ATR and QM Flashcards
What act authorized the creation of the Consumer Financial Protection Bureau (CFPB),
The Dodd-Frank Act
What is the CFPB?
The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector.
What 2 rules did the CFPB implement?
The Ability to Repay (ATR) Rule and the Qualified Mortgage (QM) Rule
What is the ATR Rule?
The ATR Rule requires a creditor to make a reasonable, good faith determination that a person applying for a residential mortgage loan has a reasonable ability to repay the loan according to its terms.
Regarding the ATR Rule, what happens to a creditor if a consumer defaults on their mortgage?
A creditor that fails to make this determination may be subject to penalties and a consumer could be awarded up to three years of finance charges, in addition to legal fees.
What kind of property does the ATR Rule apply to?
The ATR Rule applies to any consumer credit secured by a dwelling
What is a dwelling?
A residential structure that contains one to four units, whether or not the structure is attached to real property, including an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence
What kinds of credit/loans are exempted from the ATR rule?
- Home equity lines of credit (HELOCs)
- Timeshares
- Reverse mortgages
- Temporary or bridge loans with terms of less than 12 months
- Construction loans of 12 months or less that are part of construction-to-permanent loans, and
- Loans made by a housing finance agency or other governmental agency
What factors must a creditor take into account about a borrower?
-Current or reasonably-expected income or assets, other than the value of the property that secures the loan
-Current employment status
-Monthly mortgage payment for the loan, calculated using the introductory or fully-indexed rate, whichever is higher, and monthly payments that are substantially equal and that fully amortize the loan
-Monthly payment on any simultaneous loans secured by the same property
-Monthly payments for mortgage-related obligations (e.g., property taxes, hazard insurance, homeowner’s association fees, or ground rent)
Debts, alimony, and child support obligations
-Monthly debt-to-income ratio or residual income (i.e., the total of all the mortgage- and non-mortgage-related obligations as a ratio to gross monthly income)
-Credit history
What are some examples of reliable third party records that creditors use to verify a loan applicants income and or assets?
- Paystubs
- Tax Returns
- Employment Info
- Records from Financial Instutions
What is a qualified mortgage?
- Provides for substantially-equal periodic payments (a change in payment amount resulting from a change in the interest rate in an adjustable-rate or step-rate mortgage does not disqualify a loan from being a QM) that does not:
- Provide for negative amortization
- Allow the deferral of the payment of principal, or
- Result in a balloon payment - Has a loan term of no more than 30 years
- Does not provide for points and fees that exceed 3% of the total loan amount
Under a qualified mortgage a consomer’s total DTI must not be more than?
43%
What is the QM Patch?
The granting of QM status to loans backed by Fannie Mae and Freddie Mac or insured/guaranteed by the FHA, VA or USDA
When will the QM Patch expire?
October 2022
What is a prepayment penalty?
A fee that some lenders charge when you pay all or part of your mortgage loan term off early. The penalty fee is an incentive for borrowers to pay back their principal slowly over a full term, allowing mortgage lenders to collect interest.
