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#1774637 - 01/10/13 03:00 PM Ability to Repay Rules
ahkcompliance Offline
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Midwest
The final rules for Ability to Repay have been released.

http://www.consumerfinance.gov/pressrele...rtgage-lending/

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Ability to Repay/Qualified Mortgage Rule
#1774701 - 01/10/13 03:48 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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Richard Cordray's prepared remarks struck me as a bit misleading...Please tell me how ATR is helpful in the following sitch?

I guess he's implying that the market needs to pick up, but I don't see how any of this is supposed to free up lending. crazy


In contrast, consider these more recent situations. Anthony from New York contacted us earlier this year to describe how after years of building a strong credit report, he now finds that even with a solid credit score and money saved for a substantial down payment, he cannot get approved for a mortgage. After all those years of carefully managing his money, he has found that the current market has become so tight that he cannot get the approval he needs. And the slowdown in the mortgage market is holding back consumers in other ways too. We heard from a couple in Michigan who have credit scores in the 800s and simply want to refinance their home, which is now worth much more than the original mortgage loan, at the current lower rates. Yet they cannot get approved because there were no comparable sales in their neighborhood over the last twelve months.
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#1774725 - 01/10/13 04:02 PM Re: Ability to Repay Rules ahkcompliance
Pale Rider Offline
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under the Lone Star
Inflation will take care of everything! He can thank the Fed for that!
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#1774728 - 01/10/13 04:06 PM Re: Ability to Repay Rules ahkcompliance
waldensouth Offline
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FINALLY ABOVE the gnat line
I've yet to find the ACTUAL Regulation on their site. They have the summary and fact sheet.
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#1774732 - 01/10/13 04:08 PM Re: Ability to Repay Rules ahkcompliance
ahou Offline
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It's not there yet
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#1774750 - 01/10/13 04:31 PM Re: Ability to Repay Rules ahou
Sewanee, CRCM Offline
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It will be interesting to see how long it takes them to post it. After their rule on rulemaking that was recently released, we know the "official" date is the earlier of when something is posted on their website or it's printed in the Federal Register.
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#1774785 - 01/10/13 05:04 PM Re: Ability to Repay Rules ahkcompliance
straw Offline
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scuttlebut is reg will be posted at end of day, after news cycle, so the CFPB spin is out there before anyone sees actual reg. This has the hair on the back of my neck up, since my first thought is there must be something in the actual rule that they are spinning more positively than it really is.

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#1774792 - 01/10/13 05:09 PM Re: Ability to Repay Rules straw
Tesla Offline
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Originally Posted By: straw
scuttlebut is reg will be posted at end of day, after news cycle, so the CFPB spin is out there before anyone sees actual reg. This has the hair on the back of my neck up, since my first thought is there must be something in the actual rule that they are spinning more positively than it really is.



I think you are right. My mortgage lenders are looking at this as nothing new. "We already verify income and require 43% DTI, etc." I am saying hang on until we have the actual regulation. We don't know how we are to calculate DTI or verify information yet.
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#1774812 - 01/10/13 05:23 PM Re: Ability to Repay Rules Tesla
travelgirl Offline
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I'm still concerned about the balloon loan section. We are a small community bank in a metro area (so we don't meet the "rural/underserved area" exemption). We very, very rarely make consumer home purchase loans. We do however make home equity term loans which are usually 2nd liens - oftentimes they are made to term out a HELOC. I'm not seeing where 2nd liens are exempt from the whole thing (I'm only seeing open-end credit, reverse mortgages, temporary loans). These loans are all balloon loans with a 15 or 20 year am with a 1 - 5 year balloon depending on the facts of the loan.

Am I looking at this all wrong? Or am I reading it correctly - that if I were to continue making these closed-end, consumer real estate loans with balloons, then I would NOT have a qualified mortgage nor a safe harbor?

From everything I've read, banks are not going to want to originate non-qualified mortgages without any protections down the road. We don't charge very high rates (sometimes we trip teh HPML trigger but usually not by too much) and don't charge any type of origination fees. These loans are made and stay in-house.

If my thinking is correct, I WILL be submitting a comment - to hopefully sway this "community bank" exemption decision - whenever that "proposal" comes out and tells me where to send comments.

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#1774833 - 01/10/13 05:48 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
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OK
I guess the posting of the rule will also have the effective date? Haven't seen that either.
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#1774838 - 01/10/13 05:51 PM Re: Ability to Repay Rules raitchjay
Sewanee, CRCM Offline
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The effective date is January 10, 2014. It's stated in their summary:

http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf
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#1774839 - 01/10/13 05:52 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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I saw Jan 2014 in one of the CFPB 'public notices/discussions' which would make sense.
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#1774842 - 01/10/13 05:55 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
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OK
Ok...thanks.
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#1774881 - 01/10/13 06:44 PM Re: Ability to Repay Rules ahkcompliance
ahkcompliance Offline
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I too am curious to see how the balloon payments work out. I would like to see the list of areas classified as rural and underserved.

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#1774891 - 01/10/13 06:52 PM Re: Ability to Repay Rules Sewanee, CRCM
John Burnett Offline
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Originally Posted By: sewanee, CRCM
The effective date is January 10, 2014. It's stated in their summary:

http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf


That conforms to the Dodd-Frank/MRAPLA requirement that the effective date must be no more than one year after the date the final rule is issued.
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#1774930 - 01/10/13 07:24 PM Re: Ability to Repay Rules travelgirl
Norman Paperman Offline
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I'm with travelgirl. Her scenario mimics what my bank does. If we use prudent underwriting, can we still make the balloon note? Even if it is not a QM, we can still make the loan with prudent underwriting? Correct? I say if we do our due diligence in writing the loan, let the customer take us to court.
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#1774949 - 01/10/13 07:45 PM Re: Ability to Repay Rules ahkcompliance
Oursisnottoreasonwhy Offline
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Rural Balloon-Payment Qualified Mortgages. The final rule also implements a special
provision in the Dodd-Frank Act that would treat certain balloon-payment loans as qualified
mortgages if they are originated and held in portfolio by small creditors operating predominantly
in rural or underserved areas. This provision is designed to assure credit availability in rural
areas, where some creditors may only offer balloon-payment mortgages. Loans are only eligible
if they have a term of at least five years, a fixed-interest rate, and meet certain basic underwriting
standards; debt-to-income ratios must be considered but are not subject to the 43 percent general
requirement.
Creditors are only eligible to make rural balloon-payment qualified mortgages if they
originate at least 50 percent of their first-lien mortgages in counties that are rural or underserved,
have less than $2 billion in assets, and (along with their affiliates) originate no more than 500
first-lien mortgages per year. The Bureau will designate a list of “rural” and “underserved”
counties each year, and has defined coverage more broadly than originally had been proposed.
Creditors must generally hold the loans on their portfolios for three years in order to maintain
their “qualified mortgage” status.

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#1774953 - 01/10/13 07:53 PM Re: Ability to Repay Rules Oursisnottoreasonwhy
Norman Paperman Offline
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I read that. But what if I'm not in a rural area. We are in a metro. We are a community bank. Am I allowed to make a non QM mortgage loan with a balloon? I'm thinking yes.
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#1774970 - 01/10/13 08:08 PM Re: Ability to Repay Rules ahkcompliance
MyScamper Offline
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Between here and there
I have the same question as Garret. I think he is correct, but I want to be sure.

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#1774974 - 01/10/13 08:15 PM Re: Ability to Repay Rules ahkcompliance
Oursisnottoreasonwhy Offline
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Not sure what the "Bureau" will consider as "rural" and "underserved". We are a small bank in a nonMSA area and do far fewer than 500 first-lien mortgages loans, have way less than $2 billion in assets, but there are 13 other financial institutions in our immediate market, that being the 1 county we primarily operate in. Still going to have to wait and see I guess. We keep all our balloon loans for the life of the loan.

What bank's management would want to take on the risk of making Non Qualified mortgages?

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#1774975 - 01/10/13 08:21 PM Re: Ability to Repay Rules ahkcompliance
rlcarey Online
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You can make them, but a borrower may assert a violation of the ability-to-repay requirements as a defense to foreclosure which will make these even more expensive to collect and there is no time limit on the defense.
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#1774980 - 01/10/13 08:25 PM Re: Ability to Repay Rules rlcarey
Norman Paperman Offline
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Thanks Randy. What prevents a borrower from contesting a foreclosure now? I don't recall any type of safe harbor available to balloon notes or hpmls at the moment. If we can prove that the note was underwritten properly, to a then qualified borrower, do we not have a defense?

I haven't been in the game as long as some though so please correct me if I'm wrong.
Last edited by Garret01; 01/10/13 08:25 PM.
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#1774981 - 01/10/13 08:26 PM Re: Ability to Repay Rules Norman Paperman
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Illinois
Originally Posted By: Garret01
I'm with travelgirl. Her scenario mimics what my bank does. If we use prudent underwriting, can we still make the balloon note? Even if it is not a QM, we can still make the loan with prudent underwriting? Correct? I say if we do our due diligence in writing the loan, let the customer take us to court.


If you recall the proposed rule (since all we have of the final is press release), you have to demonstrate that the customer can make all of the payments, including the balloon, out of income or other resources, without sale of the collateral. If your prudent underwriting shows that your borrower has the cash to make the final payment on a 12 month balloon, then go ahead. Otherwise, you'll have a tough day in court.
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#1774988 - 01/10/13 08:35 PM Re: Ability to Repay Rules ahkcompliance
rlcarey Online
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What prevents a borrower from contesting a foreclosure now?

Nothing. Although the new law will give them that direct right and you can bet the atttorneis will be all over it.

The Fed clarified the balloon payment requirements under the current rules here:

http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm

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#1774989 - 01/10/13 08:36 PM Re: Ability to Repay Rules MyBrainHurts
Norman Paperman Offline
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Works for me. We only write these large, short term balloons to customers with hight net worth and low dti/ltv.
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