Attention Realtors---Must Read Post

Attention Texas Real Estate Agents! This post is for you and I would encourage you to become familiar with the changes coming up that will affect your business. You can count on Security National Mortgage to continue to educate you about the changes as they take affect in 2014 and as they are modified in the months to come.

What is the general ATR (Ability To Repay)

standard?

Under the general ATR standard, you must make a reasonable, good-faith determination before 

or when you consummate a covered mortgage loan that the consumer has a reasonable ability to 

repay the loan. 

What are the eight ATR 

underwriting factors I must 

consider and verify under the 

rule?

A reasonable, good-faith ATR evaluation must include eight ATR underwriting factors: 

1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan 

2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay) 

3. Monthly mortgage payment for this loan. You calculate this using the introductory or fully-indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal.

4. Monthly payment on any simultaneous loans secured by the same property 

5. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent.

6. Debts, alimony & child support payments. 

7. Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income 

8. Credit history, the rule does not preclude you from considering additional factors, but you must consider at least these eight factors. 

How do I determine ATR?

Our organization is responsible for developing and applying its own underwriting standards and 

making changes to those standards over time in response to empirical information and changing economicand other conditions. Implementation Tip: When determining ATR, you have to verify only the income or assets used to qualify the consumer for the loan. Implementation Tip: When the consumers’ applications list debt that does not show up on their credit reports, you must consider that debt in assessing either the consumers’ 

debt-to-income ratios or residual income, but you do not need to independently verify that debt.  17 

To help your organization incorporate the ATR concepts into its operations, the Bureau has prepared some examples that illustrate how your internal policies can influence your ATR determinations. 

The list below is not a comprehensive list of all the ways your underwriting guidelines might measure ATR. 

Each of you must look at the issue of ATR in the context of the facts and circumstances relevant to your market, your organization, and your individual consumers. Given those caveats, here are some of the types of factors that may show that your ATR determination was reasonable and in good faith: 

 Underwriting standards: You used standards to underwrite the transaction that have 

historically resulted in comparatively low rates of delinquency and default during adverse 

economic conditions. 

 Payment history: The consumer paid on time for a significant time after origination or reset of an adjustable-rate mortgage. Among the types of factors that may show that your ATR determination was not reasonable and in good faith: 

 Underwriting standards: You ignored evidence that your underwriting standards are not effective at determining consumers’ repayment ability. 

 Inconsistency: You applied underwriting standards inconsistently or used underwriting 

standards different from those you used for similar loans without having a reasonable justification. 

 Payment history: The consumer defaults early in the loan, or shortly after the loan resets, 

without having experienced a significant financial challenge or life-altering event. 

The reasonableness and good faith of your determination of ATR depends on the facts and 

circumstances relevant to the particular loan. For example, a particular ATR determination may 

be reasonable and in good faith even though the consumer defaulted shortly after consummation 

if, for example, the consumer experienced a sudden and unexpected loss of income. 

If the records you review indicate there will be a change in the consumers’ repayment ability after 

consummation (for example, they plan to retire and not obtain new employment, or they plan to 

transition from full-time to part-time work) you must consider that information. 

Ok that is enough for today! I will be posting pieces of the rule between now and the end of the year. I don't expect you to remember all of this so you can refer to http://files.consumerfinance.gov/f/201310_cfpb_atr-qm-small-entity_compliance-guide.pdf for the complete rule. As ammendments come out I will try to stay on top of those here as well. 

You can expect some lenders to get even more picky and careful about accepting income verification and making exceptions on Debt Ratios. It will be wise to prepare your clients to document everything, especially if they are self employed.

NMLS #3116