....unless you are a trial attorney...

I have been going through the Ability to Repay rules and to me it seems that under a Balloon Payment QM you will need to make terms of 6 years or greater. With a term of 5 years, a creditor will need to consider the balloon payment in underwriting. Is anyone else thinking this?

It would not be 6 years or greater:

However, for the sake of uniformity and ease of compliance with the qualified mortgage calculation and ability-to repay calculation for non-qualified mortgage adjustable-rate mortgages, the proposed provision has been changed to state that the five years will be measured from the date of the first regularly scheduled payment, rather than the date of consummation.

Yes, but if you go by the first payment the largest payment in the first 5 years is still the balloon payment. If you look on pg. 751 it gives an example.

Assume a loan that provides for regular monthly payments and a balloon payment due at the end of a five year loan term. The loan is consummated on August 15, 2014 and the first monthly payment is due October 1, 2014. The first five years after the first monthly payment end on October 1, 2019. The balloon payment must be made on teh due date of the 60th monthly payment which is September 1, 2019. For purposes of determining the consumer's ability to repay the loan, the creditor must consider the balloon payment that is due on September 1, 2019.

ahkcompliance, you called it a "balloon QM". Am I not reading the rule correctly? A balloon mtg can't be a qualified mtg, except under the rural/underserved exception, correct? 43(c)is the general ATR rules (pg 751 examples).

The more I read, the more confused I get

Sorry--I meant to say Rural Balloon Payment QM.

Well, I see a lot of 61 month loans in the future in rural/underserved banks

Yeah, I think for rural/underserved banks it will be hard to do a 5 year balloon. I think most consumers would not qualify by using the balloon payment.

How can it be cheaper than free?

Well, if i'm reading the high cost mortgage part right, maybe the solution is to do a HOEPA loan...it seems there that (f)(1)(iii) there would let you exclude the balloon payment? "...except that the calculation of the payment on the covered transaction for purposes of determining the consumer's total monthly debt obligations...shall be determined in accordance with paragraph (f)(iv)(A) of this section, together with the consumer's monthly payments for all mortgage-related obligations and excluding the balloon payment..."

(On a separate note....is anyone else as frustrated as me at the endless loop of cross-referencing that one rule/section does with other rules/sections? I get in the middle of cross-referencing and can't even remember where i need to go back to.)

ETA: or actually, what i bolded above comes from Sec. 43 i think, qualified mortgages. I told you it was confusing.

It appears they have changed the rural criteria from the original proposal and perhaps made it less stringent, however, I have a question:

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.

This is critical to me. Does it state anywhere that the 500 first-lien mortgages/year are consumer only? Or is that all. This is Z - a consumer reg...but it matters a LOT to me what they mean by this.

The section by section analysis refers to the 500 as "500 or fewer first lien covered transactions". I think it means consumer.

Specifically, this option exists for lenders originating 500 or fewer covered transactions, secured by a first lien, in the preceding calendar year, with assets equal to or under $2 billion (to be adjusted annually), and who made more than 50 percent of their total covered transactions secured by first liens on properties in counties that are “rural” or “underserved.”

I would say if the transaction are not covered Regulation Z, then they don't count. This is only consumer protection anyway.

Joker, you didn't mention it (probably because not relevant to you, but...), don't forget the 4th eligibility requirement for the section: no escrow accounts except for those allowed. That could be an issue for us here, so i thought i'd mention it.

Thanks, raitch! I agree.

I thought this was the "ability to repay" discussion. Escrows have nothing to do with that, but maybe we are starting to do our own cross referencing

LOL. Sorry Randy...i guess it is the ability to repay (and i was quoting from the escrow rule, so take that FWIW). Yes, i'm a little over cross-referenced right now.

Would you include loans sold on the secondary market in the "500" loans count in previous calendar year?

If you originated and then sold, I would lthink so...otherwise, I'm not entirely sure.

If you originate the loan in your name, I agree. It doesn;t matter what you do after origination.

I was afraid you would say that...thanks to both of you.

Back to Randy's example on page 8 of repurcussions of non-qualified mortgages. (couldn't get quote work).

So do I have this right?
Non-Qualified mortgage- borrower can sue within 3 years or to prevent foreclosure and bank must prove it met requirements.
Qualified Higher-Priced Mortgage- borrower must prove bank did not make a reasonable and good faith determination of the consumer's repayment ability
Qualified Mortgage- safe harbor- borrower cannot sue?

Just want to make sure I understand the risks because we do balloons and HPMLs.

A borrower can contend that the QM (non-HPML) did not actually meet the criteria for a qualified mortgage.

Has anyone added up the total number of pages put out this week?

**"Shoot me, $12. - Al Bundy**

• Ability to Repay (QM Mortgages): 804 pages
• Mortgage Servicing rules: 753 pages
• Escrows on HPMLs: 431 pages
• Appraisals on HPMLs: 311 pages
• Appraisals for all applicants: 125 pages

Between January 10 and January 18, the CFPB has issued 2,424 pages’ worth of new regulations. That's not including the MLO Compensation rules which are out but not posted to the website yet.