Note: The comment period closed July 31, 2017. Read comments received.
Today, we released our plan to assess the effectiveness of the Ability-to-Repay/Qualified Mortgage rule (ATR/QM rule). We are asking the public to comment on our plan, to suggest sources of data, and generally to provide information that would help with the assessment.
We see conducting the assessment as an opportunity. Conducting the assessment will advance our knowledge of the benefits and costs of the key requirements of the ATR/QM rule. The assessment will also provide the public with information on the mortgage lending market, and help us to fulfill our commitment to be an evidence-based and effective agency.
Background on the ATR/QM Rule
In the run-up to the 2008 financial crisis, some lenders made mortgage loans that consumers could not pay back. These lenders expected to make money by relying on rising housing prices or by off-loading the mortgage into the secondary market. In response to the crisis that followed, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010. In the Dodd-Frank Act, Congress established new standards for mortgage lending that, among other things, required lenders to assess consumers’ ability to repay (ATR). The Dodd-Frank Act also provided for a class of “qualified mortgage” (QM) loans that cannot have certain risky product features and are presumed to comply with the ATR requirement.
Congress authorized the Consumer Financial Protection Bureau (CFPB) to issue rules that would make the new ATR and QM standards clear and effective. We issued a rule to implement these standards in January 2013 (“January 2013 Rule”) and amended it a few times before it took effect on January 10, 2014. We refer to all the requirements and related amendments that took effect on January 10, 2014 as the “ATR/QM rule.”
In writing the ATR/QM rule, we sought to implement new protections for consumers while preserving consumers' access to credit and allowing for appropriate lending and innovation. The ATR/QM rule, among other things, requires mortgage lenders to make a reasonable and good faith determination, based on verified and documented information, that the consumer has a reasonable ability to repay the loan, including any mortgage-related obligations (such as property taxes) according to the loan’s terms. Lenders generally must take into consideration certain factors in determining a consumer’s repayment ability, including the consumer’s income, assets, and debt. However, the ability-to-repay requirements do not specify particular underwriting standards that lenders must follow.
The ATR/QM rule also establishes several categories of “qualified mortgage” (QM) loans, for which compliance with the ATR requirement is presumed. In creating the general class of QM loans, Congress sought to provide certainty to lenders regarding compliance with the ATR standard for loans that do not have certain risky product features. For example, the category of General QM Loans prohibits negative amortization, interest-only payments, terms greater than 30 years and balloon payments. The total points and fees paid to originate the loan must not exceed a certain percentage of the loan amount and the consumer’s ratio of debt to income cannot exceed 43 percent. A separate, temporary category of QM Loans has the aforementioned requirements, except the consumer’s ratio of debt to income can exceed 43 percent, and the loans must be eligible to be purchased or guaranteed by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). This category will continue to be in effect until January 10, 2021 or until Fannie Mae and Freddie Mac emerge from conservatorship, whichever occurs first. The ATR/QM rule also establishes categories of QM loans for small creditors.
In addition to requiring that we write rules to implement consumer protection statutes, the Dodd-Frank Act requires us to review some of our rules within five years after they take effect. These required reviews are called assessments. We are conducting an assessment of our ATR/QM rule, and we will issue a report of the assessment by January 2019. As required by law, the assessment will address the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act and the specific goals of the ATR/QM rule, using available evidence and data. We recently released our plan for the RESPA mortgage servicing rule assessment.
We are committed to well-tailored and effective regulations and have sought to carefully calibrate our efforts to ensure consistency with respect to consumer financial protections across the financial services marketplace.
Request for public comment
We would like your help in improving the assessment. We invite consumers, consumer advocates, mortgage loan creditors, industry representatives, and other interested parties to comment on our assessment plan, suggest sources of data, offer other recommendations, and generally provide information that would help us with this work.
For more information on how to comply with the Bureau’s mortgage lending rules, visit our implementation and guidance page.