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ATR & QM

ATR & QM. What Brokers Need to Know. 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.

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ATR & QM

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  1. ATR & QM What Brokers Need to Know

  2. 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.

  3. ATR is nothing new… 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.

  4. ATR is nothing new… 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%

  5. Effective Dates:

  6. 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

  7. ATR & QM : • ATRfocus is underwriting – not loan terms. • QM focus is on Loan Terms (terms & fees) and Underwriting

  8. 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

  9. General Ability to Repay: Current or reasonably expected income or assets that the consumer will rely on to repay the loan Current employment status 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) Monthly payment on any simultaneous loan secured by the same property Monthly payment for property taxes and insurance, plus certain other costs related to the property (HOA Fees, flood etc.). Debts, alimony, and child support obligations 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). Credit history

  10. 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.

  11. Why QM? Answer: Presumption of Compliance APOR – Average Prime Offer Rate

  12. What is a Qualified Mortgage? Mandatory PRODUCT FEATURE requirements for all QMs

  13. 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

  14. 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

  15. Qualified Mortgage Underwriting Requirement Mandatory product features and…

  16. What is included in Points & Fees Cap? LLPA’s are excluded if recovered through a higher rate.

  17. 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.

  18. Points & Fees Example • *A Tad less…. • Loan Amount – UFMIP & Prepaid Interest

  19. Watch for our new fee sheet Thank you!! Questions: Contact your Account Executive to make sure our compliance team can review all of your questions!

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