Originally posted on CUInsight.com.
Guest post written by John Levonick, Chief Legal & Compliance Officer, Mortgage Cadence, LLC.
Mortgage Cadence is the NAFCU Services Preferred Partner for Mortgage Processing and Fulfillment Services.
Dodd-Frank impacts lenders in many ways. In the span of less than two years there are now many new rules that will have material impact on the conduct of all mortgage originators and assignees. Consider the following impending rules:
- Qualified Mortgage (QM) / Ability to Repay (ATR)
- LO Comp Rule (Reg. Z)
- Appraisal Rules:
- Joint Rule (TILA / Reg.Z – HPML)
- Copy Rule (ECOA)
- Escrow Rule
- Know Before You Owe / Integrated Disclosures (TILA / RESPA)
While all are important, the Ability to Repay (ATR) elements of the Qualified Mortgage (QM) rules is first on our list. That’s where we’ll turn our attention this month.
The Ability to Repay requirements with the Qualified Mortgage
A QM is a new loan classification that represents how the lender has made a thorough assessment of, and has fully documented, a borrower’s ability to repay their covered loan. Currently, Regulation Z, as amended by the Board of Governors of the Federal Reserve System in 2008, prohibits creditors from extending Higher-Priced Mortgage Loans (HPML) without regard for the consumer’s ability to repay. The ATR rule extends application of this requirement to all loans secured by dwellings, not just HPMLs. Also of note, this final rule establishes a Safe Harbor that contains a “presumption of compliance” with the ATR requirement for non-HPML QMs. While the ATR rule does not specify any particular underwriting model, lenders must consider and validate, at a minimum, 8 discrete underwriting factors: