The Consumer Financial Protection Bureau is assessing the effectiveness and impact of the ability-to-repay/qualified mortgage rule. It is currently seeking public input to help with its assessment on the ATR/QM rule, which will be made public by January 2019.
CFPB Director Richard Cordray in his agency’s request for information said, “The Bureau anticipates that the assessment will primarily focus on the ATR/QM rule’s requirements in achieving the goal of preserving consumer access to responsible, affordable credit.”
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ATR/QM Rule: The Creation
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was enacted following the financial crisis of 2008. Enshrined in the Dodd-Frank Act are:
- A set of new standards requiring mortgage lenders to assess a consumer’s ability to repay a mortgage.
- A class of qualified mortgage loans that don’t contain risky features, e.g. negative amortization, balloon payments, etc., and must comply with the ATR.
To make these rules effective and clear, the CFPB is authorized by Congress to issue implementing regulations. The CFPB consequently issued the Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z) in January 2013, as further amended and became effective in January 2014.
ATR/QM Rule: The Assessment
To fulfill its mandate, the CFPB is conducting an assessment of the effectiveness of the ATR/QM rule. The assessment involves a review of the rule’s major provisions, as outlined:
- The ATR requirements, including the eight underwriting factors a creditor must consider;
- The QM provisions, with a focus on the DTI threshold, the points and fees threshold, the small creditor threshold and the Appendix Q requirements, and
- The applicable verification and third-party documentation requirements.
It will look at how these major provisions influence consumer outcomes, i.e. mortgage cost, origination volumes, approval rates, and subsequent loan performance.
Of special interest to the CFPB is the effect of the rule on certain groups borrowers who:
- Are generating income from self-employment
- Are anticipated to rely on income from assets to repay the loan
- Rely on income from assets to repay the loan
- Rely on intermittent, supplemental, part-time, seasonal, bonus, or overtime income
- Are seeking smaller-than-average loan amounts
- Have a DTI ratio exceeding 43%
- Are in the low and moderate income bracket
- Are minority borrowers
- Are rural borrowers
The agency will also examine the impact of the Temporary GSE QM category, a set of QM loans eligible for purchase or guarantee by Fannie Mae or Freddie Mac with the earlier termination or expiration of the category included in the review. This set of QM loans will expire on January 10, 2021, or when the conservatorship of the GSEs ends.
Interested parties can submit comments electronically, via email, mail or hand delivery.