![]() A standard or prime rate loan must carry an annual percentage rate (APR) that does not exceed the average prime offer rate for a comparable transaction as set by the CFPB by 150 basis points for a first lien transaction or, in the case of a subordinate lien transaction, it must carry an APR that does not exceed the average prime rate offer for a comparable transaction by 350 basis points. Standard or Prime Rate Loan Safe Harbor Presumptionįor standard or prime rate loans that satisfy the qualified-mortgage criteria, the Final Rule establishes a presumptive safe harbor that the lender satisfied the ability-to-repay requirements. The Final Rule, in effect, distinguishes the lender’s liability protection based upon whether the loan is a “standard or prime” rate loan or if it constitutes a “higher priced” loan. If a mortgage satisfies the qualified-mortgage criteria, the Final Rule establishes either a safe harbor for potential lender liability based upon claims that the lender failed to satisfy the ability-to-repay requirements or a rebuttable presumption that the requirements have been met by the lender. Qualified Mortgage Lender Liability Protections the loan term must not exceed 30 years.the loan may not contain features that provide for interest-only payments, negative-amortization payments where the principal amount increases, or balloon payments ( subject to limited exceptions) and.the borrower’s debt to income ratio may not be greater than 43 percent ( subject to limited exceptions).for loans exceeding $100,000, the total points and fees may not exceed 3 percent of the total loan amount ( subject to limited exceptions).periodic payments must generally be substantially equal and result in a reduction of principal.the loan monthly payments are calculated on the highest payment that will apply during the first five years of the loan term (for adjustable-rate mortgages, the monthly payments are calculated using the fully-indexed rate or an introductory rate, whichever is higher).the borrower’s income or assets must be verified and documented.Under the Final Rule, a residential loan will be considered as a qualified mortgage if each of the following criteria are met: The ability-to-repay criteria apply to any consumer loan transaction secured by dwelling other than HELOCs, timeshare loans, reverse mortgages and temporary loans (e.g., construction loans) with a term of 12 months or less. ![]() ![]() These new required ability-to-repay lender determinations, when coupled with the verification requirements, will effectively end the use of “no document” and “low document” mortgage loans. The information and other evidence compiled by lenders in making these determinations must be maintained for three years after making a mortgage or dwelling loan. Lenders are expected to use reasonably reliable third-party records in order to verify the information they use to make an ability-to-repay determination. monthly debt-to-income ratio or residual income and.current other debt, alimony and child support obligations.monthly payments for mortgage-related obligations, such as property taxes and insurance.the monthly payment on any simultaneous loan, such as a home equity line of credit (HELOC).the calculated monthly payment on the mortgage or dwelling secured loan, assuming that the loan will be repaid in substantially equal monthly payments during its term.current or reasonably anticipated income and assets.A lender will, in effect, be responsible for making loans that borrowers can repay.Īt a minimum, the following factors must be evaluated by the lender when determining a borrower’s ability to repay: Instead, it describes eight factors that lenders must consider and verify in order to make an ability-to-repay determination. The Final Rule does not dictate any particular loan underwriting standards that lenders or creditors must follow when making a mortgage or loan secured by a dwelling. The Final Rule will go into effect on January 10, 2014. Under the rule, lenders are required to make a good faith determination that the borrower has the ability to repay the loan prior to making a mortgage or dwelling secured loan.Īs mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank), the rule also provides that if a lender makes a “qualified mortgage” (as defined in the rule), the lender will receive special protection from liability if the borrower contests the lender’s compliance with the ability-to-repay determination requirements. On Thursday, January 10, 2013, the Consumer Financial Protection Bureau (CFPB) released its Final Rule setting forth new “ability-to-repay” determination requirements that will appy to traditional residential mortgages and any other consumer credit transaction secured by a dwelling.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |