I have a consumer purpose loan (funds used for home improvement on primary residence) which is being secured by a rental dwelling (greater than 25 acres; no RESPA).

I know that I will need to provide TIL information, but do Qualified Mortgage and ATR rules apply?

I see no exception based on what you have stated.

A quick look at the scope of the regulation would tell you what is/is not included:

http://www.bankersonline.com/regs/12-1026/12-1026-043.html

ATR rules would apply, as this particular transaction is secured by real property and appears to meet the scope under 1026.43. You would need to ensure you follow 1026.43(c) and appendix Q to the regulation.

QM’s merely provide more certainty to creditors to presume compliance with the ability-to-repay. The secondary market is only accepting QM type loans as of now.

IMO - If your plan is to keep this particular loan within your portfolio, I would say that your compliance with ATR provisions would suffice.

No disprespect intended, but advising a poster unaffiliated with your FI regarding their policy of ATR vs QM is not a real good idea.

Also, correct me if I'm wrong (I'm a small/rural, so that's my concentration re the rules) but doesn't Appdx Q only come in to play on QMs?

I took Appendix Q as a tool to assist lenders in calculating DTI ratios when evaluating a borrower's ability to repay the debt. I'm not sure why it would only apply to QM trnasactions. I'll take a closer look.

Also, if you have any additional references, can you please forward it my way?

Thanks.

The CFPB stated that while Appendix Q is only required for certain loans, it is an excellent guide for all residential mortgages.

Perfect. Thanks Kathleen.

That was stated in a webinar.

That is technically correct. The preamble to Appendix Q makes that clear, and there are multiple references to the appendix in the QM section [1026.43(e)].

Given that the vast majority of residential loans will be QMs, and that, at least at the present time, most lenders intend to make only or mostly QMs, I think the practical effect will be that lenders will tend to use Appendix Q as a guideline for all their residential lending. It's easier than having two sets of underwriting criteria, one for QM and one for non-QM.

I also wonder whether examiners will apply Appendix Q to all residential loans. Too soon to tell, but that might be interesting to keep an eye on.

I agree that Q is an excellent reference...my point was simply that it wasn't required in regard to General ATR.

And I am just going to take a slight issue with the statement that 'if the loan will remain portfolio, that ATR provisions would suffice'.

It is important to remember that there is a level of legal uncertainty that a bank accepts when they make a non-QM loan that did not exist before. While I feel that most loans that comply with ATR and are well documented and with reasonable DTI's, such a decision to book ATR only loans is a decision a bank should not take lightly. The willingness to do so should be part of a well documented strategic plan.

Investment property (rental homes) done as a secondary market loan (Freddie Mac) would still have to meet the QM rules correct? My issue is that some of the Freddie Mac fees will take it over the 3% cap.

If they have to meet QM requirements, that is an investor requirement, not a regulatory requirement. For your Freddie loans, you might call the investor bank about how they view those loans and the fee cap.

First, determine whether the loan should be considered a consumer credit transaction using 1026.3 and its commentary. The answer can differ depending on whether the loan is funding a purchase of a rental or not.

If it won't be a consumer credit transaction, it won't be subject to Regulation Z, and the whole concern about QM or not and the 3% P&F cap goes out the window.

John, would the refinance of a rental home also be exempt?

This is from the exemption, however it does not specify purchase or refinance.

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.

Thank you.

JWills, that will depend on the purpose. Are they refinacing the rental-related debt, or, perhaps are they taking equity out for personal reasons and securing iwth rental property?

If the former, it's exempt, if the later, it's not.

Freddie Mac only purchases 1-4 family residential loans. They would need to be compliant with Freddie Mac requirements to be temporary QM loans. They are still required to meet the 3% points and fees to qualify for QM rules.

Joker they are refinancing the rental to take advantage of lower rates. I am still saying it is business purpose. And as business purpose, it is exempt from Reg Z. I do not need to worry about the points and fees test, correct?

If I missed something, I apologize. I thought the loan was being sold to Freddie Mac.

You didn't miss anything hgliii, it is being sold to FM. But if Reg Z doesn't apply, how can I do the points & fees test for QM?

Any help is greatly appreciated.

I can't answer for FM requirements, but if it were an in-house loan it would be exempt. It sounds like hgliii has more experience with what FM is requiring.

From Freddie Mac Bulletin: NUMBER: 2013-16

POINTS AND FEES
New thresholds
We are updating our requirements for points and fees as follows:
■ For ATR covered Mortgages, the points and fees must not exceed 3% of the total loan amount (or such other applicable limits for lower balance Mortgages) as specified under the Truth-in-Lending Act and its implementing regulations, 12 C.F.R. 1026.43(e)(3). Sellers must use the points and fees calculation that is required for qualified mortgages under the Truth-in-Lending Act and its implementing regulations, 12 C.F.R. 1026.32(b) to determine compliance with applicable requirements.
■ For ATR exempt Mortgages, the points and fees must not exceed 5% of the total loan amount. Sellers must use the points and fees calculation that is required for high-cost Mortgages under the Home Ownership and Equity Protection Act of 1994 (HOEPA) and its implementing regulations, 12 C.F.R. 1026.32(b).
We are replacing the existing Freddie Mac 5% points and fees limitation under Section 22.32, Predatory Lending Practices, with the new points and fees thresholds.
We are adding new Section 22.37, Points and Fees Limitation, and updating Sections 22.1, Overview, and 22.32 to reflect these changes.
We are also updating Section 22.33, HOEPA Mortgages, and additional applicable Guide sections for consistency with the new statutory thresholds under HOEPA as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

I don't see any exemption for rental properties sold to Freddie.

HGLIII, the first section effectively exempts it as it refers to "ATR covered transactions" and "Regulation Z", neither of which apply to non-consumer loans.

As a follow-up to the above discussion, I'm curious on Freddie Mac saleable investment property loans if there is any reason why we should be determining QM or ATR status?

Freddie Mac Bulletin Number 2013-16 lists a 5% points and fees cap for non-Reg. Z covered loans, so clearly the 3% points and fees cap does not apply. However, it seems we must be concerned with HOEPA on non-owner occupied investment property loans.

Thank you in advance.

Rental property is exempt from Regulation Z.