ATR
Rebuttal
Presumption
Broker
QM
What Brokers Need to Know
Safe
Harbor
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This is not legal advice!
This presentation is limited to discussion of
Residential Bancorp’s policies with respect to the
new
Ability-to-Repay/Qualified Mortgage rules.
This document, presentation and guidance is not
intended as legal advice.
You should consult with your legal counsel for
guidance on applying these rules in your business.
This document may not be copied or distributed in
any form.
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The core of the ability to repay requirement is
that creditors make a reasonable good faith
determination at or before consummation that
the consumer will be able to repay the loan.
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Enhances and replaces existing regulations that
already require creditors to consider a consumer's
ability to repay on higher-priced mortgage loans
(“HPML”).
The coverage of the ability to repay requirement
will be much broader because it will apply to all
loans.
HPML = APOR + 1.5%
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Effective Dates:
Effective Date of the Law:
Loans originated on or after
January 10th, 2014
For All Occupancy
Types unless specified
as business use
Submissions to Residential Bancorp
Effective February 17, 2014 regardless of
origination date, all loans will be subject to
ATR/QM requirements.
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Exclusions:
Open-end credit plans (HELOCs)
Time-share plans
Reverse mortgages
Temporary or bridge loans with terms of 12
months or less
• Construction phase of 12 months or less of
a construction to permanent loan.
• Consumer credit transactions secured by
vacant land
• Down Payment Assistance Providers of
Secondary Financing
•
•
•
•
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ATR & QM :
ATR focus is
underwriting – not loan
terms.
QM focus is on Loan
Terms (terms & fees) and
Underwriting
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Five Standards of ATR:
General Ability to Repay
(NO PRODUCT RESTRICTIONS)
Qualified Mortgage
General ATR
Temporary Qualified Mortgage
Small Creditor Qualified Mortgage
Balloon Payment Qualified Mortgage
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General Ability to Repay:
1. Current or reasonably expected income or assets that the consumer
will rely on to repay the loan
2. Current employment status
3. Monthly mortgage payment for the loan, calculated using the
introductory or fully-indexed rate, whichever is higher (payments
should be substantially equal…no teaser rates on ARMS)
4. Monthly payment on any simultaneous loan secured by the same
property
5. Monthly payment for property taxes and insurance, plus certain other
costs related to the property (HOA Fees, flood etc.).
6. Debts, alimony, and child support obligations
7. Monthly debt-to-income ratio (DTI) or residual income as a ratio of
gross monthly income (43% is not an ATR requirement – it’s a QM
requirement).
8. Credit history
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Why QM?:
Receives a presumption of compliance with the ability to
repay requirements.
Where creditors are willing to meet the requirements for a
qualified mortgage, their risk of challenge for failing to
satisfy the ability to repay rules is reduced.
THE KEY…
AGENCIES ARE MANDATED TO MAKE QM
LOANS.
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Why QM? Answer:
Presumption of Compliance
Safe Harbor
• Satisfies QM & is not HPML
Rate Less then or equal to:
• 1st APOR +1.5
• 2nd APOR +3.5
Rebuttable
Presumption
• Satisfies QM & is HPML
Rate Exceeds:
• 1st APOR +1.5%
• 2nd APOR + 3.5%
APOR – Average
Prime Offer Rate
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What is a Qualified Mortgage?
Mandatory PRODUCT FEATURE requirements for all QMs
Points & Fees Test
• 3% on loans >
$100k
• $3,000 on loans
>$60,000 but less
than $100,000
• 5% on loans
>$20,000 but less
than $60,000
Loan Features Test
• Not greater than 30
years with no Risky
Features:
• No Negative
Amortization
• No Interest Only
• No Balloons
Relevant Underwriting
Requirements
• Verify & Consider
Income
• Verify & Consider
Assets
• Qualify at max rate
in first 5 years
• Verify DTI
(affordability)
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What is a Qualified Mortgage?
QM RULES APPLY TO GSE’S UNTIL THEY ADOPT THEIR OWN
RULE, COME OUT OF CONSERVATORSHIP OR 7 YEARS (2021)
FHA has adopted a rate test of:
1.15% over APOR plus monthly
MIP payment
To be considered a Qualified Mortgage
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What is a Qualified Mortgage?
PRODUCT
Mandatory product feature requirements for all QMs include:
No risky features like negative amortization, interest-only, or
balloon loans
Maximum loan term is less than or equal to 30 years
FEES
Points and fees cap
UNDERWRITING
QM under any of three main categories: (1) the general
definition; (2) the “GSE-eligible” provision; or (3) the small
creditor provision
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Qualified Mortgage
Underwriting Requirement
Mandatory product features and…
General
Definition
• DTI < 43%
(contact your
AE to discuss
Residential
Bancorp's GSE
Exemption
GSE Exemption
• Eligible for
purchase /
guarantee by a
GSE, FHA, VA, or
USDA Regardless
of the debt-toincome ratio
Small Creditor
Exemption
• For those lenders
that make fewer
than 500 first
mortgages per
year – Does Not
Apply to
Residential
Bancorp
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What is included in Points &
Fees Cap?
•All Origination Fees
Broker
Fees
Lender
Fees
•Fees Retained by
Affiliates
•Title: Notary, Doc
Prep etc.
•All Lender Origination
Fees
LLPA’s are excluded if recovered
through a higher rate.
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What is NOT included in
Points & Fees Cap?
 LLPAs are not bona fide third party
charges AND ARE EXCLUDED if
recovered through higher rates.
 Bona fide discount points – Bona
fide means they reduce the rate!
 Third party fees that are customary
and reasonable.
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Points & Fees Example
LOAN AMOUNT
128K
Broker Comp 2.25%
250K
400K
$,2880
$5625
$9,000
Lender Fee
$600
$600
$600
Affiliate Fees
$500
$500
$500
Total Points & Fees
$3,980
$6725
$10,100
Max Points & Fees
$3,840*
$7,500*
$12,000*
No
Yes
Yes
Pass
*A Tad less….
Loan Amount – UFMIP &
Prepaid Interest
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Questions:
Contact your Account Executive to make sure our compliance team
can review all of your questions!
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