of the 

temporary payment accommodation and 

an additional period immediately after 

the temporary payment accommodation 

ends, which together must equal at least 

36 months. 

(D) Temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency means temporary payment 

relief granted to a consumer due to 

financial hardship caused directly or 

indirectly by a presidentially declared 

emergency or major disaster under the 

Robert T. Stafford Disaster Relief and 

Emergency Assistance Act (42 U.S.C. 

5121 et seq.) or a presidentially declared 

pandemic-related national emergency 

under the National Emergencies Act (50 

U.S.C. 1601 et seq.). 

* * * * * 

■ 3. In supplement I to part 1026— 

Official Interpretations, under Section 

1026.43—Minimum Standards for 

Transactions Secured by a Dwelling: 

■ a. Revise 43(e)(1) Safe harbor and 

presumption of compliance; 

■ b. Remove 43(e)(1)(i) Safe harbor for 

transactions that are not higher-priced 

covered transactions; 

■ c. Add 43(e)(1)(i)(A) Safe harbor for 

transactions that are not higher-priced 

covered transactions; 

■ d. Add the heading 43(e)(7) Seasoned 

Loans and add paragraphs 43(e)(7)(i)(A), 

43(e)(7)(iii), 43(e)(7)(iv)(A), 

43(e)(7)(iv)(A)(2), 43(e)(7)(iv)(B), 

43(e)(7)(iv)(C)(2), and 43(e)(7)(iv)(D) 

after paragraph 43(e)(5). 

The revision and additions read as 

follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Section 1026.43—Minimum 

Standards for Transactions Secured by a 

Dwelling 

* * * * * 

43(e)(1) Safe harbor and presumption 

of compliance. 

1. General. Section 1026.43(c) 

requires a creditor to make a reasonable 

and good faith determination at or 

before consummation that a consumer 

will be able to repay a covered 

transaction. Section 1026.43(e)(1)(i) and 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
86454 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 

(ii) provide a safe harbor or presumption 

of compliance, respectively, with the 

repayment ability requirements of 

§ 1026.43(c) for creditors and assignees 

of covered transactions that satisfy the 

requirements of a qualified mortgage 

under § 1026.43(e)(2), (4), (5), (6), (7), or 

(f). See § 1026.43(e)(1)(i) and (ii) and 

associated commentary. 

43(e)(1)(i)(A) Safe harbor for 

transactions that are not higher-priced 

covered transactions. 

1. Higher-priced covered transactions. 

For guidance on determining whether a 

loan is a higher-priced covered 

transaction, see comments 43(b)(4)–1 

through –3. 

* * * * * 

43(e)(7) Seasoned loans. 

Paragraph 43(e)(7)(i)(A) 

1. Fixed-rate mortgage. Section 

1026.43(e)(7)(i)(A) provides that, for a 

covered transaction to become a 

qualified mortgage under 

§ 1026.43(e)(7), the covered transaction 

must be a fixed-rate mortgage, as 

defined in § 1026.18(s)(7)(iii). Under 

§ 1026.18(s)(7)(iii), the term ‘‘fixed-rate 

mortgage’’ means a transaction secured 

by real property or a dwelling that is not 

an adjustable-rate mortgage or a steprate mortgage. Thus, a covered 

transaction that is an adjustable-rate 

mortgage or step-rate mortgage is not 

eligible to become a qualified mortgage 

under § 1026.43(e)(7). 

2. Fully amortizing payments. Section 

1026.43(e)(7)(i)(A) provides that for a 

covered transaction to become a 

qualified mortgage as a seasoned loan 

under § 1026.43(e)(7), a mortgage must 

meet certain product requirements and 

be a fixed-rate mortgage with fully 

amortizing payments. Only loans for 

which the scheduled periodic payments 

do not require a balloon payment, as 

defined in § 1026.18(s), to fully amortize 

the loan within the loan term can 

become seasoned loans for the purposes 

of § 1026.43(e)(7). However, 

§ 1026.43(e)(7)(i)(A) does not prohibit a 

qualifying change as defined in 

§ 1026.43(e)(7)(iv)(B) that is entered into 

during or after a temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency, even if such a qualifying 

change involves a balloon payment or 

lengthened loan term. 

Paragraph 43(e)(7)(iii) 

1. Requirement to hold in portfolio. 

For a covered transaction to become a 

qualified mortgage under 

§ 1026.43(e)(7), a creditor generally 

must hold the transaction in portfolio 

until the end of the seasoning period, 

subject to the exceptions set forth in 

§ 1026.43(e)(7)(iii)(B)(1) through (3). 

Unless one of these exceptions applies, 

a covered transaction cannot become a 

qualified mortgage as a seasoned loan 

under § 1026.43(e)(7) if legal title to the 

debt obligation is sold, assigned, or 

otherwise transferred to another person 

before the end of the seasoning period. 

2. Application to subsequent 

transferees. The exception contained in 

§ 1026.43(e)(7)(iii)(B)(3) may be used 

only one time for a covered transaction. 

The exceptions contained in 

§ 1026.43(e)(7)(iii)(B)(1) and (2) apply 

not only to an initial sale, assignment, 

or other transfer by the originating 

creditor but to subsequent sales, 

assignments, and other transfers as well. 

For example, assume Creditor A 

originates a covered transaction that is 

not a qualified mortgage at origination. 

Six months after consummation, the 

covered transaction is transferred to 

Creditor B pursuant to 

§ 1026.43(e)(7)(iii)(B)(3). The transfer 

does not fail to comply with the 

requirements in § 1026.43(e)(7)(iii) 

because the loan is not securitized as 

part of the transfer or at any other time 

before the end of the seasoning period. 

If Creditor B sells the covered 

transaction before the end of the 

seasoning period, the covered 

transaction is not eligible to season into 

a qualified mortgage under 

§ 1026.43(e)(7) unless the sale falls 

within an exception set forth in 

§ 1026.43(e)(7)(iii)(B)(1) or (2) (i.e., the 

transfer is required by supervisory 

action or pursuant to a merger or 

acquisition). 

3. Supervisory sales. Section 

1026.43(e)(7)(iii)(B)(1) facilitates sales 

that are deemed necessary by 

supervisory agencies to revive troubled 

creditors and resolve failed creditors. A 

covered transaction does not violate the 

requirements in § 1026.43(e)(7)(iii) if it 

is sold, assigned, or otherwise 

transferred to another person before the 

end of the seasoning period pursuant to: 

A capital restoration plan or other 

action under 12 U.S.C. 1831o; the 

actions or instructions of any person 

acting as conservator, receiver or 

bankruptcy trustee; an order of a State 

or Federal government agency with 

jurisdiction to examine the creditor 

pursuant to State or Federal law; or an 

agreement between the creditor and 

such an agency. Section 

1026.43(e)(7)(iii)(B)(1) does not apply to 

transfers done to comply with a 

generally applicable regulation with 

future effect designed to implement, 

interpret, or prescribe law or policy in 

the absence of a specific order by or a 

specific agreement with a governmental 

agency described in 

§ 1026.43(e)(7)(iii)(B)(1) directing the 

sale of one or more covered transactions 

held by the creditor or one of the other 

circumstances listed in 

§ 1026.43(e)(7)(iii)(B)(1). For example, a 

covered transaction does not violate the 

requirements in § 1026.43(e)(7)(iii) if the 

covered transaction is sold pursuant to 

a capital restoration plan under 12 

U.S.C. 1831o before the end of 

seasoning period. However, if the 

creditor simply chose to sell the same 

covered transaction as one way to 

comply with general regulatory capital 

requirements in the absence of 

supervisory action or agreement, then 

the covered transaction cannot become 

a qualified mortgage as a seasoned loan 

under § 1026.43(e)(7), unless the sale 

met the requirements of 

§ 1026.43(e)(7)(iii)(B)(3) or the covered 

transaction qualifies under another 

definition of qualified mortgage. 

Paragraph 43(e)(7)(iv)(A) 

1. Due date. In determining whether 

a scheduled periodic payment is 

delinquent for purposes of 

§ 1026.43(e)(7), the due date is the date 

the payment is due under the terms of 

the legal obligation, without regard to 

whether the consumer is afforded a 

period after the due date to pay before 

the servicer assesses a late fee. 

Paragraph 43(e)(7)(iv)(A)(2) 

1. 60 days delinquent. The following 

example illustrates the meaning of 60 

days delinquent for purposes of 

§ 1026.43(e)(7). Assume a loan is 

consummated on October 15, 2022, that 

the consumer’s periodic payment is due 

on the 1st of each month, and that the 

consumer timely made the first periodic 

payment due on December 1, 2022. For 

purposes of § 1026.43(e)(7), the 

consumer is 30 days delinquent if the 

consumer fails to make a payment 

(sufficient to cover the scheduled 

January 1, 2023 periodic payment of 

principal, interest, and escrow (if 

applicable)) before February 1, 2023. For 

purposes of § 1026.43(e)(7), the 

consumer is 60 days delinquent if the 

consumer then fails to make two 

payments (sufficient to cover the 

scheduled January 1, 2023 and February 

1, 2023 periodic payments of principal, 

interest, and escrow (if applicable)) 

before March 1, 2023. 

Paragraph 43(e)(7)(iv)(B) 

1. Qualifying change. An agreement 

that meets the conditions specified in 

§ 1026.43(e)(7)(iv)(B) is a qualifying 

change even if it is not in writing. 


KHAMMOND on DSKJM1Z7X2PROD with RULES4
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Rules and Regulations 86455 

Paragraph 43(e)(7)(iv)(C)(2) 

1. Suspension of seasoning period 

during certain temporary payment 

accommodations. Section 

1026.43(e)(7)(iv)(C)(2) provides that the 

seasoning period does not include any 

period during which the consumer is in 

a temporary payment accommodation 

extended in connection with a disaster 

or pandemic-related national 

emergency, provided that during or at 

the end of the temporary payment 

accommodation there is a qualifying 

change as defined in 

§ 1026.43(e)(7)(iv)(B) or the consumer 

cures the loan’s delinquency under its 

original terms. Section 

1026.43(e)(7)(iv)(C)(2) further explains 

that, under these circumstances, the 

seasoning period consists of the period 

from the date on which the first periodic 

payment was due after origination of the 

covered transaction to the beginning of 

the temporary payment accommodation 

and an additional period immediately 

after the temporary payment 

accommodation ends, which together 

must equal at least 36 months. For 

example, assume the consumer enters 

into a covered transaction for which the 

first periodic payment is due on March 

1, 2022, and the consumer enters a 

three-month temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency, effective March 1, 2023. 

Assume further that the consumer 

misses the March 1, April 1, and May 

1, 2023 periodic payments during the 

temporary payment accommodation 

period, but enters into a qualifying 

change as defined in 

§ 1026.43(e)(7)(iv)(B) on June 1, 2023, 

and is not delinquent on June 1, 2023. 

Under these circumstances, the 

seasoning period consists of the period 

from March 1, 2022 to February 28, 

2023 and the period from June 1, 2023 

to May 31, 2025, assuming the 

consumer is not 30 days or more 

delinquent on May 31, 2025. 

Paragraph 43(e)(7)(iv)(D) 

1. Temporary payment 

accommodation in connection with a 

disaster or pandemic-related national 

emergency. For purposes of 

§ 1026.43(e)(7), examples of temporary 

payment accommodations in connection 

with a disaster or pandemic-related 

national emergency include, but are not 

limited to a trial loan modification plan, 

a temporary payment forbearance 

program, or a temporary repayment 

plan. 

* * * * * 

Dated: December 10, 2020. 

Grace Feola, 

Federal Register Liaison, Bureau of Consumer 

Financial Protection. 

[FR Doc. 2020–27571 Filed 12–21–20; 4:15 pm] 

BILLING CODE 4810–AM–P 


KHAMMOND on DSKJM1Z7X2PROD with RULES4