ATR / QM

All loans originated or delivered to AFR must provide evidence of the borrower’s ability to repay.

• Conventional GSE loans originated or delivered to AFR with applications dated on or after July 1, 2021, must adhere to the revised General QM definition 12 CFR 1026.43 (e)(2)(vi).
• All other loan transactions originated or delivered to AFR must adhere to the “Ability-to-Repay” underwriting standards set forth in 12 CFR 1026.43c, using the criteria outlined in Appendix Q to Part 1026 of Regulation Z – Standards for Determining Monthly Debt and Income.

The lender must ensure that prior to the origination of the loan, the originator made a reasonable and good faith determination that the borrower had a reasonable ability to repay the loan in accordance to the loan terms and,  at minimum, the eight underwriting factors set forth in 12 CFR 1026.43c.

All loans originated or delivered to AFR must provide evidence of the borrower’s ability to repay.

Note:

• Non-income qualifying streamlines are exempt from the Ability-to-Repay requirements; they still must meet all other QM requirements including the points and fees thresholds.
• Delegated Correspondents (CDE) must provide a fully completed/executed Ability to Repay worksheet showing evidence the borrower meets the ability to repay requirements.
• Delegated Correspondent (CDE) transactions that charge discount points are required to complete the Discount Fee Disclosure evidencing the undiscounted rate or starting adjustment rate with pricing.

Each mortgage loan must be a “Qualified Mortgage” as defined in 12 CFR 1026.43e. Features include, but are not limited to:

• The loan must have regular periodic payments;
• The mortgage loan must not exceed 30 years;
• The income and financial resources of the mortgagor are verified and documented;
• For a fixed rate loan, the underwriting process fully amortizes the loan over the term;
• For an adjustable rate loan, the underwriting is based on the maximum rate permitted under the loan during the first 5 years and includes a payment schedule that fully amortizes the loan over the loan term;
• The transaction must comply with any regulations by the CFPB related to ratios of total monthly debt to total monthly income;
• The total points and fees payable in connection with the loan must not exceed 3% of the total amount financed; and
• The terms of the loan must not contain any toxic loan features (i.e., no interest only loans, no negative-amortization loans, no terms beyond 30 years, no balloon loans, etc.)

General QM loans may not have negative-amortization, interest-only, or balloon-payment features or terms that exceed 30 years. They also may not have points and fees that exceed the specified limits.

In addition:

• Underwritten based on a fully amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment.
• Considered and verified the consumer’s income or assets, current debt obligations, alimony, and child-support obligations.
• Determined that the consumer’s total monthly debt-to-income ratio is no more than 43 percent, using the definitions and other requirements provided in appendix Q, which is derived from the Federal Housing Administration manual.
• To the extent applicable for Conventional GSE loan transactions effective for loans originated or delivered to AFR with applications dated on or after July 1, 2021, loans must adhere to the revised General QM definition 12 CFR 1026.43 (e)(2)(vi).

Loans that are eligible for purchase or guarantee by Fannie Mae or Freddie Mac or for insurance guarantee by certain federal agencies (FHA, VA, and USDA) fall into a temporary provision extended by the rule. Loans falling under the Temporary QM definition must meet the same requirements as a General QM loan regarding prohibitions on certain features, a maximum loan term of 30 years and the points and fees thresholds.

• Eligibility for purchase or guarantee by a GSE or insurance or guarantee by an agency can be established based on the following methods:
  • Valid recommendation from a GSE Automated Underwriting System (AUS) or an AUS that relies on an agency underwriting tool.
  • GSE or agency guidelines contained in official manuals.
  • Written agreements between a GSE or agency and the creditor (or a direct sponsor or aggregator of the creditor)
  • Individual loan waivers from a GSE or agency

To meet the Temporary QM definition, loans must be underwritten using the required guidelines of the entities above, including any relevant DTI guidelines. They do not have to meet the 43 percent debt-to-income ratio threshold that applies to General QM loans.

AFR is permitting loans that meet the Temporary (Agency/GSE) QM category for Government loans until mandated and Conventional GSE transactions with applications dated prior to July 1, 2021.  All Temporary QMs must have an AUS recommendation of Approve/Eligible for DU or Accept for LPA through consummation of the loan.

The temporary provision expired, for loans eligible for purchase or guarantee by the GSEs, with application dates prior to July 1, 2021.  All Conventional GSE loan transactions with application dates on or after July 1, 2021 must comply with the revised General QM Rule as defined in 12 CFR 1026.43(e)(2)(vi).    

FHA Application Date:

The FHA application date (for FHA loans) is the date the FHA Case Number was assigned.

Safe Harbor v/s Rebuttable Presumption:

QMs that are not higher-priced have a safe harbor, meaning that they are conclusively presumed to comply with the ATR requirements.  QMs that are higher-priced have a rebuttable presumption that they comply with the ATR requirement, but consumers can rebut that presumption.

HUD definition of QM:

Safe Harbor Qualified Mortgages are Loans with APRs equal to or less than APOR +115bps + on-going MIP.  These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard.  Consumers may still challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage.

Rebuttable Presumption Qualified Mortgages:

Rebuttable Presumption Qualified Mortgages are Loans with APR greater than APOR + 115 bps + on-going MIP rate.  Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard.  Consumers may challenge that presumption; however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses.