Skip to content
BOL Conferences
Page 8 of 9 1 2 3 4 5 6 7 8 9
Thread Options
#1796132 - 03/19/13 02:38 PM Re: Ability to Repay Rules rlcarey
raitchjay Online
Power Poster
Joined: Oct 2009
Posts: 9,088
OK
Originally Posted By: rlcarey
Nothing says you can't make a non-QM, so where is the non-compliance.


That is correct. It is purely a civil liability issue. However, if you are making them without any ability to defend yourself, it could become a safety and soundness issue.


So in the discussion section of the rule (is it called the preamble? In 800 pages of stuff, i can't tell where anything starts and ends) where it talks about how to calculate the ATR on non-QMs (balloons, for example, and this isn't the section where it's talking about the rural/underserved exemption); is this simply the CFPB giving banks ammunition to guard against civil liability? Otherwise, why would they be going thru all this discussion on how to calculate the ATR on non-QMs? (Calculating the ATR on a non-QM doesn't give you a safe harbor or a presumable assumption of compliance, does it?) Just trying to understand the rationale behind this section i'm reading. Thanks.
Last edited by raitchjay; 03/19/13 02:39 PM.
_________________________
I'm fixin' to fix that.

Return to Top
Ability to Repay/Qualified Mortgage Rule
#1796147 - 03/19/13 02:57 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
Power Poster
Joined: Oct 2009
Posts: 9,088
OK
To put this specifically back on to the actual rule, i guess i'm talking about this section:

(ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. A creditor must make the consideration required under paragraph (c)(2)(iii) of this section for:

(A) A loan with a balloon payment, as defined in § 1026.18(s)(5)(i), using:

(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction; or

(2) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;

(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv), using:

(1) The fully indexed rate or any introductory interest rate, whichever is greater; and

(2) Substantially equal, monthly payments of principal and interest that will repay the loan amount over the term of the loan remaining as of the date the loan is recast.

(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v), using:

(1) The fully indexed rate or any introductory interest rate, whichever is greater; and

(2) Substantially equal, monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast

Since balloons (absent the rural/underserved exception), interest only payments, and negative amortization are all forbidden with QMs, again, what is the relevance of all these methods of documenting the ATR on these types? If it's the CFPB advising banks how to mitigate litigation risk, that will make some sense. Otherwise, i don't really get it.
_________________________
I'm fixin' to fix that.

Return to Top
#1796150 - 03/19/13 03:08 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
To comply with the ATR piece of the rule. They won't be QM's, so you won't get any benefit of conclusive compliance, however.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1796162 - 03/19/13 03:24 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
Power Poster
Joined: Oct 2009
Posts: 9,088
OK
Ok...this is starting to sink in (thanks Joker). ATR is one part of Sec. 43; compliance is mandatory, not just to gain QM status for your loans. Whether your loans gain QM status or not, ATR is required, not just for litigation risk, but for compliance with Sec. 43. Failure to meet the ATR requirements (even on non-QMs) can not only cause litigation risk and safety and soundness concerns, but could be a compliance problem as well.
_________________________
I'm fixin' to fix that.

Return to Top
#1796163 - 03/19/13 03:24 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
That's what it looks like to me...yes.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1796264 - 03/19/13 05:49 PM Re: Ability to Repay Rules ahkcompliance
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Yes, ATR is required; a QM is presumed to comply with the ATR rule.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1797091 - 03/21/13 03:25 PM Re: Ability to Repay Rules ahkcompliance
ahkcompliance Offline
Diamond Poster
Joined: Sep 2008
Posts: 2,474
Midwest
We fall under the Rurual Balloon Payment QM. It is my understanding from reading Appendix Q that our term for a non-HPML loan will need to 61 months or greater to not have to include the balloon payment in our underwriting. If the loan is HPML, then the balloon payment will have to be used.

Do I understand this correctly?

Return to Top
#1797113 - 03/21/13 03:42 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
Power Poster
Joined: Oct 2009
Posts: 9,088
OK
My understanding is that rural/underserved banks don't have to follow Appendix Q. I agree that the term of a balloon needs to be 61 months. I'm currently trying to wrap my head all the way around the HPML vs. non-HPML idea as it pertains to using the balloon payment or not in the DTI calculation, but if it's a QM and you qualify under section (f)(regardless of HPML or not HPML), my interpretation of what i'm reading is that section (f) is your guide, so the only parts of section (c) that need to be followed are any parts specifically referenced by (f) and i don't believe (5)(ii)(A)(2) is referenced. But i'm definitely willing to listen if someone is interpreting that differently.
Last edited by raitchjay; 03/21/13 03:43 PM.
_________________________
I'm fixin' to fix that.

Return to Top
#1801995 - 04/05/13 05:12 PM Re: Ability to Repay Rules raitchjay
ccman Offline
Platinum Poster
Joined: Sep 2007
Posts: 937
Let's try this scenario:

1. A $50K loan is secured by 1st lien dwelling, with a fixed rate, 7 yr. term (payout) no balloon with DTI of say 35%, no pre-pay penalty, property not sold in past 12 mos. and ATR documented in file, and has escrows:

a) Rate spread is over 1.50% APOR. Qualify as QM/HPML?

b) Rate spread is less than 1.50%. Qualify as QM?

Just trying to sort this all out. Thanks all..

Return to Top
#1802050 - 04/05/13 05:58 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
I don't see anything wrong with it.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1804052 - 04/12/13 01:00 PM Re: Ability to Repay Rules ahkcompliance
Still Smiling Offline
Platinum Poster
Joined: Nov 2007
Posts: 767
Am HPML cannot be a QM...is that right? Sorry if this is a stupid question, but if this is right and your bank elects only to make QM's couldn't this have a negative impact on fair lending?
_________________________
Comments are strictly my own and not that of my employer.

Return to Top
#1804057 - 04/12/13 01:04 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
You can make an HPML QM...the difference is, you will have rebuttable, rather than conclusive compliance with ATR.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1804062 - 04/12/13 01:08 PM Re: Ability to Repay Rules ahkcompliance
Still Smiling Offline
Platinum Poster
Joined: Nov 2007
Posts: 767
Thanks Joker... now that my compliance exam is over and it went quite well I am happy to add... I guess I need to spend some time getting my head wrapped around this stuff.
_________________________
Comments are strictly my own and not that of my employer.

Return to Top
#1804092 - 04/12/13 02:01 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Congrats!
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1811612 - 05/07/13 02:27 PM Re: Ability to Repay Rules John Burnett
Tesla Offline
Power Poster
Joined: Nov 2003
Posts: 3,726
Originally Posted By: John Burnett
Yes, ATR is required; a QM is presumed to comply with the ATR rule.


This sentence confuses me. "A QM is presumed to comply with the ATR rule" Does that mean you don't have to do the ATR calculations, etc? Also, the recent Fannie/Freddie announcement that they will only accept QMs and loans not subject to ATR. What does that mean? I think I am missnig the trigger for ATR.
_________________________
It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.

Return to Top
#1811630 - 05/07/13 02:43 PM Re: Ability to Repay Rules ahkcompliance
Dani York, CRCM Offline
Power Poster
Dani York, CRCM
Joined: Apr 2005
Posts: 3,663
TN
ATR is the general requirement to calculate the borrower's ability to repay the loan. There are some basic underwriting rules, but the thresholds for a good faith determination of ability to repay are up to the bank.

QMs are presumed to comply with ATR because you have to follow Appendix Q which outlines (extensively) all of the underwriting requirements set by the CFPB. They also set the DTI ratio. If you meet the QM underwriting standards you have complied with teh basic ATR rule.

The Fannie/Freddie loans are considered QMs for approx the next 7 years because they have strenuous underwriting guidelines that have to be followed as well. They are given a pass under the QM test for now until they can make some changes ion tehir underwriting. The pass for now was given to keep those loans available to borrowers and allow the creditor to invoke the safe harbor. Again if you comply with Fannie/Freddie requirements you have complied with the basic ATR rule.
Last edited by Dani York, CRCM; 05/07/13 02:44 PM.
_________________________
I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.

Return to Top
#1825775 - 06/20/13 07:21 PM Re: Ability to Repay Rules ahkcompliance
OldSchoolBanker Offline
Platinum Poster
Joined: May 2005
Posts: 662
FL
As of Jan 10, 2014, We will be classifying loans as one of the following:
•o Non-Standard ATR Exempt
o Non-QM/ATR eligible
o Non-Agency QM (conforming non-agency or jumbo that meet QM guidelines)
o Agency QM Safe Harbor (includes agency temp QM)
o QM Rebuttable Presumption (agency and non-agency higher priced mortgage loans that fail AOPR test)
_________________________
Old School Banker

Return to Top
#1825809 - 06/20/13 07:51 PM Re: Ability to Repay Rules ahkcompliance
MB Guy Offline
10K Club
Joined: May 2004
Posts: 10,124
Way, way south.
We'll have the following classifications:

1. Full ATR loans non-QM
2. Full QM loans

We'll have no other options at this point.
_________________________
Giddy up.

Return to Top
#1829181 - 07/01/13 01:29 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
MB, what about loans currently on your books that won't meet 1 or 2? (just curious)
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1830832 - 07/08/13 04:19 PM Re: Ability to Repay Rules ahkcompliance
MB Guy Offline
10K Club
Joined: May 2004
Posts: 10,124
Way, way south.
Sorry RR J, not sure what you mean.

We are *planning* on doing full ATR on all loans; Senior Mgmt is still deciding the fate of QM at this point.
_________________________
Giddy up.

Return to Top
#1830833 - 07/08/13 04:22 PM Re: Ability to Repay Rules MB Guy
Tesla Offline
Power Poster
Joined: Nov 2003
Posts: 3,726
Originally Posted By: MB Guy
Sorry RR J, not sure what you mean.

We are *planning* on doing full ATR on all loans; Senior Mgmt is still deciding the fate of QM at this point.



Not RRJ,but do you mean you will do ATR on HELOCs too?
_________________________
It's not that I take life for granted. It's only that the good won't make it. Innocence dies, while Villany Thrives.

Return to Top
#1830881 - 07/08/13 05:35 PM Re: Ability to Repay Rules ahkcompliance
MB Guy Offline
10K Club
Joined: May 2004
Posts: 10,124
Way, way south.
ATR doesn't apply to HELOCs, so no, we would not do ATR on HELOCs technically (we pretty much do it anyway, however, with our regular underwriting requirements.

Sorry if I was unclear; for closed end mortgage loans (I was assuming we were discussing only those), we will only do full ATR on all closed end mortgage loans, and as stated, *possibly* some QMs but that has not been fully decided yet to my knowledge.
_________________________
Giddy up.

Return to Top
#1838325 - 07/31/13 11:40 PM Re: Ability to Repay Rules ahkcompliance
TMortgman Offline
Junior Member
Joined: Jul 2013
Posts: 47
Washington, DC MSA
I put together a 1 pager of Appendix Q Guidelines. It's on my update page. Feel free to download and comment:

Learning to Love Appendix Q - Ability to Repay Part 2
Inside the Box - It's a tight fit...

In Part 1 we talked about the benefits of Appendix Q, how having clear guidelines on how to make loans and what was acceptable for Qualified Mortgages might be a good thing. When you dive into Appendix Q, which is the regulation that codifies those underwriting guidelines into law, you start to see the box of loans that might get approved as QMs getting smaller. At the same time, some ambiguities still exist that a smart loan officer, processor or underwriter might use to help a borrower stretch.

Thomas, you must refrain from advertising here and a link to your products is advertising. You gotta pay to play and if you'd like to advertise, contact tobi@bankersonline.com.

Please do not post ad.
Last edited by Andy Z; 08/09/13 06:04 PM.
Return to Top
#1838368 - 08/01/13 12:46 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
I just thought I'd point out that Appdx Q is not a regulation. It's an appendix within Regulation Z. wink
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1840438 - 08/08/13 02:47 AM Re: Ability to Repay Rules RR Joker
RVFlyboy Offline
Power Poster
RVFlyboy
Joined: Oct 2000
Posts: 5,991
Soaring over Georgia
Originally Posted By: RR Joker
I just thought I'd point out that Appdx Q is not a regulation. It's an appendix within Regulation Z. wink

It also doesn't codify those underwriting requirements into law. It codifies them into regulation.
_________________________
Jim Bedsole, CRCM, CBA, CFSA, CAFP
My posts - my opinions

Return to Top
Page 8 of 9 1 2 3 4 5 6 7 8 9