If we used the new Small Creditor QM category would we need to follow Appendix Q with regard to verifying income/expenses or would we utilize the ATR since there is no specific D/I ratio?

1026.43(e)(5)(A) That satisfies the requirements of paragraph (e)(2) of this section other than the requirements of paragraph (e)(2)(vi) and without regard to the standards in appendix Q to this part;

Thank you for your response. I obviously failed to read that part.

No problem. I had to read that section 3 times to make sure I caught all the pieces.

Sorry this is hard for me to understand even if I read it more than 3 times. Can you spell it out in English (not regulationish), would the small credit have to qualify the borrower under the Appendix Q rules or could we use the ATR rules?

Thank you, Kim

1026.43(e)(5)(A) That satisfies the requirements of paragraph (e)(2) of this section other than the requirements of paragraph (e)(2)(vi) = If your bank qualifies as a small creditor

and without regard to = you can ignore

the standards in appendix Q to this part;

So in layman's terms, if you are a small creditor you can ignore Appendix Q.

BUT 1026.43(e)(5)(B), see below, states that the small creditor must meet the requirements under general ATR.

1026.43(e)(5)(B) For which the creditor considers at or before consummation the consumer's monthly debt-to-income ratio or residual income and verifies the debt obligations and income used to determine that ratio in accordance with paragraph (c)(7) of this section,...

in accordance with paragraph (c)(7) of this section = general ATR

I have been having some similar questions about Small Creditor and Appendix Q. I have read an opinion that stated that "the loan must fundamentally meet the same standards as the standard qualified mortgage with two major exceptions. The lender doesn't have to use the standards of Appendix Q to the regulation in determining the debt to income ratio."
So... is it just for determining debt to income that you are exempt from using Appendix Q or can you ignore Q entirely and use the ATR standards instead?

The sole purpose of Appendix Q is to be an instruction guide for determining income for the DTI calculation.

The new Small Creditor QM relieves you of the requirement to follow Appendix Q for calculating income AND relieves you of the 43% DTI cap.

So if your bank qualifies as a small creditor, you can ignore Appendix Q in its entirety as well as the DTI cap, but you do still have to ensure the customer has the ability to repay the loan according to documented, verifiable information and your loan policy standards.

Thank you very much! Kim

This is probably a dumb question. We fall under the Balloon Payment QM for our balloon loans. However, we have one fixed rate in-house product that we offer as well, can we use the small creditor QM exemption for that?

I assume you can use two different exemptions but not totally sure.

You can use any combination you want. Think of the ATR/QM types like different product offerings. Your bank can make any of those type loans as long as the loans originated under that type meet the parameters (and the bank meets certain criteria for small creditor or rural creditor if using those). Small creditors and rural creditors could make regular QMs and use Appendix Q if they wanted to (not that they would want to, but they still can).

Thanks! So if you use the Small Creditor, you don't have to use Appendix Q just need to consider and verify??

I get confused when Appendix Q has to be used?

Right.

Thanks!