The CFPB Ability-to-Repay and Qualified Mortgage Rule
The ATR/QM rule requires that you make a reasonable, good-faith determination before or when you consummate a mortgage loan that the consumer has a reasonable ability to repay the loan, considering such factors as the consumer’s income or assets and employment status (ifrelied on) against:
- The mortgage loan payment;
- Ongoing expenses related to the mortgage loan or the property that secures it, such as property taxes and insurance you require the consumer to buy;
- Payments on simultaneous loans that are secured by the same property; and
- Other debt obligations, alimony, and child-support payments
The rule also requires you to consider and verify the consumer’s credit history.
As discussed in more detail below, the rule provides a presumption that you have complied with the ATR rule if you originate QMs. QMs generally cannot contain certain risky features (such as allowing interest-only payments or negative amortization). In addition, points and fees on QMs are limited. For a loan to be a QM, it also must meet certain underwriting criteria. In exchange for meeting these requirements, QMs receive either a conclusive or a rebuttable presumption that you, the creditor, complied with the ATR requirements. The type of presumption depends on the pricing of the loan – whether the loan is not higher-priced or is higher-priced.
The ATR/QM rule also implements other provisions of the Dodd-Frank Act that limit prepayment penalties and require that you retain records for three years after consummation showing you complied with ATR and other provisions of this rule
The following specific categories of loans are excluded from the rule:
- Open-end credit plans (home equity lines of credit, or HELOCs);
- Time-share plans;
- Reverse mortgages
- Temporary or bridge loans with terms of 12 months or less (with possible renewal)
- A construction phase of 12 months or less (with possible renewal) of a construction-to-permanent loan; and
- Consumer credit transactions secured by vacant land
In addition, certain types of creditors or loan programs may be exempt from the ATR requirements.
The rule requires that you retain evidence that you complied with the ATR/QM rule, including the prepayment penalty limitations, for three years after consummation, though you may want to keep records longer for business purposes.
What is the General ATR Standard?
Under the general ATR standard, you must make a reasonable, good-faith determination before or when you consummate a covered mortgage loan that the consumer has a reasonable ability to repay the loan. There are eight ATR underwriting factors that you must consider and verify under the Rule:
1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan.
2. Current employment status (if you rely onemployment income when assessing the consumer’sability to repay).
3. Monthly mortgage payment for this loan. You calculate this using the introductory or fully-indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal.
4. Monthly payment on any simultaneous loans secured by the same property
5. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent
6. Debts, alimony, and child-support obligations
7. Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income
8. Credit history
The rule does not preclude you from considering additional factors, but you must consider at least these eight factors.