Skip to content
GeoDataVision
Page 1 of 2 1 2
Thread Options
#1889242 - 01/22/14 09:38 PM QM vs Non-QM Loans
JoAnne Offline
Platinum Poster
Joined: Feb 2001
Posts: 795
Michigan
My lender keeps asking what are the implications for putting non-QM loans on the books. I keep telling him that non-QM loans are okay - but you need to verify and consider the 8 ATR factors and you have no protections when it comes to borrower ATR claims or defenses.

He keeps coming back with "but what are the implications"
I get the feeling that he thinks non-QM means he doesn't have to follow Ability to Repay. Am I correct in that ATR does apply (just not the 43% DTI)?

I'm at a loss..How else can I explain this to him.
_________________________
Opinions posted are not necessarily those of my employer.

Return to Top
Ability to Repay/Qualified Mortgage Rule
#1889264 - 01/22/14 09:56 PM Re: QM vs Non-QM Loans JoAnne
brownbeard Offline
Member
Joined: Nov 2013
Posts: 56
I've described it to a few folks as follows:

ATR rules are new and must be adhered to.

QM is a special instance of ATR (several, technically) that suggests very, very strongly that you followed the ATR rules (e.g. reduces your obligation to prove it, if it's ever suggested in court that you failed to).

Failing to follow the ATR rules is not an (compliant/safe & sound/good) option. It's literally forbidden.

That (admittedly oversimplified) explanation has helped get it across to a few of my colleagues. Hope it helps you.

Return to Top
#1889274 - 01/22/14 10:04 PM Re: QM vs Non-QM Loans JoAnne
OldSchoolBanker Offline
Platinum Poster
Joined: May 2005
Posts: 660
FL
This is from an American Banker's Assoc summary document. Maybe this will help with "implications".

Violations of the ATR Rule. Under TILA, a borrower who brings an action against a lender for a violation of the ATR rule within three years from when the violation occurs may be able to recover special statutory damages equal to the sum of all finance charges and fees paid by the borrower, unless the lender demonstrates that the failure to comply is not material. This recovery is in addition to: (1) actual damages; (2) statutory damages in an individual action or class action, up to a prescribed threshold; and (3) court costs and attorney fees that would be available for violations of other TILA provisions. After the expiration of the three-year time period, the borrower is precluded from bringing an affirmative claim against the lender. At any time, when a lender or assignee initiates a foreclosure action, a borrower may assert a violation of these provisions “as a matter of defense by recoupment or setoff.” There is no time limit on the use of this defense, although the recoupment or setoff of finance charge and fees is limited to the first three years of finance charges and fees paid by the borrower under the mortgage.
Silver,
_________________________
Old School Banker

Return to Top
#1889275 - 01/22/14 10:05 PM Re: QM vs Non-QM Loans JoAnne
manimal Offline
Diamond Poster
manimal
Joined: Feb 2008
Posts: 2,207
Deleted
1026.43 makes it pretty clear that you have to comply with ATR/QM. It's Regulation Z, so your lender can look to the penatlies under TILA for "implications," plus the implications in court as brownbeard suggested.
_________________________
We're all here 'cause we've lost control.

Innerpartysystem

Return to Top
#1889314 - 01/22/14 10:52 PM Re: QM vs Non-QM Loans JoAnne
dblack Offline
Gold Star
Joined: Feb 2008
Posts: 263
AL
I agree with all above.

QM is just a way of complying with the ATR requirements.

ATR is what MUST be complied with.

I have a feeling it would be especially frowned upon if you are knowingly ignoring the ATR rules.
_________________________


CRCM



Return to Top
#1889396 - 01/23/14 03:06 PM Re: QM vs Non-QM Loans JoAnne
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,684
Cape Cod
How about this for a comeback to your lender:

"What are the implications? For you, knowing failure to adhere to the ATR requirements will mean a loss of income, because you'll be canned."
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1889528 - 01/23/14 05:01 PM Re: QM vs Non-QM Loans JoAnne
waldensouth Offline
Power Poster
waldensouth
Joined: Nov 2001
Posts: 7,981
FINALLY ABOVE the gnat line
As part of my ATR/QM training, the Chief Credit Officer told me to tell our lenders - "If you can't comply with these rules and obtain all the necessary documentation, you will be looking for work elsewhere." We don't do a lot of QM loans in house - Our Mortgage division does those. Most of our In-house loans are simply ATR and non-QM.
_________________________
"Once you learn to read, you will be forever free."

- Frederick Douglass




My Opinion Only.

Return to Top
#1894614 - 02/06/14 10:06 PM Re: QM vs Non-QM Loans JoAnne
JoAnne Offline
Platinum Poster
Joined: Feb 2001
Posts: 795
Michigan
Balloon Loans - I know that the ATR/QM rule as No balloon loans, except Small Creditors can continue to make them for 2 years and then the rural and underserved definitions kick in.

But can any creditor continue to make non-QM balloon loans after Jan 10, 2016?
_________________________
Opinions posted are not necessarily those of my employer.

Return to Top
#1894619 - 02/06/14 10:14 PM Re: QM vs Non-QM Loans JoAnne
dblack Offline
Gold Star
Joined: Feb 2008
Posts: 263
AL
You can make a non-QM balloon now as long as it is also not an HPCT and the term is 61+ months (must factor in highest payment during 1st five years after first payment date.)

That part is not set to expire... who knows what will change between now and then though.
_________________________


CRCM



Return to Top
#1894665 - 02/07/14 02:23 AM Re: QM vs Non-QM Loans JoAnne
JoAnne Offline
Platinum Poster
Joined: Feb 2001
Posts: 795
Michigan
So is it safe to say, QM = ATR + 43% DTI; Non-QM = ATR with no DTI restrictions? and Non-QM Balloons that are not HPCT can be done now and until they change the rule again?

The only constant is ATR and if you don't comply with that, ......
_________________________
Opinions posted are not necessarily those of my employer.

Return to Top
#1894738 - 02/07/14 02:38 PM Re: QM vs Non-QM Loans JoAnne
dblack Offline
Gold Star
Joined: Feb 2008
Posts: 263
AL
ATR is what must be complied with. You can develop your own criteria to underwrite the loan, but it must consider the 8 factors listed in 1026.43(c)(2)i-viii

Originating a QM grants you safe harbor (or rebuttable presumption for HPCT's) of compliance with the ATR rules. There are , of course, more hoops to jump through to originate a QM than general ATR though (Appendix Q etc).
_________________________


CRCM



Return to Top
#1894906 - 02/07/14 05:02 PM Re: QM vs Non-QM Loans JoAnne
brownbeard Offline
Member
Joined: Nov 2013
Posts: 56
Originally Posted By: JoAnne
So is it safe to say, QM = ATR + 43% DTI; Non-QM = ATR with no DTI restrictions? and Non-QM Balloons that are not HPCT can be done now and until they change the rule again?

The only constant is ATR and if you don't comply with that, ......


Not really. You must comply with ATR. One way to do so is to make a QM. There are several ways to make a QM, and only one of them has a DTI restriction.

A QM either comes with a rebuttable presumption or a safe harbor to the claim that that you failed to comply with ATR.

Return to Top
#1895052 - 02/07/14 07:32 PM Re: QM vs Non-QM Loans JoAnne
JoAnne Offline
Platinum Poster
Joined: Feb 2001
Posts: 795
Michigan
So for a Non-QM loan, there is no "assumption" that you have complied with the ATR - you must DOCUMENT that you considered the ATR factors. And there is no safe harbor or rebuttable presumption with Non-QM loans. Correct?

Do balloon loans completely go away for everyone except sm creditors in rural and undersereved areas after Jan 10, 2016?
_________________________
Opinions posted are not necessarily those of my employer.

Return to Top
#1895063 - 02/07/14 07:43 PM Re: QM vs Non-QM Loans JoAnne
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Only if you want it to also be a QM. And only if they don't extend that temporary inclusion.

Oh..as far as those first questions are concerned...right.

Having said that, Joanne...for QM loans, you would still have to document ATR.
Last edited by RR Joker; 02/07/14 07:44 PM.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1895070 - 02/07/14 07:47 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
Here's what i've never quite got my head around in the ATR vs. QM discussion......certain QMs get a safe harbor (i.e., you're assumed to have complied with ATR)....the only way to get a QM is to actually comply with ATR....so a QM that's an actual QM (and not a QM because the bank thinks it's a QM, when in actuality, because of errors in the process, it's really not) and a loan that simply follows ATR correctly are really the same thing: loans that a bank should be safe from litigation on. It just seems like semantics to me.
Last edited by raitchjay; 02/07/14 07:54 PM.
_________________________
I'm fixin' to fix that.

Return to Top
#1895078 - 02/07/14 07:53 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
To add to that: a court isn't just going to take the bank's word that it's a QM....so how exactly does this safe harbor work?

Bank: "Your honor, this is a qualifed mortgage."
Judge: "Sorry plaintiff...it's a qualified mortgage...no need to check the bank's ability to repay work to see if it was done correctly."

And if that's not the case, then again, how exactly does having a QM trump ATR? Both involve: correctly calculating that your borrower has the ability to repay the loan. Do that, and you should be good. Don't do that, and regardless of whether you claim the loan is a QM or not, you're in trouble. That's the way i see it anyway. I'll gladly recant if someone points out the error in my logic.
_________________________
I'm fixin' to fix that.

Return to Top
#1895081 - 02/07/14 07:54 PM Re: QM vs Non-QM Loans JoAnne
Tater Offline
Platinum Poster
Joined: Jan 2006
Posts: 629
Missouri
It is all just to throw us bankers a bone until some enterprising attorney and plaintiff decides it is time to litigate. Then the whole "safe harbor" gets thrown out and we're back to square one like we were before these rules - albeit with less hair and/or more gray hair.
_________________________
Born once? Die twice.
Born twice? DIE ONCE!

Loan Review, HMDA, ALLL

Opinions are my own and do not reflect any others

Return to Top
#1895085 - 02/07/14 07:57 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
Exactly.....i just don't see where the bank claiming QM status really matters. The heart of the matter is either you correctly calculated the ability to repay or you did not. Attaching a label to a loan seems ultimately meaningless. A loan that only follows ATR (but follows it correctly) is ultimately a "QM", because the borrower loses his lawsuit. And a "QM" that isn't really a QM doesn't get you anything.
Last edited by raitchjay; 02/07/14 07:59 PM.
_________________________
I'm fixin' to fix that.

Return to Top
#1895088 - 02/07/14 08:01 PM Re: QM vs Non-QM Loans JoAnne
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Exactly. With a QM, the burden is on the borrower to prove otherwise.

To be a QM, you can't have any risky features (unless you are rural or temporary and then you can make balloons)...but other than that, it's nothing but a glorified ATR. You can still be in compliance with ATR, but not have to fit the loan into the perfect peg and give it the title "QM".
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1895094 - 02/07/14 08:05 PM Re: QM vs Non-QM Loans RR Joker
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
Originally Posted By: RR Joker
Exactly. With a QM, the burden is on the borrower to prove otherwise.


Joker..i think this is what i'm getting at. Who says whether it's a QM or not? The bank states to the court that it's a QM, so it's a QM? I get the fact that whomever has the onus to prove something has the tougher time, but is a court really going to say "well, the bank says it's a QM, so borrower, it's on you to disprove that". Wouldn't the plaintiff's lawyer start with the premise of "your honor, we dispute the fact that this loan is a QM". I mean, how do you start with the stipulated fact that a loan is a QM, simply because the bank says it is?
_________________________
I'm fixin' to fix that.

Return to Top
#1895098 - 02/07/14 08:05 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
And by dismantling things to prove whether the loan truly is a QM, aren't they going to look at..................ability to repay? So where's the "safe harbor"?
_________________________
I'm fixin' to fix that.

Return to Top
#1895102 - 02/07/14 08:07 PM Re: QM vs Non-QM Loans JoAnne
JoAnne Offline
Platinum Poster
Joined: Feb 2001
Posts: 795
Michigan
so in the end, what is the difference between a QM loan and Non-QM loan? (that is what my lender wants to know).
_________________________
Opinions posted are not necessarily those of my employer.

Return to Top
#1895109 - 02/07/14 08:09 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
Originally Posted By: JoAnne
so in the end, what is the difference between a QM loan and Non-QM loan? (that is what my lender wants to know).


In a perfect world, if both truly follow the repayment requirements of Sec. 43, i would think nothing. But i have no idea how to predict litigation risk and how these things will actually play out in a court of law.
_________________________
I'm fixin' to fix that.

Return to Top
#1895115 - 02/07/14 08:15 PM Re: QM vs Non-QM Loans JoAnne
dblack Offline
Gold Star
Joined: Feb 2008
Posts: 263
AL
IMO, if you went through everything to document the file as a QM the borrower would basically have to admit to mortgage fraud if they say they didn't have ATR.
_________________________


CRCM



Return to Top
#1895117 - 02/07/14 08:17 PM Re: QM vs Non-QM Loans JoAnne
raitchjay Offline
Power Poster
Joined: Oct 2009
Posts: 8,763
OK
I agree, if you did it correctly. But is every loan that has the label "QM" on it this year going to truly be a QM that follows all the requirements of Sec. 43?
_________________________
I'm fixin' to fix that.

Return to Top
Page 1 of 2 1 2