CUNA Survey on CFPB Final Rule on Ability-to-Repay / Qualified Mortgage

Help Us Assess the Impact of the Final Rule

Under the CFPB’s Ability-to-Repay (ATR) / Qualified Mortgage (QM) final rule that will be effective on January 10, 2014, credit unions and other creditors that follow the QM standards will be afforded a “safe harbor” for compliance with the ATR provisions. Creditors will be entitled to greater legal protection for QMs than for other mortgage loans should the creditor be sued by a consumer for noncompliance with the ATR provisions.

A QM must generally meet these requirements:
  • The debt-to-income ratio (based on verified income and debt) does not exceed 43%;
  • The loan is not a balloon, interest-only or negative amortization loan (except for limited exceptions for balloons);
  • The points and fees do not exceed 3% of the loan balance; and
  • The loan term does not exceed 30 years.

Also, a reasonable, good-faith ATR evaluation must include these eight underwriting factors:
  • Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan;
  • Current employment status (if you rely on employment income when assessing the consumer’s ability to repay);
  • Monthly mortgage payment for this loan. You calculate this using the introductory or fully-indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal;
  • Monthly payment on any simultaneous loans secured by the same property;
  • Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent;
  • Debts, alimony, and child- support obligations;
  • Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income; and
  • Credit history.

In late May, the CFPB adopted additional changes to the QM rule:
  • For credit unions and community banks that have less than $2 billion in assets and make 500 or fewer first-lien mortgages annually, the rule generally extends QM status to loans held in portfolio for at least three years even if the consumers’ debt-to-income ratio exceeds 43%. However, loans must meet other general limits on their features including points and fees, and the borrower’s DTI must be evaluated.
  • The rule provides a two-year transition period during which small lenders that do not operate predominantly in ‘rural’ or ‘underserved’ areas as defined by the CFPB may make balloon loans under certain conditions that will meet the definition of QMs. The CFPB said that during the transition period, it will study whether changes to its definitions of ‘underserved’ and ‘rural’ should be made and will work with small creditors to move to other mortgage products that satisfy the requirements of the rule.
  • The rule changes will also allow small creditors to charge a higher annual percentage rate for certain first-lien mortgages that could nonetheless be considered as QMs.
  • The final rule exempts certain nonprofit and community-based lenders that provide housing credit to low- and moderate-income consumers. Community development lenders that make no more than 200 loans per year and lend only to low- and moderate-income consumers would be covered by the exemption.
  • The changes also address loan originator compensation. Under the Dodd-Frank Act, points and fees on a QM may not exceed 3% of the loan balance. Points and fees in excess of 5% trigger coverage of the loan as a high-cost mortgage under the Home Ownership and Equity Protection Act. Under the CFPB’s amendments, the compensation paid by a lender or broker to a loan originator employee will not count towards the points and fees threshold. This amendment does not change the requirements under the Mortgage Loan Originator Compensation rule, generally effective next January, that compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

We plan to provide additional information to the CFPB very soon. If you can complete the survey by June 14, this information will be very helpful in our continued advocacy efforts.

1. Which of the following best describes what your credit union will do in light of these Ability-to-Repay and QM final rules?

2. What is the estimated percentage of your loan volume that falls outside the definition of QM loans?

3. Are there aspects of the final rule for which you would like the CFPB to provide further regulatory flexibility? If so, please explain

4. What is your credit union's asset size?

5. Contact Information (Optional).

Thank you for your efforts in responding.