How will QM/ATR affect your business? (Part 2)

 

Last week we discussed the ATR (Ability-To-Repay) rules. This week, we will focus on one of the biggest pieces of QM that is misunderstood, creating fear and confusion. This is the 43% debt-to-income ratio part of QM.
Will all borrowers have to have a 43% or less debt-to-income ratio?

The simple answer is: NO.

Even though that number is listed throughout the QM rules, there are actually three main categories of QM loans:

1. General definition category of QMs
Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM.

 2. “GSE-eligible” category of QMs
Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or
insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio (this QM category
applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until
an agency issues its own QM rules, or January 10, 2021, whichever occurs first).

3. Small creditor category of QMs

If a lender has less than $2B in assets and originate 500 or fewer first mortgages per year, loans they make
and hold in portfolio are QMs as long as they have considered and verified a borrower’s debt-to-income
ratio (though no specific DTI limit applies).

So what are the mandatory product feature requirements for all QMs?

• Points and fees are less than or equal to 3% of the loan amount (for loan amounts less than $100k, higher percentage thresholds are allowed);
• No risky features like negative amortization, interest-only, or balloon loans (BUT NOTE: balloon loans originated until January 10, 2016 that meet the other product features are QMs if originated and held in portfolio by small creditors);
• Maximum loan term is less than or equal to 30 years.

So what is the takeaway here? Simply that once again, the concern on how severe the impact that QM may have on your consumer may be a bit higher than needed. Most (maybe even all) of your borrowers are still going to qualify for a loan under the QM rules.

Now this is just a basic guide that was provided by the Consumer Financial Protection Bureau, and is only used for reference. For your questions about QM and ATR, be sure to contact the me at 314-744-7806, or hit the link below:

 

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