Topic: Ability-to-Repay (ATR) and Qualified Mortgages (QM)
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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…
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We act as a third party originator for a correspondent bank. We originate loans, and the correspondent bank underwrites the loans, funds the loans, and sells them on the secondary market. The loans are closed under our name and are initially payable to our institution. Our correspondent pays us a portion of the fee earned on the loans from the secondary market purchasers. Does that fee have to be included in the points and fees calculation under the new CFPB mortgage regulations?
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We do not believe that the payments from the bank purchasing your loans would be includable in the points and fees calculation in this situation. The Regulation Z mortgage rules define “points and fees” to include “compensation paid directly or indirectly by a consumer or creditor to a loan originator . . . .” 12…
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We originate balloon loans, which we usually renew with three- or five-year balloons. Can we increase the interest rate on a renewal? Apparently some states do not allow interest rate increases on modifications (such as Michigan). And would the new ability to repay (ATR) rules apply to the renewals if we increase the interest rate?
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Illinois Laws on Increased Interest Rates We are not aware of any Illinois laws that would prevent you from increasing the interest rate with a loan modification. There are very few limitations on interest rates and fees charged by banks under Illinois law. Section 5e of the Banking Act states that a bank may “elect…
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Under the new CFPB ability-to-repay rules, are small creditors exempt from calling to verify employment status? Can we use a borrower’s paystub to verify employment? This would just be to comply with the ATR rules, not to qualify a mortgage as a QM.
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The CFPB’s ability-to-repay (ATR) rules do not require creditors of any stripe to verify a borrower's employment status over the phone. (Note that these rules differ from the more onerous “qualified mortgage” (QM) requirements.) However, the rules do expressly permit creditors to verbally obtain a verification of employment (VOE) status. And, as we discussed with…
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If we have existing balloon loans that mature after 1/10/14 and the terms were less than 5 years must we refinance the loan into a 61 month balloon to qualify for QM? Or can we extend the existing maturity for less than 5 years? Presently we would just file a modification agreement and extend it for another 3 years.
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We do not believe that a balloon loan with a term of less than five years could be considered a qualified mortgage (QM). It may be possible to make a balloon loan with a term of less than five years, but it would have to otherwise satisfy the general ability-to-repay (ATR) requirements. Also, as discussed…
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In the CFPB’s upcoming ATR rules, does the threshold for a “higher-priced” balloon loan include a different threshold for jumbo loans?
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The CFPB’s ability-to-repay (ATR) rules include their own definition of a “higher-priced” loan. 12 CFR 1026.43(b)(4) (as of the June 12, 2013 amendment of the rule). The rule’s “higher-priced” definition does not include a separate interest rate threshold for jumbo loans, and instead sets the thresholds based on whether the loan is first-lien or subordinate-lien,…
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Under the upcoming “QRM” rules, would we be considered a “securitizer or sponsor,” subject to the 5% risk retention requirement? Would that be the case even if we sell loans only to the GSEs, and what might happen if or when the GSEs are wound down?
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First, we note that the credit risk retention rules and the “qualified residential mortgage” (QRM) definition are still in proposed form and have not yet been finalized. See 78 Fed. Reg. 57927 (September 20, 2013). With that said, we will analyze your questions under the current proposal, with the understanding that the final rules could…