Here's a Sample Framework for an Ability-to-Repay Worksheet
Still need something to put in the loan file to document ATR/QM Compliance? Here's one way to do this.
One of the easiest ways to limit your risk under the Ability-to- Repay/Qualified Mortgage Rule is to use a worksheet to include in every loan file. Depending on your business model, there are a dozen different ways to structure this, but here's a basic framework that we think makes sense.
Have your underwriter fill this out with every loan (require a signature too! Accountability increases accuracy). Although we sometimes see clients bogged down with too many worksheets, this is an important regulation and maybe you can sunset this after a year or two, when everyone is more comfortable with the ATR/QM requirements.
ATR/QM Worksheet
Scope
Complete this worksheet on every mortgage loan, unless an exemption applies.
Exemptions
The ATR/QM Rule does not apply to:
HELOC
Housing Finance Agency loan (e.g., MassHousing)
Bridge Loan
Modification (as opposed to refinance)
Business-Purpose Loan
*If an exemption applies- you may require sign off by compliance or a VP. While applying an exemption can create efficiency and decrease heartburn, the safe approach is to apply the ATR/QM Rule unless it is clearly shown not to apply (in other words- apply a rule of thumb that the ATR/QM Rule applies unless an exemption is clear).
ATR Determination
*This is something we believe should be in every loan file- even after everyone is comfortable with the ATR/QM Rule. What's going to happen when you need to explain why, "in good faith and reasonably," you made a loan to a borrower (i.e. in court or to regulator)? What if the underwriter retired 3 years ago and is living in Florida? Will they return to testify? You might be in trouble if you can't get them to.
The Bank/Lender has made a good-faith and reasonable determination that the borrower(s) has a reasonable ability to repay this loan according to its terms. This determination has been made based on the following factors:
Current or reasonably anticipated income or assets
Current employment status
Monthly payment on covered transaction
Monthly payment on any simultaneous loan
Monthly payment for mortgage-related obligations
Current debt obligations, alimony, and child support
Monthly debt-to-income ratio
Credit history
Under each of the 8 factors, there should be a brief explanation. It doesn't have to be perfect; just enough to document and explain the decision. Some of this can be boilerplate ... but it still needs to be personalized to each loan file. For example, here are two different
ways the underwriter could fill out factor #8 on this worksheet:
Sample Analysis A. The borrower's credit score is ???, and I have no reason to believe this score is inaccurate or misleading. The Bank has traditionally accepted mortgage loans with credit scores as low as , while maintaining a very low percentage of defaults. Therefore, the fact that the borrower's credit score is helps demonstrate that the borrower has the ability-to-repay the loan.
Sample Analysis B. The borrower's credit score is 580, and I have no reason to believe this score is inaccurate or misleading. This is below the minimum credit score that the Bank has traditionally accepted. Therefore, this factor does not strongly support the borrower's ability to repay this loan. However, I believe that other factors (see #6 and #1) are strong enough to override the borrower's poor credit history, and that the borrower has the ability to repay the loan despite this factor.
QM Determination
*This should be adjusted for your policies. Are you only offering QM loans? Are you only offering two types of QM loans (GSE- Eligible and Small Creditor)? Will you offer non-QM loans when certain compensating factors are met? This portion of the worksheet will vary greatly by organization.
Every loan originated will need to fulfill the additional requirements for at least one of the following three categories.
Category A: Regular QM
(list requirements here, such as Points & Fees Test, 30-Year Term, 43% DTI)
Category B: GSE-Eligible QM
(list requirements here, most importantly that, "Loan is eligible for sale to Fannie or Freddie" or "purchase/guarantee by the VA or FHA"
Category C: Non-QM w/ Compensating Factors
The following compensating factors exist to justify the origination of a loan that does not meet the requirements in A or B: (list compensating factors here, relationship with lender, substantial assets, etc.)
In other news:
The CFPB has loosened the screws on one of the tough issues related to the 2015 Disclosures Rule. As explained here, lenders will now have more time to give the initial Loan Estimate in certain circumstances (previously- the Rule required it be given on the same day--not 24 hours--but the same calendar day).
The CFPB continues to hunt down MSAs (marketing service agreements, often between realtors and lenders, or title insurance providers).
"Veni, Vidi, Velco"--I came, I saw, I stuck around. (Columbus Day joke)
Interesting? The FDIC and CFPB have issued a training module called Money Smart for Older Adults (MSOA), which "provides awareness among older adults and their caregivers on how to prevent elder financial exploitation and to encourage advance planning and informed financial decision-making." "Each year millions of senior citizens are targeted for financial exploitation," said FDIC Chairman Martin J. Gruenberg. "Building on the success of the FDIC's Money Smart curriculum, this program will provide a new resource to help older adults avoid being victims of this type of elder abuse."
[The following concepts taken from "For Your Improvement: A Guide for Development and Coaching," (c) by Michael Lombardo & Robert Eichinger.]
Are you a skilled presenter? A skilled presenter commands attention and can manage group process during the presentation. A skilled presenter can change tactics midstream when something isn't working. Overconfidence can be a killer. Be careful not to make style and presentation skills more important than fact and substance. Don't over-use your ability to wing it and dance without really being prepared. Here are two specific tips on being a good presenter
taken from FYI:
Not connecting? Read the audience. Unfortunately, one speech generally does not play equally well across audiences. Many times you will have to adjust the tone, pace, style and even the message and how you couch it for different audiences. If you are giving the same speech for different audiences, always ask yourself how are they different? Some differences among audiences include level of sophistication, friendly vs. unfriendly, the time sensitivity of the audience, how much the audience expects to participate, how much entertainment they expect, and whether a logical or emotional argument will play better.
Difficult audience? Calmly deal with serious hecklers. There are bad people who may want to embarrass you or anyone who presents to them. When heckled, bide time while asking the attacker to say more. .... Don't take too much time responding to an attacker. The rule of 30 seconds, or two attempts, still applies. If you overdo your response, it may irritate others in the audience who have questions or who don't agree with the attacker.
"It normally takes more than three weeks to prepare a good impromptu speech"
- Mark Twain
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**These are our opinions. We're not authorized, or willing, to express those of others.**