The Evidence Supports the CFPB’s New Seasoning Pathway to Safe Harbor

Brief

The Evidence Supports the CFPB’s New Seasoning Pathway to Safe Harbor

Abstract

This brief analyzes historical loan performance to study the CFPB’s newly issued Seasoning QM Rule, which would provide a 3-year pathway to safe harbor for loans that are rebuttable presumption or nonqualified mortgages at the time of origination. This analysis shows that loan performance during the first three years is a better predictor of subsequent loan performance than the rate spread. Specifically, we find that higher rate-spread loans that performed well during the first three years had lower long-term serious delinquency rates than safe-harbor loans that performed poorly in the first three years. The seasoning QM rule will help address this inconsistency.

Centers

Cross-Center Initiative

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