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#1782704 - 02/04/13 08:48 PM Re: Ability to Repay Rules ahkcompliance
Jan94 Offline
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Are there any exemptions where the collateral is investment property but the purpose of the loan is consumer? In reading through the final rules I find some discussion in Section 1026.43 Minimum Standards for Transactions Secured by a Dwelling (scope). However it appears to speak more to where the loan would have a business purpose (i.e. purchase investment property, etc.) and is clear that would be exempt. It states that a "residential mortgage loan" is a dwelling-secured consumer credit transaction..."regardless of whether the dwelling is a principal residence, second home, vacation home (other than a timeshare residence), a 1-4 unit residence, condominimum, cooperative, mobile home, or manufactured home." This seems to indicate that it's driven mainly by purpose. My thought is that if the loan request secured by non-owner occupied rental property is not for the purpose of acquiring, maintaining or improving the rental property it would be considered consumer purpose and be covered by the ATR rules. Would anyone have any different thoughts or understanding? Thank you.

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Ability to Repay/Qualified Mortgage Rule
#1782710 - 02/04/13 08:59 PM Re: Ability to Repay Rules ahkcompliance
raitchjay Online
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OK
I'm with you...i don't see any exemptions for any dwelling-secured loan that is for consumer purpose, regardless of whether the dwelling is a rental property, etc. If the loan is subject to Reg. Z and secured by a dwelling, i think the ATR rules apply.
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#1782724 - 02/04/13 09:20 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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That's my take as well.
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#1784645 - 02/11/13 03:20 PM Re: Ability to Repay Rules ahkcompliance
pacar Offline
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OK. So, I’ve been reading this thread, and paying attention to trade association summaries, and even listened to a couple of webinars. All that said, and I’m still confused on this whole balloon thing as it stands today.

My community bank is $100m in assets and we *are* in an MSA. That means that we do not meet the definition of “rural or underserved”, so we cannot make a QM balloon. I understand that part. What I’m trying to get clarity on in my mind is if our balloon product is going to be dead or not. I keep hearing folks talk about “just make the balloon longer than 5 years and you will be exempted from the DTI”. But doesn’t that only apply to those banks that meet the Rural or Underserved definition?

The way that I’m understanding this is that if our bank continues to make balloon loans – even those that mature 62 months or more in the future, and only to very wealthy borrowers that have the money to pay the balloon – we have a ton of exposure. We would not be able to meet the ATR standard (because of the balloon payment, regardless of the net-worth of the borrower) and don’t qualify for the Rural / Underserved Balloon QM.

So, we technically could accept the risk and make balloon loans anyway, but the risk management needs to be aware of is that we would essentially lose our shirts if a borrower sued us for *any* reason within the first three years, or sued us in a foreclosure action at *any* time during the life of the loan.

Does that about sum it up (Pending any regulation chance to expand the exemption beyond Rural / Underserved)?

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#1784805 - 02/11/13 06:24 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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Sounds like you summed it up nicely, pacar. It boils down to litigation risk.
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#1784929 - 02/11/13 10:20 PM Re: Ability to Repay Rules ahkcompliance
JobSecurity Offline
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I have been trying to read all these new regs. All I can say is I hope there are some really good seminars out there in the future. I have myself all confused with all the cross-referencing going on and flipping back and forth. I can’t keep it straight in my mind much less how I can train on it!! Just when I think I have it…whoops no I don’t.

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#1785011 - 02/12/13 02:04 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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Probably one of the best is going on right now. Perhaps it will be archived...[BOL's Lending Triage]. My guess would be they may also break it down into several webinars based on single regs as the year progresses.
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#1785020 - 02/12/13 02:09 PM Re: Ability to Repay Rules pacar
RR Becca Offline
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out of the frying pan...
Originally Posted By: pacar
My community bank is $100m in assets and we *are* in an MSA. That means that we do not meet the definition of “rural or underserved”, so we cannot make a QM balloon.


For others in this same boat (including my bank) - get a comment letter in on the Concurrent Proposal to the Ability to Repay/Qualified Mortgage Rules. The comment deadline is 2/25. The proposal includes a section that would basically extend the rural/underserved exemption to "certain small creditors," - banks under $2 billion who originate 500 or less covered transactions per year.

WE NEED TO SUPPORT THIS.

Sorry for yelling. wink
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#1785024 - 02/12/13 02:13 PM Re: Ability to Repay Rules ahkcompliance
YHWB Offline
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JobSecurity, I completely agree. One of the issues is all of the speculation and opinions, verses the facts. All of these changes are too complex. We really need to focus on the requirements and leave the commentary for another day. I am hopeful some great tools and in-person seminars are on the way.

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#1786978 - 02/15/13 10:19 PM Re: Ability to Repay Rules ahkcompliance
Still Smiling Offline
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Posts: 767
I am confused on the alternative loan offer rules regarding pre payment penalties. Does this apply only to loans from mortgage brokers?

Accordingly, the Bureau
is adopting as proposed comment 25(a)-7 as comment 25(c)(3)-2, to clarify that a creditor must
retain records that document compliance with that requirement if a transaction subject to
§ 1026.43 is consummated with a prepayment penalty, but need not retain such records if a
covered transaction is consummated without a prepayment penalty or a covered transaction is not
consummated. See § 1026.43(g)(6).
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#1787036 - 02/16/13 03:26 PM Re: Ability to Repay Rules ahkcompliance
rlcarey Offline
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Galveston, TX
No. If you make a loan with a prepayment penalty, you need to have proof that you offered an alternative regardless of who you are.
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#1787360 - 02/19/13 08:46 PM Re: Ability to Repay Rules Reads Regs
ccman Offline
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Posts: 900
Just a little confused here. The final rules were published in the Fed Reg on January 30th and consist of 241 pgs. The bureau provided the final rules on Janauary 10th and consists of over 800 pgs. What makes up the difference? and which set of rules are "final"? Is it the preample and commentary?

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#1787369 - 02/19/13 09:06 PM Re: Ability to Repay Rules ahkcompliance
StevenD Offline
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three column small print vs. single column large print. It should be the same text.
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#1787655 - 02/20/13 05:56 PM Re: Ability to Repay Rules ahkcompliance
Truffle Royale Offline

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Triage was a great help. Having it go three days made it just a tad less intense so I actually think I absorbed stuff instead of feeling totally overwhelmed.

The best thing I came away with on this topic was that if you're using DU and underwriting to FNMA standards and not doing any balloon loans, you'll likely be able to adapt to the ATR and QM changes without too much trouble.
We do vanilla loans here. If DU kicks it, we don't do it. I may be naive but I've still got my fingers crossed that we'll be ok.
Granted this won't work for those of you at banks that want to make loans to borrowers that don't fit my vanilla mold.

If I'm misinterpretting my DU/FNMA notion, I hope someone here will correct me.

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#1788823 - 02/25/13 04:00 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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TR, I think you are probably completely correct on that...it boils down to old fashioned (and really should not have strayed from) underwriting/lending protocol.
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#1789008 - 02/25/13 09:27 PM Re: Ability to Repay Rules Truffle Royale
ccman Offline
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Our bank is in essentially the same place, but being a community bank, we have some old balloon notes coming due and like others wondering what to do, if due to circumstances, the borrower's ability to repay and dti just does not come up to the standards? Rural borrowers have seen their incomes dwindle and selp-employed small farmers and businesses simply do not keep records well enough. Is there a "grandfathered" provision in the regs or is it "all in" now for refi's?

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#1789145 - 02/26/13 02:08 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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I believe it's all in, ccman. What I am recommending is perhaps modifications vs refi's whenever possible. We have tons of short balloons with borrowers that in no way qualify any more...if they ever did.
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#1791100 - 03/04/13 06:38 PM Re: Ability to Repay Rules RR Joker
ccman Offline
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Not familiar with modifications. Does a modification require re-disclosures of TIL? Can you briefly describe a modification? Thanks.

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#1791139 - 03/04/13 07:29 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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At this point, no...there are no disclosure requirements. The loan cannot have matured and your terms should mirror the original debt. You are not extinguishing the debt, simply continuing it...that's my best explanation. wink
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#1791322 - 03/05/13 02:22 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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I saw a slide-set that referenced civil money penalties for non-compliance with ATR. I have searched the entire final rule and do not find any reference to the ability of the regulators to do this.

Has anyone else found a reference regarding penalty risk outside of individual and class-action??
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#1792535 - 03/07/13 08:53 PM Re: Ability to Repay Rules RR Joker
ccman Offline
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Thanks for the info. Will look into it.

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#1792620 - 03/07/13 11:40 PM Re: Ability to Repay Rules RR Joker
Sewanee, CRCM Offline
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Originally Posted By: RR Joker
I saw a slide-set that referenced civil money penalties for non-compliance with ATR. I have searched the entire final rule and do not find any reference to the ability of the regulators to do this.

Has anyone else found a reference regarding penalty risk outside of individual and class-action??


My guess is that they would fall back to the original Truth in Lending Act on this.
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#1792654 - 03/08/13 01:20 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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I'm not convinced. ATR/QM isn't hard/fast to me...it's a choice a bank makes based on risk vs lending profile. Nothing says you can't make a non-QM, so where is the non-compliance.

I can imagine that many, many portfolios will have both QM and non-QM loans held within it.
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#1792668 - 03/08/13 01:51 PM Re: Ability to Repay Rules ahkcompliance
rlcarey Offline
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Galveston, TX
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.
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#1792670 - 03/08/13 01:55 PM Re: Ability to Repay Rules ahkcompliance
RR Joker Offline
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I totally agree with that statement, Randy. wink
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