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

FAQs

What is the ability to repay rule for qualified mortgage? ›

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.

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.

Regulation Z generally prohibits a creditor from making a mortgage loan unless the creditor determines that the consumer will have the ability to repay the loan.

The General QM Final Rule

Under the amended rule, a loan meets the General QM loan definition only if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25 percentage points as of the date the interest rate is set.

pursuant to certain programs, certain nonprofit creditors, and mortgage loans made in connection with certain Federal emergency economic stabilization programs are exempt from ability to repay requirements.

The CFPB supervises a range of companies to assess their compliance with federal consumer financial laws. We have supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates.

Card issuers must establish and maintain reasonable written policies and procedures to consider the consumer's ability to make the required minimum payments under the terms of the account based on a consumer's income or assets and a consumer's current obligations.

We protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. We arm people with the information, steps, and tools that they need to make smart financial decisions.

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.

What is the new federal mortgage rule? ›

Under a new rule from the Federal Housing Finance Agency (FHFA), which took effect on May 1^st, borrowers with lower credit ratings and less money for a down payment will qualify for better mortgage rates, while those with higher ratings will pay increased fees.

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; ...

“(A) creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.”

Section 1026.51(a) requires a card issuer to consider a consumer's ability to make the required minimum periodic payments under the terms of an account based on the consumer's income or assets and current obligations.

(a) A lender shall not make a covered loan if the borrower, at the time that the covered loan is closed, cannot reasonably be expected to make the scheduled payments.

The ability-to-repay rule requires mortgage lenders to ensure a borrower can afford a mortgage before making the loan. The ability-to-repay rule, a critical part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, protects borrowers in mortgage lending transactions.

Repayment ability rating (RAR) is a tool lenders use to measure a borrower's ability to repay a loan. It takes into account the borrower's current income, debts, and assets. The higher the RAR, the more likely the borrower is able to repay the loan on time.

A qualified mortgage is a mortgage that meets certain requirements for lender protection and secondary market trading under the Dodd-Frank Wall Street Reform and Consumer Protection Act.