ATR & QM. What Brokers Need to Know. This is not legal advice! . This presentation is limited to discussion of Residential Bancorp’s policies with respect to the new Ability-to-Repay/Qualified Mortgage rules. This document, presentation and guidance is not intended as legal advice.
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What Brokers Need to Know
This presentation is limited to discussion of Residential Bancorp’s policies with respect to the new
Ability-to-Repay/Qualified Mortgage rules.
This document, presentation and guidance is not intended as legal advice.
You should consult with your legal counsel for guidance on applying these rules in your business.
This document may not be copied or distributed in any form.
The core of the ability to repay requirement is that creditors make a reasonable good faith determination at or before consummation that the consumer will be able to repay the loan.
Enhances and replaces existing regulations that already require creditors to consider a consumer's ability to repay on higher-priced mortgage loans (“HPML”).
The coverage of the ability to repay requirement will be much broader because it will apply to all loans.
HPML = APOR + 1.5%
Current or reasonably expected income or assets that the consumer will rely on to repay the loan
Current employment status
Monthly mortgage payment for the loan, calculated using the introductory or fully-indexed rate, whichever is higher (payments should be substantially equal…no teaser rates on ARMS)
Monthly payment on any simultaneous loan secured by the same property
Monthly payment for property taxes and insurance, plus certain other costs related to the property (HOA Fees, flood etc.).
Debts, alimony, and child support obligations
Monthly debt-to-income ratio (DTI) or residual income as a ratio of gross monthly income(43% is not an ATR requirement – it’s a QM requirement).
Receives a presumption of compliance with the ability to repay requirements.
Where creditors are willing to meet the requirements for a qualified mortgage, their risk of challenge for failing to satisfy the ability to repay rules is reduced.
AGENCIES ARE MANDATED TO MAKE QM LOANS.
APOR – Average Prime Offer Rate
Mandatory PRODUCT FEATURE requirements for all QMs
QM RULES APPLY TO GSE’S UNTIL THEY ADOPT THEIR OWN RULE, COME OUT OF CONSERVATORSHIP OR 7 YEARS (2021)
FHA has adopted a rate test of:
1.15% over APOR plus monthly MIP payment
To be considered a Qualified Mortgage
Mandatory product feature requirements for all QMs include:
No risky features like negative amortization, interest-only, or balloon loans
Maximum loan term is less than or equal to 30 years
Points and fees cap
QM under any of three main categories: (1) the general definition; (2) the “GSE-eligible” provision; or (3) the small creditor provision
Mandatory product features and…
LLPA’s are excluded if recovered through a higher rate.
Contact your Account Executive to make sure our compliance team can review all of your questions!