Lender made a 15 month, interest only bridge loan without giving thought to the 12 month exemption under the ATR rules. This is a jumbo loan and the borrower has good residual income. The borrower anticipates selling her current home and having a much smaller permanent mortgage at maturity. I have three questions: How do we underwrite the IO payment to demonstrate ATR. Does she have to be able to debt service the entire debt converted to P&I payments? Finally, does the 12 month exemption apply to RESPA and HMDA? I recall that RESPA had a two year period discussed at one point. HMDA has no definition for bridge loan or time frame.

I'll address the RESPA and HMDA portions of your post:
RESPA - all bridge loans are exempt. Refer to §3500.5(b)(3) and read the last sentence.
HMDA - bridge loans are always exempt from HMDA. Refer to §1003.4(d)(3) where it states "A financial institution shall not report… Temporary financing (such as bridge or construction loans)…

Now I have a question: Why would a lender make a 15 month bridge loan?

I asked the lender the same question. Apparently the house is a high-end, custom home and there have been a couple of contracts that have fallen thru. The borrower has just put a contract on a new home and wanted the extra time for resale purposes. I read an earlier post that hinted at a 12 month or less period for bridge loans with respect to RESPA, HMDA and ATR, so I was a little spooked. We did not send any disclosures or collect GMI for HMDA. So now the only thing I'm missing is the proper consideration under the ATR rules. It is an HPML but not a flip for the second appraisal rule. The bridge loan will convert to a 62 month ARM at maturity.

For the ATR requirements you will need to review the Commentary to 1026.43(c)(5)(ii). You basically have a 15 month balloon loan where the final payment is more than twice the regularly scheduled periodic payments that is due within the first 5 years of the first scheduled payment.


2. First five years after the date on which the first regular periodic payment will be due. Under § 1026.43(c)(5)(ii)(A)(1), the creditor must determine a consumer's ability to repay a loan with a balloon payment that is not a higher-priced covered transaction using the maximum payment scheduled during the first five years (60 months) after the date on which the first regular periodic payment will be due. To illustrate: