Written By: Glenn Michaels, Op-Ed Writer
All mortgage loans whether they fit under the Qualified Mortgage (QM) or fit under the Non – Qualified Mortgage now must fit under the so called “umbrella’ called Ability to Repay (ATR).
The Consumer Financial Protection Bureau has issued their ATR factors for a non – qualified mortgage. The factors, if analyzed correctly assist an underwriter/lender in the decision process. The factors are below:
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Income or Assets: Lenders are required to consider and verify the borrower’s income and or the assets. The ATR rules do not prescribe the exact method or required documentation. The income and assets consideration s are dictated by the lender’s guidelines.
Employment Status: The lenders shall consider and verify employment status using third party documentation. The rules for a Non – QM loans are less specific that the rules for a QM mortgage.
Payment Underwriting: The qualifying principle and interest used in the DTI calculations is based greater of the fully indexed rate or start rate for a non – QM loan.
Simultaneous loans: The lender shall consider and verify any simultaneous loan payment amounts and use these in the DTI calculation based on the outstanding balance and loan terms as of the subject loans consummation.
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Mortgage Rated Obligations: Lenders must consider and verify other mortgage related obligations for inclusion in the DTI calculations.
Debt, Alimony, Child Support: The lender shall consider and verify the recurring debt obligations, alimony and child support obligations in the DTI calculation.
DTI or Residual Income calculation: The lender shall consider and verify the DTI, and the borrower’s repayment ability.
Credit History: The lender shall consider and verify the borrower’s credit history.
The problem with the above rules is that the agencies do not clarify just suggest and the lender is asked to decide how stringent they want to be. The rules are too open, vague and not specific enough. There is too much subject to interpretation.
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A non – QM lender has too much at stake in the QM world. Go over the risks associated in doing a Non – QM before deciding if the Non - QM business model is right for you.
About The Author
Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
