In regards to the Non-Standard to Standard exemption for ATR/QM, would a 5/1 ARM be considered a Non-Standard loan? My creditor writes 5/1 ARMs with a 30 yr amortization. If the borrower is apporaching their recast, can we write a new loan (term 30 year fixed or less) and have that be considered Non-Standard to Standard? I would think that we could because the new monthly mortgage payment would be materially lower once the loan was recast...? Thoughts?

Standard QM is a term that refers to loans that meet the requirements of a qualified mortgage based upon the ATR guidelines. A non-standard QM is a term that refers to special QM, small creditor QM or Rural Balloon Payment QM.

I am not sure if I am answering your question correctly you are asking if you can do a 5/1 ARM? Sure, why not? If you want it to be QM you need to meet certain guidelines, which are too numerous to answer in a post. If not, you still need to meet certain requirements.

I have never heard the term recast (maybe a local term). Depending on the criteria you can write loans (with some limitations) for periods that fit yours and the customers needs. There may be certain conditions that need to be met, but based on the ambiguity of the scenario I cannot opine on that.

rED, I have heard the term "recasting" a loan used to describe the handling of a maturing balloon loan. It is simply renewing the loan for another similar balloon period with no discernible change in terms for the new loan.

A non-standard cannot be considered when looking at the Special Rules, Small Creditor (Balloon) or General QM due to the loan feature. A non-standard loan feature is typically a negative amortized loan, Interest Only, or a balloon. (I cannot do the small creditor balloon QM).

Recast is defined as the expiration of the period during which payments based on the introductory fixed rate are permitted under the terms of the obligation (for adjustable rate mortgage)...

So, if I took a 5/1 ARM that is about to have its 5-yr fixed rate expire (recast), if this was a loan we were already holding in portfolio, would the 5-1 ARM, the current customer is trying to refi out of, be considered Non-Standard to Standard, if we were able to refi them into a QM?

Thank you for the explanation of recast. Basically, how I read this is that it is a modification, so long as you extend the period prior to the existing loan paying off, or a refinance.

I will not try to complicate the issue but I will give you my two cents and let you apply the logic of your loan to what I have stated.

Reg. Z does not define a recast. In my opinion, you either have a modification or a refinance. Based upon what you told me, and according to Reg. Z's 1026.20(a) refinance restrictions. Please review the official staff interpretations on refinance because you might see that the condition below is not a refinance:

3. Variable-rate.

i. If a variable-rate feature was properly disclosed under the regulation, a rate change in accord with those disclosures is not a refinancing. For example, no new disclosures are required when the variable-rate feature is invoked on a renewable balloon-payment mortgage that was previously disclosed as a variable-rate transaction.

Now back to my take and your post. Forgive me because I am having a difficult time understanding your predicament because the post is confusing me.

The first paragraph references a non standard vs standard what? I am confused by why you are adding this.



I am going to try to dissect this so that I don't confuse points. You state that you are refinancing. Remember if you are modifying then this is not a new loan. Since you say it is a refi you say is it non-standard or standard.

It would be non-standard as ARMs with fixed interests rates of one year or longer are considered non-standard. So then you need to meet the criteria.

See section D: http://www.bankersonline.com/regs/12-1026/12-1026-043.html#d

if this was a loan we were already holding in portfolio, would the 5-1 ARM, the current customer is trying to refi out of, be considered Non-Standard to Standard, if we were able to refi them into a QM?

If you refi them into any loan that meets the requirements of 1026.43(d)(1)(ii) you are correct.

Can a loan going from "non-standard to standard" ever be considered a qualified mortgage? If it's exempt from the ATR rule and a QM meets the ATR requirements......
(Maybe my brain has simply quit working this afternoon.)