Summary: CFPB Request for Information Regarding Ability to Repay/Qualified Mortgage Rule Assessment

Notice of Assessment of the Ability to Repay/Qualified Mortgage (ATR/QM) Rule and Request for Comment

Consumer Financial Protection Bureau (CFPB)
Prepared by the NASCUS Legislative & Regulatory Affairs Department
June 2017

The CFPB is conducting an assessment of the Ability to Repay/Qualified Mortgage (ATR/QM) Rule under the Truth in Lending Act (Regulation Z).  The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment.

Comments must be received by July 31, 2017.  The Notice of Assessment/Request for Comment can be found here

Rule Assessment

Section 1022(d) of the Dodd Frank Act requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law.  The Bureau is required to publish a report of the assessment not later than five years after the effective date of such rule or order.  The Bureau has determined that the ATR/QM rule is a significant rule subject to assessment.  The assessment must address, among other things, the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd Frank Act and the specific goals of the rule as stated by the Bureau.  Before publishing the report, the Bureau must seek public comments on recommendations for modifying, expanding or eliminating the significant rule or order. 

Assessments are for informational purposes only and are not a part of any formal/informal rulemaking proceeding.  The Bureau does not expect to respond to each comment received in the assessment report.  Also, the Bureau does not anticipate that the assessment report will include specific proposals by the Bureau to modify any rules, although the findings made will help inform the Bureau’s thinking as to whether to consider additional rulemaking in the future.  The Bureau plans to issue the assessment report no later than January 10, 2019.

The Ability to Repay/Qualified Mortgage Rule

The ATR/QM rule prohibits a creditor from making a mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information, that the consumer will have a reasonable ability to repay the loan, including any mortgage-related obligations (such as property taxes).  The requirement does not apply to investment loans, open-end home equity lines of credit, timeshare plans, reverse mortgages or temporary loans.

The ATR/QM rule describes certain minimum requirements for creditors making ability-to-repay determinations but does not dictate that they follow particular underwriting standards.  At a minimum, creditors generally must consider eight underwriting factors:

  1. Current/reasonably expected income or assets;
  2. Current employment status, if the creditor relies on income from employment in determining repayment ability;
  3. The monthly payment on the covered transaction;
  4. The monthly payment on any simultaneous loan(s) that the creditor knows or has reason to know will be made;
  5. The monthly payment for mortgage-related obligations;
  6. Current debt obligations, alimony, and child-support;
  7. The monthly debt to income ratio or residential income; and
  8. Credit history.

The ATR/QM rule also provides for a class of “qualified mortgage” loans, for which compliance with the ATR requirement is assumed. 

The Assessment Plan

The purpose of the assessment is to determine the rule’s effectiveness in meeting the general purposes of Title X of the Dodd-Frank Act and the specific goals of the ATR/QM rule, which is to “assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive or abusive” among other things.

To do so, the Bureau will examine the impact of major provisions of the rule on a set of consumer outcomes, including:

  1. Mortgage cost;
  2. Origination volumes
  3. Approval rates; and
  4. Subsequent loan performance

In addition, the Bureau will also consider changes in creditor underwriting polices/procedures made in connection with the rule and that might affect consumer outcomes such as: (i) the ATR requirements, including the eight underwriting factors a creditor must consider; (ii) the QM provisions, with a focus on the DTI threshold, the points and fees threshold, the small creditor threshold and the Appendix Q requirements; and (iii) the applicable verification and third-party documentation requirements. 

The Bureau also plans to conduct or has begun conducting several research activities in connection with this assessment, specifically:

  1. Quantitative research on loan originations, rejection rates and loan performance, using available mortgage data and data that the Bureau may reasonably collect;
  2. Analysis of costs of credit before and after the rule, as well as recent trends;
  3. Interviews with creditors regarding their activities undertaken to comply with the requirements of the ATR/QM rule; and
  4. Consultations with government regulatory agencies, government sponsored enterprises, and private market participants.

Request for Comment

To inform the assessment, the Bureau invites interested persons to submit the following:

  1. Comments on the feasibility and effectiveness of the assessment plan, the objectives of the ATR/QM rule that the Bureau intends to emphasize in the assessment, and the outcomes, metrics, baselines, and analytical methods for assessing the effectiveness of the rule as described in Part IV;
  2. Data and other factual information that may be useful for executing the Bureau’s assessment plan, as described in Part IV;
  3. Recommendations to improve the assessment plan, as well as data, other factual information, and sources of data that would be useful and available to execute any recommended improvements to the assessment plan;
  4. Data and other factual information about the benefits and costs of the ATR/QM rule for consumers, creditors, and other stakeholders in the mortgage industry; and about the impacts of the rule on transparency, efficiency, access, and innovation in the mortgage market;
  5. Data and other factual information about the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act (section 1021), which are listed in Part IV; and
  6. Recommendations for modifying, expanding, or eliminating the ATR/QM rule.