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An Overview of the CFPB's Ability-to-Repay/Qualified Mortgage Rule

Banking & Financial Services Policy Report

The Consumer Financial Protection Bureau (CFPB) has issued an avalanche of new mortgage rules slated to become effective next January 10, and probably none will have as broad an impact on residential credit as the “Ability-to-Repay” rule (the Rule). The Rule will require nearly all lenders to make a “reasonable and good faith determination” that a consumer has a “reasonable ability to repay” a loan. The Rule also defines a “Qualified Mortgage” (QM), which when made according to the Rule’s criteria will provide lenders with some protection against borrower lawsuits alleging Rule violations.

This article will detail the Rule’s broad scope, then provide a guide for complying with it, focusing on the two avenues of compliance that will be the only options for the vast majority of lenders: The so-called “general” ability-to-repay option (General ATR Option) and the basic QM option. We include a separate section devoted solely to the calculation of “points and fees,” which must be limited to make a QM (and to avoid coverage under the CFPB’s new Home Ownership and Equity Protection Act (HOEPA) rule). The CFPB already has finalized important amendments to the Rule as promulgated in January 2013 and has proposed other changes. Important issues remain unresolved, however, so this article will conclude by highlighting questions to keep an eye on between now and next January 10.

Article appears in July 2013 issue of Banking & Financial Services Policy Report.