TILA—Ability To Repay/Qualified Mortgages

Question 1

According to TILA, what is a Qualified Mortgage (QM)?

Answer 1

When a lender issues a mortgage that meets certain requirements that the government has issued, it is then a QM.

Question 2

What is the incentive for a lender to issue a Qualified Mortgage?

Answer 2

The lender will receive what is called, “Safe Harbor.” Legal protection for if the borrower later goes into foreclosure.

Question 3

(TILA) What is the Qualified Mortgage/QM Rule?

Answer 3

New categories of mortgages & imposes minimum underwriting standards for most home loans, referred to as the “Ability-to-Repay” requirements.

Question 4

(TILA) What criteria must a loan meet to be considered a Qualified Mortgage?

Answer 4

1. ) No-doc loans/NINA (No Income, No Assistance) loans allowed.
2. ) Debt-to-Income ratio can not be higher than 43%.
3. ) Caps points and fees at 3 percent/3 points.
4. ) Loan terms can not be over 30 years.
5. ) No Interest-only loans/negative amortization loans.
6. ) Prohibits use of teaser rates in affordability calculations.
7. ) ARMs must be underwritten to the max. interest rate that can be charge during the 1st five yrs of the loan terms.
8. ) Prepayment penalties are prohibited.

Question 5

(TILA) What is ATR, or the Ability-to-Repay?

Answer 5

To aid creditors in the qualifying a loan as a QM, they must look at 8 different types of information of the consumer.

Question 6

What are the 8 types of information a creditor must look at for the ATR, or Ability-to-Repay?

Answer 6

1. ) Current income or assets.
2. ) Current employment status.
3. ) Borrower’s credit history.
4. ) Monthly payment for the mortgage.
5. ) Borrower’s monthly payments on other simultaneous mortgage loans.
6. ) Monthly payments for other mortgage-related expenses.
7. ) Other debts of the borrower.
8. ) Monthly debt payments compared to the borrower’s monthly income (DTI cannot exceed 43%).