Richard Sweum: Highlights of the QM and ATR rules now in effect.

Mortgage and Lending with 1st Security Bank NMLS #115765

Richard Sweum:  Highlights of the QM and ATR rules now in effect.

End result?  I think borrowers are indeed more protected.  I am not so sure that they will understand the mortgage process any more than they did before, but there are indeed more safeguards in place.

Ability to Repay (ATR) and Qualifed Mortgage (QM) rule highlights for agents and borrowers



On January 10, 2014, several important new rules enacted by the Consumer Financial Protection Bureau (CFPB) take effect.  The Ability to Repay (ATR) and Qualified Mortgage (QM) provisions will have the greatest impact on borrowers because they influence the types of loan products and guidelines that lenders are most likely to offer. Lenders originating ATR/QM compliant loans receive some relief from consumer lawsuits. Non-QM/ATR loan types are riskier for borrowers and lenders, and will be less available than they have been in the past.


Ability to Repay (ATR) Standards

Since Fannie Mae (FNMA)/Freddie Mac (FHLMC), Federal Housing Authority (FHA), Veterans Administration (VA) and United States Department of Agriculture (USDA) loan types have their own standards, non-conforming and portfolio loan types will be most affected by the ATR requirement. Under ATR, lenders must establish that borrowers have a reasonable, good faith ability to repay based on at least the following eight underwriting factors:

1)     Current or reasonable expected income or assets

2)     Current employment status

3)     Monthly mortgage payment for the loan transaction

4)     Monthly payment(s) on any simultaneous loan(s) secured by the same property

5)     Monthly payments for property taxes and insurance and any other mortgage-related obligations

6)      Current debts, alimony, and child support obligations

7)     Monthly debt-to-income (DTI) ratio or residual income

8)     Credit history


Qualified Mortgage (QM) Key Characteristics

1)     Loan type does not include any of the following features: negative amortization, interest only payments, term greater than 30 years, balloon payment (some exceptions apply)

2)     Points and fees generally may not exceed 3% of the total loan amount, however, higher thresholds are provided for loans below $100,000

3)     The loan must be underwritten to specific guidelines, including debt-to-income ratio not to exceed 43%.


Other requirements that become effective on 1/10/2014


Lenders must:

1)    Provide applicants with a written list of homeownership counseling organizations for federally-related mortgages within 3 business days of receiving an application

2)    Notify applicants in writing within 3 business days of receiving an application of their right to receive a copy of appraisal(s) and other written property valuations

3)    Provide first-mortgage borrowers with copies of appraisals and other written valuations (free of charge) promptly after they are completed, regardless of whether credit is extended, denied, incomplete or withdrawn. The loan may not close for at least three business days after the borrower has received the appraisal/valuation copies.

Richard Sweum:  Highlights of the QM and ATR rules now in effect.


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