A workout loan is subject to ATR underwriting!?

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Question:

We have a delinquent mortgage loan we are taking through a workout plan, and will likely refinance it with a balloon. I’m in a panic because I don’t see workouts as an exemption to the ATR / QM rule. What did I miss!? The borrowers are in a bad place and we are trying to help them out, but there is no way they can pass the Ability to Repay standard! Help!

Answer:

You are correct that work-out loans are not given a pass anywhere in the ATR / QM rule of 1026.43. You have to go back to the “refinancing” definition of 1026.20 and its exemptions. Workout loans generally don’t have to comply with any of Reg Z (including ATR underwriting), under certain conditions.

Learn more at the upcoming webinar “Taking a Fresh Look at Qualified Mortgages and the Ability-To-Repay Rule” on February 15, 2023!

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Learn more about Rebekah Leonard’s Taking a Fresh Look at Qualified Mortgages and the Ability-To-Repay Rule webinar.