In January, the Consumer Financial Protection Bureau (CFPB) issued its 800-page Ability-to-Repay (ATR) and Qualified Mortgage (QM) final rule amending Regulation Z.
The regulation prohibits creditors from making higher-priced mortgages without considering the borrower’s ability to repay. However, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, this final rule expands the ATR requirements to include most closed-end mortgages—with a few exceptions.
In late May, the CFPB issued a second final rule, totaling nearly 300 pages, that amends certain limited areas of the ATR and QM rule issued in January. This second rule exempts certain nonprofit creditors, facilitates lending by certain small creditors (including community banks and credit unions), and establishes exceptions for the calculation of loan origination compensation.
The effective date of the ATR and QM rule is January 10, 2014.
This rule certainly will have a significant impact on credit unions’ mortgage programs. The rule impacts more than just disclosures and timing; it creates three categories of loans with different risks and legal treatments:
It should be noted that nothing in the ATR and QM rule requires a credit union to make a QM loan, although these loans will offer some protection from liability in the event of borrower-initiated lawsuits. All three categories of loans must comply with the ATR requirements.
Earlier this year the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to limit their future acquisitions of mortgages on or aft er January 10, 2014, to QM loans under the ATR and QM rule.
Credit unions will have to determine which of the three categories (or combination of categories) of mortgages they will make as of the effective date of this rule.
Scope and overview
The rule applies to all consumerpurpose, closed-end loans secured by a dwelling, including home-purchase loans, refinances, and home equity loans—whether first-lien or subordinate-lien.
The rule does not cover:
A “covered transaction” is a consumer loan secured by a dwelling. This includes any real property attached to a dwelling other than the exceptions mentioned earlier.
The rule requires creditors to make a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan based on its terms.
That requirement may be satisfied by following the rule’s general ATR standards, making a QM, refinancing a nonstandard mortgage into a standard mortgage, and, for small creditors that serve primarily rural or underserved areas, making a QM in a rural or underserved area.
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