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QUALIFIED MORTGAGE (QM) & SAFE HARBOR (SH) CHEAT SHEET

SAFE HARBOR (SH)

Of the two types of QM loans, this one gives lenders the highest level of legal protection. These are lower loan amounts with interest rates closer to the prime rate.

WHY IS MY LOAN FAILING SH?

If your loan is not passing Safe Harbor the issue can most likely be solved by a combination of 3 factors:

1. Lowering the rate - Beware of high rates to accommodate for Lender Credits (Please refer to the Premium Pricing Policy under Lock Desk in the P&P)

2. Lowering the discount points

3. Lowering the origination fee

BEWARE OF:

• Low loan amounts

• Upfront MI

• Low terms and low Credit Score

• Investment properties are NOT excluded

• 203(k) loans are not evaluated until final figures are obtained from bids and/or work write up

QUALIFIED MORTGAGE (QM)

QM is a loan that has no excess upfront points and fees. TILA states that points and fees can’t be more than 3% of the total loan amount.

WHY IS MY LOAN FAILING QM?

Examples of allowable Points and Fees based on total loan amount:

• $20,000 - $60,000 5% max

• $60,000 - $100,000 $3,000 max

• $100,000+ 3% max

Remember: Upfront MI (Paid or Financed) can also dramatically affect the 3%.

KEY FACTORS:

These are four factors that also affect points and fees (They are highlighted yellow under the HUD-1 Fees Itemization):

1. Loan Origination - which includes Origination, Processing and Underwriting Fees

2. Flood Certification

3. Hazard Insurance Reserves

4. Non-Bona Fide Discount Points

State Bond programs are exempt from QM & SH

Compliance runs a report which notifies the team that a loan is failing QM or SH. Should your loan fail QM or SH, here is what happens:

1. Compliance will figure out why the loan is failing and how to get it to pass

2. Compliance will then contact the Lock Desk regarding the proposed changes

3. Compliance will then call the MB and Processor to discuss the alternative scenarios Do not contact the Lock Desk about SH; Compliance is your point of contact