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

FAQs

What is the ability to repay qualified mortgage rule? ›

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.

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 factors used to determine the ability to repay include the borrower's current income and assets. They may also include reasonably expected income. The borrower must also provide verification of this income and their employment status. Besides income, lenders must consider a borrower's current liabilities.

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 ...

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.

The revised QM rules provide for higher thresholds for loans with smaller loan amounts, for subordinate-lien transactions, and for certain manufactured housing loans.

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.

(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.)

A serviceability assessment is the stage of the home loan process when the borrower is assessed on their ability to pay back their loan. The assessment takes place during the application for the loan and looks at their income, expenses and other factors.

What measures the borrower's ability to repay a loan? ›

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.

Lenders need to determine whether you can comfortably afford your payments. Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered.

As a general rule, you'll need a DTI ratio of 50% or less to qualify for most loans. Lenders will often use your DTI ratio in conjunction with your housing expense ratio to further determine your mortgage qualification.

Prepayment penalties are allowed on these non-higher- priced loans only if the penalties satisfy certain restrictions and are permitted under law and if the creditor has offered the consumer an alternative loan without such penalties.