Wednesday, April 10, 2013

Ability-to-Repay and Qualified Mortgage Guide Issued by CFPB

Today, the Consumer Financial Protection Bureau (CFPB) issued a Small Entity Compliance Guide to the new Ability-to-Repay regulations, which are scheduled to commence effectiveness on January 10, 2014.

To remind our readers, the Ability-to-Repay regulations require loan originators to "make a reasonable, good-faith determination before or when [they] consummate a mortgage loan that the consumer has a reasonable ability to repay the loan, considering such factors as the consumer’s income or assets and employment status (if relied on) against:

  • The mortgage loan payment
  • Ongoing expenses related to the mortgage loan or the property that secures it, such as property taxes and insurance you require the consumer to buy
  • Payments on simultaneous loans that are secured by the same property
  • Other debt obligations, alimony, and child-support payments"

As stated within the Guide: "The purpose of this guide is to provide an easy-to-use summary of the ATR/QM rule."

Remember, ATR stands for Ability-to-Repay and QM stands for Qualified Mortgages.

So, real estate professionals, you should know that lenders will have to independently verify a borrower's Ability-to-Repay starting in January of next year and you should start now to become familiar with these new rules to effectively represent your clients. This Guide is a great starting place.