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What Brokers Need to Know Broker ATRQM Safe Harbor Rebuttal Presumption 1.

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Presentation on theme: "What Brokers Need to Know Broker ATRQM Safe Harbor Rebuttal Presumption 1."— Presentation transcript:

1 What Brokers Need to Know Broker ATRQM Safe Harbor Rebuttal Presumption 1

2 This presentation is limited to discussion of Residential Bancorp’s policies with respect to the new Ability-to-Repay/Qualified Mortgage rules. This document, presentation and guidance is not intended as legal advice. You should consult with your legal counsel for guidance on applying these rules in your business. This document may not be copied or distributed in any form. This is not legal advice! 2

3 The core of the ability to repay requirement is that creditors make a reasonable good faith determination at or before consummation that the consumer will be able to repay the loan. 3

4 Enhances and replaces existing regulations that already require creditors to consider a consumer's ability to repay on higher-priced mortgage loans (“HPML”). The coverage of the ability to repay requirement will be much broader because it will apply to all loans. HPML = APOR + 1.5% 4

5 Effective Date of the Law: Loans originated on or after January 10 th, 2014 For All Occupancy Types unless specified as business use Submissions to Residential Bancorp Effective February 17, 2014 regardless of origination date, all loans will be subject to ATR/QM requirements. Effective Dates: 5

6 Open-end credit plans (HELOCs) Time-share plans Reverse mortgages Temporary or bridge loans with terms of 12 months or less Construction phase of 12 months or less of a construction to permanent loan. Consumer credit transactions secured by vacant land Down Payment Assistance Providers of Secondary Financing Exclusions: 6

7 ATR  focus is underwriting – not loan terms. QM  focus is on Loan Terms (terms & fees) and Underwriting ATR & QM : 7

8 General Ability to Repay (NO PRODUCT RESTRICTIONS) Qualified Mortgage General ATR Temporary Qualified Mortgage Small Creditor Qualified Mortgage Balloon Payment Qualified Mortgage Five Standards of ATR: 8

9 1.Current or reasonably expected income or assets that the consumer will rely on to repay the loan 2.Current employment status 3.Monthly mortgage payment for the loan, calculated using the introductory or fully-indexed rate, whichever is higher (payments should be substantially equal…no teaser rates on ARMS) 4.Monthly payment on any simultaneous loan secured by the same property 5.Monthly payment for property taxes and insurance, plus certain other costs related to the property (HOA Fees, flood etc.). 6.Debts, alimony, and child support obligations (43% is not an ATR requirement – it’s a QM requirement). 7.Monthly debt-to-income ratio (DTI) or residual income as a ratio of gross monthly income (43% is not an ATR requirement – it’s a QM requirement). 8.Credit history General Ability to Repay: 9

10 Receives a presumption of compliance with the ability to repay requirements. Where creditors are willing to meet the requirements for a qualified mortgage, their risk of challenge for failing to satisfy the ability to repay rules is reduced. THE KEY… AGENCIES ARE MANDATED TO MAKE QM LOANS. Why QM?: 10

11 Satisfies QM & is not HPML Rate Less then or equal to: 1 st APOR nd APOR +3.5 Safe Harbor Satisfies QM & is HPML Rate Exceeds: 1 st APOR +1.5% 2 nd APOR + 3.5% Rebuttable Presumption Why QM? Answer: Presumption of Compliance APOR – Average Prime Offer Rate 11

12 What is a Qualified Mortgage? Points & Fees Test 3% on loans > $100k $3,000 on loans >$60,000 but less than $100,000 5% on loans >$20,000 but less than $60,000 Loan Features Test Not greater than 30 years with no Risky Features: No Negative Amortization No Interest Only No Balloons Relevant Underwriting Requirements Verify & Consider Income Verify & Consider Assets Qualify at max rate in first 5 years Verify DTI (affordability) Mandatory PRODUCT FEATURE requirements for all QMs 12

13 What is a Qualified Mortgage? QM RULES APPLY TO GSE’S UNTIL THEY ADOPT THEIR OWN RULE, COME OUT OF CONSERVATORSHIP OR 7 YEARS (2021) 13 FHA has adopted a rate test of: 1.15% over APOR plus monthly MIP payment To be considered a Qualified Mortgage

14 What is a Qualified Mortgage? PRODUCT Mandatory product feature requirements for all QMs include: No risky features like negative amortization, interest-only, or balloon loans Maximum loan term is less than or equal to 30 years FEES Points and fees cap UNDERWRITING QM under any of three main categories: (1) the general definition; (2) the “GSE-eligible” provision; or (3) the small creditor provision 14

15 Qualified Mortgage Underwriting Requirement General Definition DTI < 43% (contact your AE to discuss Residential Bancorp's GSE Exemption GSE Exemption Eligible for purchase / guarantee by a GSE, FHA, VA, or USDA Regardless of the debt-to- income ratio Small Creditor Exemption For those lenders that make fewer than 500 first mortgages per year – Does Not Apply to Residential Bancorp Mandatory product features and… 15

16 What is included in Points & Fees Cap? LLPA’s are excluded if recovered through a higher rate. Broker Fees All Origination Fees Fees Retained by Affiliates Title: Notary, Doc Prep etc. Lender Fees All Lender Origination Fees 16

17 What is NOT included in Points & Fees Cap?  LLPAs are not bona fide third party charges AND ARE EXCLUDED if recovered through higher rates.  Bona fide discount points – Bona fide means they reduce the rate!  Third party fees that are customary and reasonable. 17

18 Points & Fees Example LOAN AMOUNT128K250K400K Broker Comp 2.25%$,2880$5625$9,000 Lender Fee$600 Affiliate Fees$500 Total Points & Fees$3,980$6725$10,100 Max Points & Fees$3,840*$7,500*$12,000* PassNoYes 18 *A Tad less…. Loan Amount – UFMIP & Prepaid Interest

19 Questions: Contact your Account Executive to make sure our compliance team can review all of your questions! 19


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