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#2220262 - 08/22/19 07:08 PM ATR on Asset Based Residential Loan
POWFNB Offline
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Joined: Oct 2009
Posts: 107
We are a small creditor. Borrower would like to purchase second home. Owns primary residence and several other properties debt free, some of which are being marketed for sale. Have verified ownership of properties and that they're being marketed. Borrower has 30% down with additional cash reserves. Challenge is that cash flow/DTI is high due to one borrower being self-employed and taking advantage of all available deductions (and then some if you know what I mean)...other borrower is W2. Having to base repayment on 2017 tax return as 2018 has not been filed and only income information provided is self-prepared. Credit is great. Liquidation of those assets (not taking as collateral) will retire the new loan debt. Considering a one year, interest only loan pending sale of assets.

Question 1: This cannot be a QM due to being interest only. Correct?
Question 2: Can we meet ATR requirement baseline on structure I've described?

Thanks in advance for any feedback.

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Ability to Repay/Qualified Mortgage Rule
#2220291 - 08/23/19 12:13 AM Re: ATR on Asset Based Residential Loan POWFNB
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,224
Galveston, TX
Owns primary residence and several other properties debt free, some of which are being marketed for sale.

And this is a second home? What are these other properties??
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#2220299 - 08/23/19 01:18 PM Re: ATR on Asset Based Residential Loan POWFNB
POWFNB Offline
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Sure. They consist of several tracts of land and a commercial building. Since this post, I think I've decided that it can be a QM as follows:

Small Creditor Balloon QM: 62/240 balloon secured by secondary residence. DTI will exceed our policy limit, but will mitigate that (S&S decision, not compliance) with documentation on other properties owned, listing agreements, etc. We'll price and fee accordingly knowing that the loan might not be around for a full year.

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#2220333 - 08/23/19 05:44 PM Re: ATR on Asset Based Residential Loan POWFNB
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 960
Lost in a regulatory fog
Why would this not be exempt?
1026.43(a)(3)(ii) A temporary or "bridge" loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;

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#2220372 - 08/26/19 03:15 PM Re: ATR on Asset Based Residential Loan POWFNB
RR Joker Offline
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RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
IN the first post you are contemplating 1 year int only while sale of assets happens...that would be as Carolina stated. But in the next post you are contemplating a 62/240 balloon.

What is it you are actually planning on doing [what did the customer request]
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#2220455 - 08/27/19 01:28 PM Re: ATR on Asset Based Residential Loan POWFNB
POWFNB Offline
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Joined: Oct 2009
Posts: 107
They are not selling their current residence and this will truly be a second home. They are selling other assets as described above. They are not requesting any specific terms. We decided to go the 62/240 balloon route and allow borrower additional time in the event assets weren't sold as quickly as they think. Thanks for the feedback and reminder on ATR exemptions.

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