There’s still some understandable confusion on the Ability to Repay (ATR)/Qualified Mortgage (QM) Rule and its impact on the Higher-Priced Mortgage Loan (HPML) requirements. Here are a few things to remember:
• A Small Creditor Portfolio QM or Balloon Payment QM is referred to as a higher-priced covered transaction (HPCT) only if the rate spread exceeds the Average Prime Offer Rate (APOR) by 3.5% or more. This “test” only dictates whether you qualify for a safe harbor (rate spread less than 3.5%) or a rebuttable presumption of compliance (rate spread 3.5% or more). These types of QM’s can be first-lien HPML’s and still qualify for the safe harbor.
• First-lien Small Creditor Portfolio QMs and Balloon Payment QMs with an APOR rate spread of 1.5 or more must still follow the HPML rules. This will likely mean that you also have to follow the escrow requirements (unless you’re exempt from them), but QMs are exempt from the HPML appraisal requirements. That’s good news, but don’t forget about the Regulation B appraisal requirements!
• If you have a non-QM HPML with a balloon payment, you must consider the balloon payment in the repayment analysis, regardless of when it occurs.
Yes, this stuff is confusing! Here are two takeaways:
1. Unless you’re exempt from the HPML escrow requirements, you generally have to escrow on any closed-end, first-lien consumer loan secured by a primary dwelling with a rate spread of at least 1.5 over the APOR; and,
2. If you have an HPML with a balloon, the only time you do not have to factor in the balloon payment in your repayment analysis is if the loan is a Balloon Payment QM.
Diane joined Banker’s Compliance Consulting with over 10 years of compliance experience and over 15 years of experience within the financial industry. Diane is a Certified Regulatory Compliance Manager (CRCM) and has a Bachelor’s Degree in Sociology with a concentration in Criminal Justice. She is a graduate of the Schools of Banking Compliance School and has participated in various other training opportunities throughout her career. Diane understands firsthand the struggles banks face in building and maintaining successful compliance programs. Her experience and common sense approach to consumer compliance is a great asset to our clients.
Diane and her husband have two kids who keep them busy. She enjoys running and other sports and is a big Bugs Bunny fan! She’s a bit crazy in that she does enjoy reading some of these regulations and she’s a “crazy cat lady!” Her cat tales are hilarious!