ATR-QM: The Qualified Mortgage Presumptions

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– As we explained earlier, the core requirement
of the ATR/QM rule is that you, as a creditor, must make a reasonable
determination of the consumer borrower’s ability to repay. This, of course,
is already at the heart of your business as a lender. There is no legal requirement,
or any supervisory expectation, that you make any
“qualified mortgages” at all. Writing a qualified mortgage
is simply another way to demonstrate compliance with
the basic ability-to-repay rule. A benefit you get
from writing a QM is that it gives
you a presumption of compliance. There are two kinds
of presumptions. The “safe harbor,”
or irrebuttable presumption, means that the lender
is considered to have complied with the ability-to-repay
requirement. That means, for instance,
that in the event a consumer alleges
that the creditor violated the ability-to-repay rule, a safe harbor QM
is conclusively presumed, as a matter of law, to have been made
in compliance with the rule. The “rebuttable presumption”
QM is what it sounds like – while there is a presumption
that the creditor complied with the ability-to-repay requirement, that presumption
can be overcome. (You may already be familiar
with the rebuttable presumption. The prior higher-priced mortgage
loan ability-to-repay rule offered creditors a way to
create a rebuttable presumption, but there was no safe harbor
prior to these new rules.) What distinguishes
a “Safe Harbor” QM from a “rebuttable presumption” QM? The answer is the APR
on the loan. In all other respects,
the two are the same. As we explained earlier,
this is one of the areas where small creditors
were given special consideration by the CFPB under the rule. For all covered transactions
issued by “small creditors” – both first
and junior lien loans – and for junior lien loans
originated by any creditor, a “safe harbor” QM
is one with an APR that is less than 3.5% above the Average Prime Offer
Rate (or “APOR”). First lien loans
originated by creditors other than “small creditors” have a lower safe harbor
QM threshold. They are safe harbor QMs if the APR is less than
1.5% above APOR. First lien loans originated
by “small creditors” and any subordinate lien loan
with an APR of 3.5% or more above APOR are rebuttable
presumption QMs. First lien QMs
originated by creditors other than small creditors
have a rebuttable presumption if the APR is 1.5% or more
above APOR. The method of calculating
that APR threshold is another piece of the new rule
that should be familiar to you. Prior to the January 2014 rules, you were calculating the
“higher-priced mortgage loans” for purposes of
the earlier versions of the ability-to-repay rule
and mandatory escrow rules by adding 1.5% to APOR. You’ll notice we said that QMs
made by “small creditors” have a higher-safe
harbor threshold than other first lien QMs. What do we mean by
“small creditor”? To qualify as
a “small creditor,” you must meet both an asset test
and an originations test. Most FDIC-supervised institutions meet these asset
and originations tests, so the special
small creditor QMs may be an important option
for many of you. The asset test threshold
will be adjusted each year, so be sure to check
the CFPB’s website for the applicable
asset threshold. For 2014, the threshold
was $2.028 billion in assets as of December 31, 2013. Only your assets count,
not those of any affiliates. The asset test is determined as of the last day
of the preceding calendar year. To meet the originations test, you must have originated
500 or fewer first-lien covered loans
in the preceding year. Loans made by bank affiliates do count toward
that 500 threshold. For the next segment
of this video, Segment 5, we’ll discuss
using Qualified Mortgages to comply with the ATR rule.

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