Current Status of the Ability-to-Repay/Qualified Mortgage Rules

The Ability to Repay/Qualified Mortgage (ATR/QM) rules were originally released in 2014. The Consumer Financial Protection Bureau (CFPB) revised the rules on September 21, 2015, January 1, 2016, and on April 1, 2016. Now Congress has jumped back in the game.

  • Section 101 of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) creates a new QM standard for small institutions (less than $10 billion in assets) that hold the loans in their portfolio and meet certain other criteria.
  • Section 307 of the EGRRCPA orders the CFPB to develop ATR standards for property accessed clean energy (PACE) financing.
The President signed EGRRCPA on May 24, 2018. The provisions mentioned above were effective upon enactment, but the CFPB will revise the ATR/QM rules contain in §1026. 43 of Regulation Z. 

Section 1026.43(e)(4) includes a special QM option for those originating loans that are to be purchased, guaranteed, or insured by various government enterprises. That option is scheduled to expire on January 10, 2021. 

On June 22, 2020 the CFPB issued two separate proposals to revise the Ability to Repay/Qualified Mortgages rules contained in Section.1026.43 of Regulation Z.

  • The first proposal is 233 pages in length.
    • For General QM loans, the ratio of the consumer’s total monthly debt to total monthly income (DTI ratio) must not exceed 43 percent. The CFPB proposes certain amendments to the General QM loan definition in Regulation Z. Among other things, the Bureau proposes to remove the General QM loan definition’s 43 percent DTI limit and replace it with a price-based threshold. The proposal would also eliminate Appendix Q.
    • Another category of QM loans is loans that are eligible for purchase or guarantee by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) (government-sponsored enterprises, or GSEs), while operating under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA). The GSEs are currently under Federal conservatorship. The Bureau established this category of QMs (Temporary GSE QM loans) as a temporary measure that is set to expire no later than January 10, 2021 or when the GSEs exit conservatorship.
    • This proposal has a 60-day comment period.
  • In the second proposal (61 pages), the CFPB proposes to extend the Temporary GSE QM loan definition to expire upon the effective date of final amendments to the General QM loan definition in Regulation Z (or when the GSEs cease to operate under the conservatorship of the FHFA, if that happens earlier). This proposal has a 30 day comment period.

On August 18, 2020, the Consumer Financial Protection Bureau (CFPB) published a notice of proposed rulemaking (NPRM) that creates a new category of Qualified Mortgage (QM), a seasoned QM (Seasoned QM), for first-lien, fixed-rate covered transactions that have met certain performance requirements over a 36-month seasoning period, are held in portfolio until the end of the seasoning period, comply with general restrictions on product features and points and fees, and meet certain underwriting requirements.

Under the proposal, a covered transaction would receive a safe harbor from ability to repay (ATR) liability at the end of a 36-month seasoning period if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements, and it meets performance and portfolio requirements during the seasoning period.

This proposed rule, and the details of three other recent rulemakings on the subject of QMs, will be covered in depth in our August 25 webinar entitled Current Status of the ATR/QM Rules.

The ATR/QM rules have been in use for six years. During that span the rules have been rocked by constant change. This two-hour webinar provides a comprehensive review of all the ATR options, including the existing and new QM options. The new EGRRCPA rules receive special attention. The program helps you decide whether changes are needed or if the status quo is acceptable

Covered Topics

  • Which loans are covered by and which loans are exempt from the ATR/QM rules;
  • The seven Ability to Repay Options and the five Qualified Mortgage Options;
    • What conditions must be met for a loan to be considered under each option;
    • When is a transaction considered a Higher Priced Covered Transaction and how that impacts Qualified Mortgage status;
  • The options available for lenders using balloon financing;
  • What institutions qualify as "small creditors" under the revised rules;
  • What special ATR/QM options are available for small creditors, including the option presented by Section 101 of EGRRCPA;
  • The expanded definition of "rural area" and how the change impacts your institution;
  • The impact of the June 2020 proposed changes to the regulation;
  • How to consider PACE financing when evaluating the ability to repay; and
  • What tools are available from the Census Bureau and the CFPB to determine which areas are rural areas and how to use those tools.

Who Should Attend?

This informative session will benefit auditors, compliance officers, loan officers, loan processors and other personnel with mortgage lending responsibilities.