Ability -to-Repay and Qualified Mortgage Rule
AUGUST 14, 2013
Ability-to-Repay and Qualified Mortgage Rule
SMALL ENTITY COMPLIANCE GUIDE
The Bureau recently finalized changes to this rule. The June 2013 ATR/QM Concurrent Final Rule and July 2013 Final Rule both amend the final rule issued January 10, 2013, which is set to take effect on January 10, 2014. This guide is updated for these changes.
The Bureau issued a proposed rule in June to
further clarify and revise the ATR/QM rule. The
Bureau will consider comments received and
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plans to issue a final rule soon.
Summary of Changes
The Bureau updated this guide on August 14, 2013 to reflect finalized changes to the rule. The revisions amend the final rule issued January 10, 2013, which is set to take effect on January 10, 2014. Notable changes impacting guide content include:
Exemptions: Regulation Z generally prohibits a creditor from making a mortgage loan unless the creditor determines that the consumer will have the ability to repay the loan. The June 2013 ATR/QM Concurrent Final Rule provides an exemption to these requirements for:
Creditors with certain designations,
Loans pursuant to certain programs,
Certain nonprofit creditors, and
Mortgage loans made in connection with certain Federal emergency economic stabilization programs. (See "Which types of creditors and loan programs are exempt from the ability-to-repay requirements? (? 1026.43(a)(3)(iv) to (vi))" on page 26.)
Qualified Mortgages (QMs): Loans Held in Portfolio by Small Creditors. The June 2013 ATR/QM Concurrent Final Rule provides an additional definition of a qualified mortgage for certain loans made and held in portfolio by small creditors. (See "What types of QMs can small creditors originate?" on page 33.)
Qualified Mortgages: Balloon Loans. The June 2013 ATR/QM Concurrent Final Rule provides a transitional definition of creditors eligible to originate Balloon-Payment QMs. (See "What types of QMs can small creditors originate?" on page 33.)
Qualified Mortgages: Higher-Priced Mortgage Determination. The June 2013 ATR/QM Concurrent Final Rule shifts the annual percentage rate (APR) threshold for Small Creditor and Balloon-Payment QMs from 1.5 percentage points above the average prime offer rate (APOR) on first-lien loans to 3.5 percentage points above APOR. (See "What makes a QM loan higher-priced" on page 30.)
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Points-and-Fees Calculation: Inclusion of Loan Originator Compensation. The June 2013 ATR/QM Concurrent Final Rule modifies the requirements regarding the inclusion of loan originator compensation in the points-and-fees calculation. (See "What are the QM points-and-fees caps and what do I include when calculating points and fees? (?? 1026.32(b)(1) and 1026.43(e)(3))" on page 37.)
Qualified Mortgages: Determining Eligibility under the Temporary Definition. The July 2013 Final Rule clarifies how eligibility will be determined for QMs under the temporary provision allowing QM status for loans eligible for purchase, guaranty, or insurance by the GSEs or certain federal agencies. (See "What types of QMs can all creditors originate? Type 2 on page 32.)
Qualified Mortgages: Determining Debt and Income under the General Definition. The July 2013 Final Rule amends and clarifies how debt and income will be determined under appendix Q for the purpose of meeting the 43% DTI requirement under the general QM provision. (See "What types of QMs can all creditors originate? Type 1 on page 31.)
Please reference the Version Log on page 50 for information about previous versions of this guide.
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Table of Contents
1. Introduction .............................................................................................7 I. What is the purpose of this guide?.....................................................9 II. Who should read this guide? ...........................................................10 III. Who can I contact about this guide or the ATR/QM rule?................10
2. Overview of the Ability-to-Repay/Qualified Mortgage Rule ...............11 I. What is the ATR/QM rule about? .....................................................11 II. When do I have to start following this rule? .....................................12 III. What transactions are covered by the ATR/QM rule? (? 1026.43(a)) .............................................................................................. 12 IV. How long do I have to keep records on compliance with the ATR/QM rule? (? 1026.25(c)(3)) ..........................................................13
3. About Ability to Repay..........................................................................14 I. What is the general ATR standard? (Comment 1026.43(c)(1)-2) ....14 II. What are the eight ATR underwriting factors I must consider and verify under the rule? (Comment 1026.43(c)(2)-4)................14 III. How do I verify information I considered using reliable third-party records? (Comment 1026.43(c)(3)-4) ...................................15 IV. What is a reasonably reliable third-party record? (? 1026.43(c)(3)).17 V. How do I determine ATR? (? 1026.43(c)(1))....................................18 VI. Do loans originated under the general ATR standard have to comply with a debt-to-income (DTI) threshold? (? 1026.43(c)(2)(vii))19 VII. What do I include on the income side of the debt-to-income ratio when determining ATR? .......................................................19
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VIII.How do I calculate, consider, and confirm income, assets, employment, and credit history? ...........................................19
IX. What do I include on the debt side of the debt-to-income ratio when determining ATR? .................................................................22
X. How do I calculate, consider, and confirm debt information?...........22 XI. Does the ATR rule ban certain loan features or transaction types?
(? 1026.43(c)(2) and (5)).......................................................25 XII. What happens if a consumer has trouble repaying a loan I originate
under the general ATR rule? What happens if my organization violates the regulation? .........................................................26 XIII.Which types of creditors and loan programs are exempt from the ability-to-repay requirements? (? 1026.43(a)(3)(iv) to (vi))....26
4. About Qualified Mortgages ..................................................................28 I. What is a Qualified Mortgage? (? 1026.43(e) and (f))......................28 II. What is the difference between safe harbor and rebuttable presumption in terms of liability protection? (? 1026.43(e)(1)) .............................................................................................. 29 III. What makes a QM loan higher-priced? (? 1026.43(b)(4)) ...............30 IV. Are there different types of QMs? ....................................................31 V. What types of QMs can all creditors originate? ...............................31 VI. What types of QMs can small creditors originate?...........................33 VII. Are there special requirements for calculating the DTI ratio on QM loans? (? 1026.43(e)(2)(vi) and appendix Q) ........................36 VIII.What are the QM points-and-fees caps and what do I include when calculating points and fees? (?? 1026.32(b)(1) and 1026.43(e)(3)) .......................................................................37 IX. Can I charge prepayment fees on a covered transaction? (? 1026.43(g)) .......................................................................41
5. Refinancing from Non-Standard to Standard Loans: ATR Special Circumstance (? 1026.43(d)) ................................................................43
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