ARIVE has an exciting new feature that allows you to see if your loan passes the tests to be considered a Qualified Mortgage. In short, a Qualified Mortgage is a classification of loans that have certain, less risky features that make it more likely that borrowers will be able to reasonably repay their loan. Having loans pass the QM test is valuable because they will be easier and more profitable to sell to secondary investors. Additionally, all loans being sold to Fannie, Freddie, FHA, VA, and USDA are required to be QM loans.



NOTICE: QM Test is provided as-is and for convenience only, and ARIVE makes no representation or warranty, express or implied, as to the use, timing, completeness, or accuracy of any results generated. Please confirm with Lender or Investor if loan will pass QM Test.


Arive users can run the new QM test on their loans by going to the Review Fees tab on the left side of their loan file and then clicking on the Run QM Test button in the upper right corner of that tab.



NOTE: A loan product must be applied to the loan file in order for the QM testing feature to be visible.


For lender/investor delivery, document retention, and audit/examination, the QM engine allows for printing of the report. Once the QM report is open, a “print results” icon is on the top right:

 

The QM test also allows for historical records to audit the status of the loan as changes are made.  On the Review Fees screen, click the arrow next to the Run QM Test indicator:

 

Each version of the QM test will be available for review, including results and time stamps for audit purposes:

 

QM Testing consists of 5 separate tests that a loan will need to pass in order to be considered QM, and below are the details of each of those separate tests:


FEES:


In order to pass the Fees Test, the total value of APR-impacting fees entered on a loan file generally may not exceed 3% of the total Amount Financed (the amount of credit provided to the borrower after subtracting finance charges/most APR impacting fees).  Lower loan amounts may have different thresholds, which are shown on the report.
For more info, see: TILA 1026.18(b) 

A few APR fees are excluded from being counted in the Fees Test and they are:


·       Government-insured Mortgage Insurance, such as the Funding Fee/Upfront MIPs for VA, FHA, and USDA loans

·       Per diem/prepaid interest

·       "Bonafide" Discount Points (explained below)

·       Fees paid by other parties, such as the lender or seller

The QM Test Analysis screen displays all fees that are being included in the Fees test. Fees on the Review Fees tab marked as APR-impacting will be included unless listed above.



NOTE:  Investment properties intended for delivery to Agencies (Fannie and Freddie) have a fees cap of 5% in accordance with Fannie Mae B2-1.5.02.  The QM test will issue a fail for fees even if you do not intend Agency delivery.  However, users will not be prohibited from delivering the file to a lender or investor.



Bonafide Discount Points Criteria:


TILA (Truth in Lending Act) allows the borrower to pay for bona fide discount points without having these points applied against the QM test.  This test determines how many points may be excluded from QM.

 

To determine if a Discount point is bona fide, compare the Average Prime Offer Rate (APOR) to the Par Rate (also called the Undiscounted Rate, or the interest rate that would be charged if the borrower did not pay discount points).


The spread between the APOR and the Par Rate determines the threshold for total points that may be excluded.  The threshold for determining how much if any discounts points are bona fide is below:


-If the Par Rate is within 1% of the APOR = Up to 2 discount points can be excluded.

-If the Par Rate is between 1-2% greater than the APOR = Up to 1 discount point can be excluded.

-If the Par Rate is greater than the APOR by 2% or more = Up to 0 discount points can be excluded.


Only permanent discount points may be excluded.  Temporary buydowns are not eligible for exclusion.


The Bona Fide Discount breakdown will be displayed in a table at the bottom of the QM Test Analysis screen.




AVERAGE PRIME OFFER RATE (APOR):


The Average Prime Offer Rate (APOR) is set every Monday; all loans locked during a week will reference Monday’s APOR.

 

NOTE:  APOR is only available on locked loans.  Many tests that rely on the APOR will not run until an APOR becomes available by locking the loan.

Qualified Mortgages are required to pass a tolerance test, which compares the loan’s APR to the APOR.

 

In order to pass the APOR test, a loan’s APR must generally not exceed the APOR by more than 2.25%.  Lower loan amounts may have different thresholds, which are shown on the report.


The APOR rate, the APR rate, and the rate spread will be shown in a table on the bottom right of the QM Test Analysis screen

HIGH PRIME MORTGAGE LOAN (HPML):


The HPML test only applies to primary residence transactions. To be considered below the HPML threshold, the subject loan's APR is compared to the APOR, with the following tolerances:

 

·       First lien, conforming loan limit: within 1.5% of the APOR.

·       First lien, non-conforming (jumbo) loan limit:  within 2.5% of the APOR.

·       Second lien:, the subject loan's APR must be within 3.5% of the APOR.


NOTE:  Loans that exceed the HPML threshold may still be eligible for Agency delivery.  Please consult your AUS findings.  Generally, loans that exceed HPML:

1) Are required to escrow property taxes and homeowner's insurance.
2) Are not permitted to receive appraisal waivers.

ADJUSTABLE RATE MORTGAGE (ARM):


This test applies to loans with adjustable rate mortgages. Fixed rate mortgages will receive an “N/A” result.

Per TILA, loans that are fixed for five years or less are compared against the APOR by “treating the maximum interest rate that may apply during that five-year period as the interest rate for the full term of the loan.”

This test will alert users that the fixed period of the ARM is five years or less, and to verify with the lender or investor if the APR exceeds the threshold for QM loans.


OTHER LOAN PROGRAM FEATURES:


QM prohibits certain loan products and features as ineligible; this test checks for these prohibited features. 

 

-Negative Amortization

-Alternative income documentation

-Pre-payment penalties

-Balloon payments

-Interest-only payments