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Getting Ready for January: CFPB Final Rule on Ability-to-Repay and Qualified Mortgages
Monday, October 21, 2013 9:40 AM

With numerous final rules set to take effect in January, most credit unions have been hard at work adapting policies and systems.  Of great concern is the Consumer Financial Protection Bureau’s (CFPB) final rule on the Ability-to-Repay and Qualified Mortgages.

The Ability-to-Repay (ATR) rules establish a very narrow set of rules that creditors must comply with to evaluate a potential borrower’s ability to repay.  These rules take into consideration other borrower obligations, income level, employment status, assets, debt-to-income ratio, credit history, and several other factors.  Creditors will be able to establish their own underwriting standards, as long as they consider these factors.  This rule requires that creditors use these factors to establish a reasonable and good faith determination of the consumer’s ability to repay.

The rule also defines the kinds of loans that fit the definition of Qualified Mortgage (QM).  Those loans that qualify as a QM will be afforded a “safe harbor” for compliance with certain ability-to-repay provisions.  Creditors will be entitled to greater protection for QMs than for other mortgage loans should the creditor be sued for noncompliance with the ability to repay provisions.

Creditors will be required to maintain records that evidence compliance with the Ability-to-Repay and other provisions of the new rule.

For more information, both CUNA and the CFPB have issued guidance on meeting the new ATR requirements, and characteristics of a QM.  CUNA’s final rule analysis is available here.  The CFPB’s small entity compliance guide provides a plain English interpretation of the rule, and what sorts of questions a credit union should be asking itself from a compliance standpoint.  It is available here, and the original text of the rule here.

Cornerstone also provides policy assistance through CU PolicyPro.  If you have any questions regarding CU PolicyPro, please contact Nathan Behncke, at (512) 853-8514, or