Ability to Repay/Qualified Mortgage
The Ability to Repay (ATR) / Qualified Mortgage (QM) rule requires that credit unions make a good-faith determination before or when consummating a mortgage loan that the member has a reasonable ability to repay the loan. This rule applies to almost all closed-end consumer credit transactions secured by a dwelling including any real property attached to the dwelling.
The credit union needs to consider and verify the following eight underwriting factors to be compliant with the rule:
- Current or reasonably expected income or assets that the member relies on to repay the loan (other than the value of the property that secures the loan);
- Current employment status;
- Monthly mortgage payment of the loan under consideration;
- Monthly payment on other simultaneous loans secured by the same property;
- Monthly payments for mortgage related obligations that could include (but is not limited to) property taxes, insurance, and homeowners association fees;
- Debts, alimony, and/or child support obligations;
- Monthly debt-to-income ratio and/or monthly residual income, calculated using the total of all of the mortgage and non-mortgage obligations listed in factors 1 through 6 above, as a ratio of gross monthly income; AND
- The member’s credit history
Credit unions that originate Qualified Mortgages (QMs) are presumed to have complied with the ATR requirements. Which means that a court will treat a case differently if a consumer files an ATR claim where the loan is a QM. There are four types of QMs:
- General QM – no negative amortization, interest-only or balloon payment features or terms that exceed 30 years. Points and fees thresholds and a 43% DTI ratio requirement.
- Temporary QM – eligible for purchase or guarantee by Fannie Mae or Freddie Mac (government sponsored enterprises Government Sponsored Entities (GSE) or for insurance or guarantee by certain federal agencies. Temporary because provision will expire on the date that GSEs exit federal conservatorship or receivership or on January 10, 2021 – whichever occurs first.
- Small creditor QM – no negative amortization, interest-only, or balloon-payment features or terms that exceed 30 years. Points and fees thresholds. DTI must be considered, but no specific threshold.
- Balloon payment QM – for two years, the CFPB is allowing small creditors to make balloon payment QMs, regardless of where the small creditor operates. After that two year period, only small creditors that operate in rural or underserved areas will be able to make balloon payment QMs.
- You had assets below $2 billion
- You and your affiliates together originated no more than 500 first lien, closed-end residential mortgages that are subject to the ATR requirements in the preceding calendar year.
CFPB Independent Ability-to-Repay