Topic: Ability-to-Repay (ATR) and Qualified Mortgages (QM)
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For purposes of verifying income and employment status under the ability-to-repay (ATR) rules, we obtain pay stubs and tax returns, and for certain types of employees, we use the employer’s website (such as a realtor or teacher). Should we also be calling the applicant’s employer? And is a tax return sufficient to verify income for self-employed borrowers?
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No, the ATR rules do not require you to call an applicant's employer to verify employment status or income. Using an employer's website may not be sufficient to verify employment status, but it may be relied on together with other documentation of an applicant's employment status. The ATR rules also apply to a self-employed applicant,…
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We would like to renew our balloon loans that are maturing soon by raising the interest rates and extending the loan terms to thirty years. Do we need to treat these as refinances?
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While we can provide you with some guidance on determining whether a renewal will be considered a refinancing, the issue is very fact-specific, and we cannot advise as to whether a specific balloon loan modification would be considered a refinancing (subjecting the transaction to Regulation Z and the new ability-to-repay (ATR) requirements). The general rule…
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Under the new ability-to-repay and qualified mortgage rules, can we offer a five-year balloon loan to a customer who can afford a 20-year fixed rate at 5%? Can we offer an adjustable rate loan? We are not considered to be a “small creditor” under the mortgage servicing rules.
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Based on these facts, we believe you may offer a balloon loan that could pass under the ability-to-repay (ATR) analysis. However, as your financial institution is not a small creditor under the mortgage servicing rules, you would not be able to offer a balloon loan that would qualify as a qualified mortgage (QM). We also…
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We have decided to make only qualified mortgages (QMs). One of our customers wants to purchase a motor home, and both the motor home and the customer’s house will be collateral for the loan. If the motor home is not considered as part of the loan collateral, we’re concerned that the loan would not be considered a QM due to a high loan-to-value ratio.
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We believe that a mortgage loan that qualifies as a qualified mortgage (QM) would not be disqualified simply because it is only partially secured by the borrower's home. Of course, the new Regulation Z ability-to-repay (ATR) requirements would apply to this loan. The ATR rules apply to consumer credit transactions secured by a “dwelling,” provided…
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We formulate our loans so that the loan term is 30 years plus one month. Would these loans be considered Qualified Mortgages? I know that in order to be a Qualified Mortgage, the loan cannot have a term longer than 30 years.
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Yes, we believe that a loan with a term of 30.1 years may still comply with the CFPB’s 30-year term limitation for a qualified mortgage. The official interpretations clarify that the period of time between the consummation of a loan and the time the first payment is due in the repayment schedule does not count…
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One of our consumer mortgage loans (for owner-occupied residential real property) matured last week. If we extend the maturity date of the loan, would it be considered a refinance because it already matured (and as a result be subject to the new CFPB mortgage rules)?
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We agree that the CFPB’s new ability-to-repay requirements do not apply to renewals of existing loans, provided that the renewals are not considered “refinancings” under Regulation Z. Official Interpretations, 12 CFR 1026, Paragraph 43(a), Comment 1 (“§1026.43 does not apply to any change to an existing loan that is not treated as a refinancing under §1026.20(a)”). However,…
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Can we renew a bridge loan that closed before January 10, 2014, and still have it be exempt from ATR and QM? What if a bridge loan was closed after the rules went into effect and will need to be renewed?
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We believe that the ability-to-repay (ATR) and qualified mortgage (QM) rules exempt all bridge loans with terms of twelve months or less, regardless of when a bridge loan was entered into. 12 CFR 1026.43(a)(3)(ii). (The regulations do not fully define the term “bridge loan,” other than specifying that the term of such a loan should…