Skip to content
BOL Conferences
Thread Options
#1843780 - 08/19/13 08:26 PM ATR and loans in workout?
MB Guy Offline
10K Club
Joined: May 2004
Posts: 10,124
Way, way south.
So, how do we apply ATR to loans in workout/re-structuring?

I do not see any exemption for them in the ATR rules.

Did I miss something?
_________________________
Giddy up.

Return to Top
Ability to Repay/Qualified Mortgage Rule
#1843794 - 08/19/13 08:43 PM Re: ATR and loans in workout? MB Guy
CrookedVulture Offline
100 Club
Joined: Jul 2008
Posts: 148
If you can structure them as modifications so that they don't meet the definition of a refinance in Reg Z then they're exempt. Otherwise, I agree, there's no other exemption that I'm aware of.

Return to Top
#1843799 - 08/19/13 08:48 PM Re: ATR and loans in workout? MB Guy
James M. Moore Offline
100 Club
James M. Moore
Joined: Jul 2013
Posts: 110
Georgia
Read section 1026.43(d). If the workout is arising from one of the non-standard mortgages defined under that paragraph...you may have an exemption from paragraph (c) if you follow the rules under paragraph (d). But chances are you didn't miss anything. There is no specific exemption for all workouts.
_________________________
James M. Moore, CRCM
My postings are not legal advice and may not be endorsed by my employer.

Return to Top
#1843829 - 08/19/13 09:10 PM Re: ATR and loans in workout? MB Guy
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
The exemption from the ATR requirements under .43(d) is a very narrow one, since even the definition of non-standard loan is limited. But it might be enough to give you some wiggle room when you're working with a subset of your workout portfolio.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1843837 - 08/19/13 09:16 PM Re: ATR and loans in workout? MB Guy
MB Guy Offline
10K Club
Joined: May 2004
Posts: 10,124
Way, way south.
Thank you all. I did read that section regarding non-standard loans, but whew, they sure don't cut you a break in this area.
_________________________
Giddy up.

Return to Top
#1843985 - 08/20/13 02:25 PM Re: ATR and loans in workout? MB Guy
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
No they don't...and they didn't with HPML ATR either back when all that started. We made them anyway...you already have the loan...what are you supposed to do because they are a round peg in a square hole...foreclose?

I don't think so.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1846513 - 08/27/13 11:08 PM Re: ATR and loans in workout? MB Guy
homestar Offline
Diamond Poster
Joined: Feb 2001
Posts: 2,245
US of A
But they have a pretty good reason, I think, for making the exception very narrow. We all know there are lenders out there who would begin churning these types of loans that don't qualify for the "non-standard" definition and take advantage of consumers.

Nobody gets a break, because of those guys.
_________________________
"If you want to tell people the truth, make them laugh, otherwise they'll kill you." ~ Oscar Wilde

Return to Top
#1851750 - 09/12/13 09:58 PM Re: ATR and loans in workout? RR Joker
Always questions Offline
Member
Joined: Jun 2011
Posts: 64
exactly

Return to Top
#1851778 - 09/13/13 11:55 AM Re: ATR and loans in workout? Always questions
Sinatra Fan Offline
Power Poster
Sinatra Fan
Joined: Jul 2002
Posts: 5,568
New Jersey
The very fact that a loan is in workout is prima facie evidence that the borrower does not have the ability to repay, is it not? His request for a workout is his admission of that.

If the workout terms must conform to the ATR requirements, I suspect that much fewer workouts will--can--be done. Not sure how that's of benefit to the consumer.
_________________________
Management is doing things right; leadership is doing the right things. Peter Drucker

Return to Top
#1851783 - 09/13/13 12:46 PM Re: ATR and loans in workout? MB Guy
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
OK - I am confused. A qualified work-out is not a refinance and not subject to any part of Regulation Z, of which this portion of Regulation Z has not been currently repealed:

Paragraph 20(a)(4)

1. Workout agreements. A workout agreement is not a refinancing unless the annual percentage rate is increased or additional credit is advanced beyond amounts already accrued plus insurance premiums.

So are we talking about workouts or refinances??
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1857245 - 10/01/13 02:45 PM Re: ATR and loans in workout? rlcarey
Always questions Offline
Member
Joined: Jun 2011
Posts: 64
What qualifies it as a workout?

Return to Top
#1857377 - 10/01/13 05:57 PM Re: ATR and loans in workout? Always questions
Carolina Blue Offline
Platinum Poster
Carolina Blue
Joined: Jul 2005
Posts: 960
Lost in a regulatory fog
Look to Reg.Z section 20(a)(4). It doesn't specifically define the situation as a workout but the staff commentary introduces the term.

Return to Top
#1869996 - 11/08/13 09:32 PM Re: ATR and loans in workout? MB Guy
time flies when you're having fun Offline
Gold Star
Joined: Feb 2007
Posts: 289
Hi all. I need a lesson on Regulation Z 1026.20. If a client is currently delinquent or otherwise in default and we are providing a workout loan where there is no rate increase or new money, but the bank adds a variable rate feature, have we triggered a refinancing? What if a variable rate is added as part of a court proceeding agreement? Part of me says that the complete exclusion on workout loans is listed in 1026.20(a)4)and for court agreements under (a)(3) and if the Fed intended to restrict these from adding a variable rate feature, they would have included that in paragraph (3) and (4) or in the commentary to these paragraphs. The other part of me says the addition of a variable rate is always a trigger even if an exclusion under 1026.20(a)1-5 applies. Sadly, gone are the days of taking the conservative route. in the past, I would have advised to disclose as refinance, but with ATR/QM we will likely run into qualification issues. Thoughts anyone?

Return to Top
#1870019 - 11/08/13 10:06 PM Re: ATR and loans in workout? MB Guy
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
IMHO - it is a laundry list and each subsection stands alone:

The following shall not be treated as a refinancing:

1
2
3
4
5
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1870254 - 11/12/13 04:49 PM Re: ATR and loans in workout? MB Guy
time flies when you're having fun Offline
Gold Star
Joined: Feb 2007
Posts: 289
Thank you Randy. Consider this however: Bank provides a workout agreement to a client who currently has a fixed rate term loan. The workout agreement adds a variable rate. Clients current rate is 6%, new rate is p+ 1.5% which is currently 4.5%. If the workout agreeement does not provide for a rate cap/ceiling and therefore due to index changes the rate could increase above 6%, don't we have a problem? If we add a ceiling to prevent the rate from going above 6%, we've lost the reason for adding the variable rate feature to begin with (to control for interest rate risk). Thoughts on this?

Return to Top
#1870272 - 11/12/13 05:15 PM Re: ATR and loans in workout? MB Guy
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Thoughts on this?

Yeah - talk to your legal counsel smile

I would also question a workout loan that modifies a consumer mortgage loan into a loan with no rate cap.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1870297 - 11/12/13 05:52 PM Re: ATR and loans in workout? MB Guy
time flies when you're having fun Offline
Gold Star
Joined: Feb 2007
Posts: 289
Agreed. Thanks much!

Return to Top
#1870900 - 11/13/13 09:17 PM Re: ATR and loans in workout? rlcarey
ccman Offline
Platinum Poster
Joined: Sep 2007
Posts: 937
In regards to the ATR rules, what confuses me is the handling of existing portfolio loans that are maturing and have a balloon coming due based upon a 7 year payout and fixed rate. The borrowers do not meet the ATR rules for some reason or another, can .20(a)4 be utilized without running fowl of .43(c)? These loans would not seem to fall into the .43(d) scenario.

Return to Top
#1871129 - 11/14/13 05:12 PM Re: ATR and loans in workout? MB Guy
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
I'm not sure how you could classify a loan as a workout that performed up to maturity??
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1871394 - 11/14/13 09:44 PM Re: ATR and loans in workout? rlcarey
ccman Offline
Platinum Poster
Joined: Sep 2007
Posts: 937
Hold on, here is the rest of the story. The loan is presently past due 90 days and the payment history is filled with multiples of payments past due over 30-90. Its now late January 2014 and prior to maturity, the bank is working with the borrower on a workout plan of repayment. These are typically rural loans to borrowers with their home used as collateral for small loan requests that do not meet the secondary market guidelines and are closed as "in-house" loans. Now back to my original question, would this workout loan be exempted from the ATR rules and covered under .20(a)4?

Return to Top
#2076994 - 05/04/16 05:29 PM Re: ATR and loans in workout? MB Guy
Norman Paperman Offline
Diamond Poster
Norman Paperman
Joined: Aug 2012
Posts: 1,700
48.934476, -114.343735
Hi kids. The title of this thread is appropriate, so I'm reviving it.

We have a borrower (consumer) that lost their job mid-way through a construction project. They have a new job now but make substantially less than they did before. Can I modify this loan and avoid ATR requirements so long as I don't add new money? There has been conversation about adding in some credit card debt used so as to reduce the monthly debt. The end-game is for the borrower to sell the home, but for now we are stuck with the loan.

Adding new money would put us out of the ATR exemption for workouts, correct?
_________________________
Maybe you just wanna fly the plane yourself. Well good luck pressing take off, then auto pilot, then land.


CRCM

Return to Top