Chapter 3 ATP

Question 1

Ability to Repay Rule (ATR)

Answer 1

Section of TILA that went into effect in 2014. Mandated by Dodd-Frank Act. Remedies lose underwriting practices and requires entities to determine whether the consumer can repay their loan.

Question 2

8 Underwriting factors lenders must consider under ATR

Answer 2

1. Current or reasonably expected income or assets. (other than the value of the property that secures the loan)
2. Current employment status. (If borrower relies on employment income when being assessed.)
3. Monthly mortgage payment for the loan.
4. Monthly payment on any simultaneous loans secured by the same property.
5. Monthly payment for property taxes and insurance that the consumer is required to buy, also other fees such as HOA or ground rent.
6. Borrower’s debts, alimony, and child support obligations.
7. Monthly debt-to-income ratio or residual income.
8. Credit history.

Question 3

Qualified Mortgage (QM)

Answer 3

Section of TILA went into effect 2014 mandated b Dodd-Frank. Works with ATP. A qualified mortgage is a mortgage that complied with the ability to repay requirements.

GM generally prohibits certain risky features and practices, such as negative amortization, interest-only periods, and loan terms longer than 30 years.

QM’s apply to all closed-end transactions secured by an owner-occupied dwelling of 1-4 unites regardless of acreage.

Question 4

Types of Qualified Mortgages

Answer 4

1. General QM = 43% DTI
2. Temporary QM = AUS approved DTI - Expired Jan 10th 2021
3. Small Lender = Allows certain lenders a higher DTI
4. Balloon Payment QM = Allows certain lenders to do balloon loans.
5. Price-based QM =
6. Seasoned QM =

Any lender can originate #1 or #2 but the rest are only allowed to be originated by small lenders.

Question 5

QM requirements

Answer 5

Cannot have:
-Negative amortization
-interest only payments
-terms longer than 30 years
-Fee’s exceeding 3% of the loan balance

Question 6

General QM requirements

Answer 6

-Underwrite based on a fully amortizing schedule using the max rate permitted during the first 3 years after the date of the first payment. For loans with terms of 5 years or more the borrower is qualified at the higher of the initial interest rate or the fully-indexed rate. (Margin and index)
-Consider and verify the consumer’s income, assets, debt obligations, alimony, and child support obligations.
-Determine that the consumer’s total monthly debt-to-income is no more than 43%.

Question 7

QM qualification thresholds

Answer 7

-3% of total loan amount for a loan greater than or equal to $114,847
-$3,445 for a loan amount greater than or equal to $68,908 but less than $114,847
-5% of the total loan amount for a loan greater or equal to $22,969 but less than $68,908
-$1,148 for a loan amount greater than or equal to $14,356 but less than $22,969.
-8% of the total loan amount for a loan amount less than $14,356.

These thresholds only apply to conventional loans.

Question 8

Rebuttable Presumption

Answer 8

Occurs when a QM loan is a higher-priced mortgage. For consumers to win they must show that the lender violated the ATR rule. Must show they do not have enough residual income to live.