points and fees
(2) Definitions For purposes of this subsection, the following definitions shall apply: (A) Qualified mortgage The term “qualified mortgage” means any residential mortgage loan— (i) for which the regular periodic payments for the loan may not— (I) result in an increase of the principal balance; or (II) except as provided in subparagraph (E), allow the consumer to defer repayment of principal; (ii) except as provided in subparagraph (E), the terms of which do not result in a balloon payment, where a “balloon payment” is a scheduled payment that is more than twice as large as the average of earlier scheduled payments; (iii) for which the income and financial resources relied upon to qualify the obligors on the loan are verified and documented; (iv) in the case of a fixed rate loan, for which the underwriting process is based on a payment schedule that fully amortizes the loan over the loan term and takes into account all applicable taxes, insurance, and assessments; (v) in the case of an adjustable rate loan, for which the underwriting is based on the maximum rate permitted under the loan during the first 5 years, and a payment schedule that fully amortizes the loan over the loan term and takes into account all applicable taxes, insurance, and assessments; (vi) that complies with any guidelines or regulations established by the Bureau 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 paragraph (3)(B)(i); (vii) for which the total points and fees (as defined in subparagraph (C)) payable in connection with the loan do not exceed 3 percent of the total loan amount; (viii) for which the term of the loan does not exceed 30 years, except as such term may be extended under paragraph (3), such as in high-cost areas; and (ix) in the case of a reverse mortgage (except for the purposes of subsection (a) of this section, to the extent that such mortgages are exempt altogether from those requirements), a reverse mortgage which meets the standards for a qualified mortgage, as set by the Bureau in rules that are consistent with the purposes of this subsection. (B) Average prime offer rate The term “average prime offer rate” means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by the Bureau.. (C) Points and fees (i) In general For purposes of subparagraph (A), the term “points and fees” means points and fees as defined by section 1602(aa)(4) 1 of this title (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator). (ii) Computation For purposes of computing the total points and fees under this subparagraph, the total points and fees shall exclude either of the amounts described in the following subclauses, but not both: (I) Up to and including 2 bona fide discount points payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than 1 percentage point the average prime offer rate. (II) Unless 2 bona fide discount points have been excluded under subclause (I), up to and including 1 bona fide discount point payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage’s interest rate will be discounted does not exceed by more than 2 percentage points the average prime offer rate. (iii) Bona fide discount points defined For purposes of clause (ii), the term “bona fide discount points” means loan discount points which are knowingly paid by the consumer for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the mortgage. (iv) Interest rate reduction Subclauses (I) and (II) of clause (ii) shall not apply to discount points used to purchase an interest rate reduction unless the amount of the interest rate reduction purchased is reasonably consistent with established industry norms and practices for secondary mortgage market transactions. (D) Smaller loans The Bureau shall prescribe rules adjusting the criteria under subparagraph (A)(vii) in order to permit lenders that extend smaller loans to meet the requirements of the presumption of compliance under paragraph (1). In prescribing such rules, the Bureau shall consider the potential impact of such rules on rural areas and other areas where home values are lower. (E) Balloon loans The Bureau may, by regulation, provide that the term “qualified mortgage” includes a balloon loan— (i) that meets all of the criteria for a qualified mortgage under subparagraph (A) (except clauses (i)(II), (ii), (iv), and (v) of such subparagraph); (ii) for which the creditor makes a determination that the consumer is able to make all scheduled payments, except the balloon payment, out of income or assets other than the collateral; (iii) for which the underwriting is based on a payment schedule that fully amortizes the loan over a period of not more than 30 years and takes into account all applicable taxes, insurance, and assessments; and (iv) that is extended by a creditor that— (I) operates in rural or underserved areas; (II) together with all affiliates, has total annual residential mortgage loan originations that do not exceed a limit set by the Bureau; (III) retains the balloon loans in portfolio; and (IV) meets any asset size threshold and any other criteria as the Bureau may establish, consistent with the purposes of this part. (F) Safe harbor (i) Definitions In this subparagraph— (I) the term “covered institution” means an insured depository institution or an insured credit union that, together with its affiliates, has less than $10,000,000,000 in total consolidated assets; (II) the term “insured credit union” has the meaning given the term in section 1752 of title 12 ; (III) the term “insured depository institution” has the meaning given the term in section 1813 of title 12 ; (IV) the term “interest-only” means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; and (V) the term “negative amortization” means payment of periodic payments that will result in an increase in the principal balance under the terms of the legal obligation. (ii) Safe harbor In this section— (I) the term “qualified mortgage” includes any residential mortgage loan— (aa) that is originated and retained in portfolio by a covered institution; (bb) that is in compliance with the limitations with respect to prepayment penalties described in subsections (c)(1) and (c)(3); (cc) that is in compliance with the requirements of clause (vii) of subparagraph (A); (dd) that does not have negative amortization or interest-only features; and (ee) for which the covered institution considers and documents the debt, income, and financial resources of the consumer in accordance with clause (iv); and (II) a residential mortgage loan described in subclause (I) shall be deemed to meet the requirements of subsection (a). (iii) Exception for certain transfers A residential mortgage loan described in clause (ii)(I) shall not qualify for the safe harbor under clause (ii) if the legal title to the residential mortgage loan is sold, assigned, or otherwise transferred to another person unless the residential mortgage loan is sold, assigned, or otherwise transferred— (I) to another person by reason of the bankruptcy or failure of a covered institution; (II) to a covered institution so long as the loan is retained in portfolio by the covered institution to which the loan is sold, assigned, or otherwise transferred; (III) pursuant to a merger of a covered institution with another person or the acquisition of a covered institution by another person or of another person by a covered institution, so long as the loan is retained in portfolio by the person to whom the loan is sold, assigned, or otherwise transferred; or (IV) to a wholly owned subsidiary of a covered institution, provided that, after the sale, assignment, or transfer, the residential mortgage loan is considered to be an asset of the covered institution for regulatory accounting purposes. (iv) Consideration and documentation requirements The consideration and documentation requirements described in clause (ii)(I)(ee) shall— (I) not be construed to require compliance with, or documentation in accordance with, appendix Q to part 1026 of title 12, Code of Federal Regulations , or any successor regulation; and (II) be construed to permit multiple methods of documentation.