Stewart CFPB Stewart CFPB

ATR/QM

Ability-to-Repay/Qualified Mortgage Rule

On January 10, 2014, the CFPB’s ability-to-repay (ATR)/qualified mortgage (QM) rule became effective. This rule amends Regulation Z, which implements the Truth in Lending Act (TILA), requires creditors to “make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling.”

Under the new rule, a 43 percent debt-to-income (DTI) ratio threshold for QMs has been established – although a temporary category of QMs with more flexible underwriting requirements was also created. (The temporary category was created in case lenders showed reluctance to write loans that are not QMs, even though the loans are responsibly underwritten.)

Other points concerning the ATR/QM rule include:

  • Lenders are granted a legal safe harbor when they write a QM loan that is also a prime loan (the CFPB, however, chose to establish a rebuttable presumption of compliance for subprime QMs)
  • Certain types of transactions are excluded from the ATR rule’s provisions, including:
    • Home equity lines of credit subject to Regulation Z
    • Transactions insured by time-shares
    • Reverse mortgages subject to Regulation Z
    • Temporary or bridge loans with a term of 12 months or less
    • The construction phase of construction-to-permanent loans, if the construction phase is 12 months or less
  • Additional rule amendments/clarifications have been proposed, and even more are expected
  • Lenders must be in compliance with the final rule by January 2014