Ability-to-Repay/Qualified Mortgage Rule | Consumer Financial Protection Bureau (2024)

FAQs

What is the ability to repay rule for qualified mortgage? ›

The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms.

Under the rule, lenders must generally find out, consider, and document a borrower's income, assets, employment, credit history, and monthly expenses. Lenders cannot just use an introductory or “teaser” rate to figure out if a borrower can repay a loan.

To determine this, lenders will look at your assets, income, employment, credit history, ongoing expenses, and debt obligations. Lenders can also consider any other factors that could affect your repayment ability.

Regulation Z generally prohibits a creditor from making a mortgage loan unless the creditor determines that the consumer will have the ability to repay the loan.

Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio (this QM category applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until an agency issues ...

At a minimum, creditors generally must consider eight underwriting factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; ...

The CFPB supervises a range of companies to assess their compliance with federal consumer financial laws. We have supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates.

We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information, steps, and tools that they need to make smart financial decisions.

The ability to repay is one's ability to repay debts and obligations. The ability-to-repay rule is the part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that restricts loans to borrowers who are likely to have difficulty repaying them.

Mandatory product feature requirements for all QMs

Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed); No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: Balloon loans originated until Jan.

What is the new federal mortgage rule? ›

Under a new rule from the Federal Housing Finance Agency (FHFA), which took effect on May 1^st, borrowers with lower credit ratings and less money for a down payment will qualify for better mortgage rates, while those with higher ratings will pay increased fees.

(A three-year statute of limitations applies to ability-to-repay claims brought as affirmative cases, but no time limit applies on raising this as a defense to foreclosure, although the amount of recoupment or setoff is limited.)

The ATR/QM Rule requires institutions, individuals and groups to make a “reasonable and good faith determination” concerning a consumer's ability to repay a loan according to its terms.

(a) A lender shall not make a covered loan if the borrower, at the time that the covered loan is closed, cannot reasonably be expected to make the scheduled payments.

There are four types of QMs – General, Temporary, Small Creditor, and Balloon-Payment. Of the four types of QMs, two types – General and Temporary QMs – can be originated by all creditors. The other two types – Small Creditor and Balloon-Payment QMs – can only be originated by small creditors.

Mandatory product feature requirements for all QMs

Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed); No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: Balloon loans originated until Jan.

Repayment ability rating (RAR) is a tool lenders use to measure a borrower's ability to repay a loan. It takes into account the borrower's current income, debts, and assets. The higher the RAR, the more likely the borrower is able to repay the loan on time.

A qualified mortgage is a mortgage that meets certain requirements for lender protection and secondary market trading under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Capacity

Capacity refers to your ability to repay loans. Lenders can check your capacity by looking at how much debt you have and comparing it to how much income you earn. This is known as your debt-to-income (DTI) ratio.