Under Qualified Mortgage (QM) rules, the treatment of mortgage insurance (MI) premiums as a component of the points and fees calculation can be a key determinant of whether a loan can be in safe harbor (or receive a presumption) or is ineligible for such protection. Here's how we currently view the treatment of Essent MI under QM.
|Essent MI Product||Included in points & fees calculation?||Notes|
|BPMI Deferred or Standard Monthly (Refundable and Non-Refundable)||No||Periodic payments including any portion of an initial periodic payment due at closing are not included in the points and fees calculation.|
|BPMI Annual (Refundable and Non-Refundable)||No||Same as above.|
|BPMI Non-Refundable Singles or Split Premiums||Yes||Non-refundable single or upfront premium is included in the points and fees calculation.|
|BPMI Refundable Singles or Split Premiums||Yes, it is prudent to include the entire upfront premium until the law is clarified.||By rule, in order to exclude, the premium paid by the borrower at closing up to the FHA rate (currently 175 bps) must be refundable on a pro rata basis and the refund must be automatic upon loan payoff. Amounts in excess of the FHA rate are always included. (See also Disclosure below.)|
|LPMI Monthly or Singles (Non-Refundable)||No||If MI premium is reflected in the interest rate, it is not included in the points and fees calculation.|
Note: A loan that is not a QM can still be appropriate as long as a reasonable, good-faith determination has been made that the borrower is able to repay. You can continue to use the same underwriting guidelines you have used in the past to make loans that have generally performed well, as long as you document the information you considered. You can learn more about the ability-to-repay (ATR) requirement at consumerfinance.gov/.
Disclosure: The above table has been prepared for general information purposes only. It is not intended as and should not be relied upon as legal advice. There is uncertainty with regard to the upfront portion of the Refundable BPMI Single, as the QM rule does not define “pro rata.” The Consumer Financial Protection Bureau (CFPB) staff have informally noted that the interpretation of “pro rata” is governed by any applicable definition in state law or contract, and in the absence of such, they offered a perspective that a pro rata refund is one that is proportionate to the remaining policy life. While Essent’s five-year cancellation schedule has been approved by state insurance regulators as generally providing pro rata refunds, there remains uncertainty, which may ultimately be resolved in the various courts in which loan-level litigation may be pursued, or by more formal regulatory guidance from the CFPB.