Ability-to-Repay and Qualified Mortgage Rule

April 2021

Ability-to-Repay and

Qualified Mortgage Rule

Small entity compliance guide

1 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Version log

The Bureau periodically updates this guide. Below is a version log noting the history of this

document and its updates:

Date Version Summary of Changes

April 2021 3.1 Updated to reflect the extension of the mandatory

compliance date for the General QM Final Rule (Sections

1, 2.2, 4, 4.3, 4.3.1, 4.3.2, 4.5.1).

Revised the discussion of the Temporary GSE QM

definition (Section 4.5.1).

February

2021

3.0 Updated to reflect the amendments set forth in the GSE

Patch Extension Final Rule, General QM Final Rule, and

Seasoned QM Final Rule as follows:

 Revised the introduction, overview and the

discussion of the effective date to include the final

rules (Sections 1, 2, and 2.2);

 Revised the section discussing verification of

income under the general ATR standard to note that

a creditor is required to confirm that an inflow of

funds into a consumer’s account are the consumer’s

personal income if the creditor relies on those funds

in making an ability-to-repay determination (Section

3.3.2);

 Added an introduction to the section discussing

General QMs (Section 4.3);

 Revised the discussion of the debt-to-income

based General QM definition to account for the

General QM Final Rule (Section 4.3.1);

2 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Date Version Summary of Changes



Created a new section to discuss the price-

based General QM definition (Section 4.3.2);

 Created a new section to discuss the Seasoned

QM category (Section 4.4);

 Divided the discussion of the Temporary QMs

into two subsections (Section 4.5);

 Revised the discussion of the Temporary GSE

QM to include the GSE Patch Extension Final Rule

(Section 4.5.1); and

 Updated the discussion of the Temporary QMs

due to the issuance of the separate QM rules by

various government agencies (Section 4.5.2).

Updated to note that the guide is a Compliance Aid under

the Bureau’s Policy Statement on Compliance Aids

(Section 1.1).

Updated to include current information on locating

additional compliance resources (Section 1.2).

Revised and re-organized the discussion of the general

ATR standard (Section 3).

Revised and re-organized the discussion of qualified

mortgages (Section 4).

Revised and moved the discussion of prepayment

penalties into a new section (Section 6).

Updated various sections to reflect current formatting for

small entity compliance guides.

Revised various sections to clarify that most obligations

under the ATR/QM Rule apply to creditors.

3 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Date Version Summary of Changes

Revised internal cross references in various sections to

refer to section numbers instead of page numbers.

Deleted outdated information related to implementation of

the initial ATR/QM Rule.

Made miscellaneous and administrative changes in various

sections.

March 28,

2016

2.4 The Bureau issued a final rule, the September 2015 Final

Rule, amending certain mortgage rules, and the March

2016 Interim Final Rule to:

 Revise the definitions of small creditor and rural

area.

 Amend the requirements to make QM’s for small

creditors.

 Establish a grace period to allow a creditor that

does not meet the small creditor origination limit or

asset limit in the preceding year to operate as a

small creditor for mortgage transactions with

applications received before April 1 of the current

calendar year if it meets the limits in the calendar

year before the preceding calendar year.

 Establish a grace period to allow a small creditor

that did not meet the test for operating in a rural or

underserved area in the preceding calendar year to

operate as a small rural creditor for mortgage

transactions with applications received prior to April

1 of the current calendar year if it met the rural or

underserved test in the calendar year before the

preceding calendar year.

4 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Date Version Summary of Changes

Temporary QM Provision. The Federal Housing

Administration (FHA) and the U.S. Department of Veterans

Affairs (VA) have each issued their own QM rules.

Therefore, the section of the guide that addresses this has

been modified.

November 3,

2014

2.3 The Bureau published a final rule amending certain

mortgage rules to

 amend the existing exemption from the ability-to-

repay rule for nonprofit entities that meet certain

requirements; and

 provide a cure mechanism for the points and fees

limit that applies to qualified mortgages.

January 8,

2014

2.2 Miscellaneous Administrative Changes.

October 17,

2013

2.1 Points-and-Fees Calculation: Loan Originator

Compensation. Clarifies for retailers of manufactured

homes and their employees what compensation must be

counted as loan originator compensation and thus included

in the points and fees thresholds for qualified mortgages

and high-cost mortgages.

 Points and Fees Calculation: Non-consumer

payments. Clarifies the treatment of payments

made by the creditor or a seller or other third party,

rather than by the consumer, for purposes of what

must be included in the points and fees thresholds

for qualified mortgages and high-cost mortgages.

Period to be considered when making Small Creditor

status determination after January 10, 2016. Changes the

look back period for rural and underserved lending activity

5 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Date Version Summary of Changes

that is used in the definition of Small Creditor, effective

January 10, 2016.

August 14,

2013

2.0 Exemptions: Creditors with certain designations, loans

pursuant to certain programs, certain nonprofit creditors,

and mortgage loans made in connection with certain

Federal emergency economic stabilization programs are

exempt from ability to repay requirements.

Qualified Mortgages (QMs): Additional definition of a

qualified mortgage for loans held in portfolio by small

creditors.

Qualified Mortgages: Transitional definition of creditors

eligible to originate Balloon-Payment Qualified Mortgages.

Qualified Mortgages: Shifts the annual percentage rate

(APR) threshold for Small Creditor and Balloon-Payment

QMs from 1.5 percentage points above the average prime

offer rate (APOR) on first-lien loans to 3.5 percentage

points above APOR.

Points-and-Fees Calculation: Modifies the requirements

regarding the inclusion of loan originator compensation in

the points-and-fees calculation.

Qualified Mortgages: Clarifies how eligibility will be

determined for QMs under the temporary provision

allowing QM status for loans eligible for purchase,

guaranty, or insurance by the GSEs or certain federal

agencies.

Qualified Mortgages: Amends and clarifies how debt and

income will be determined under appendix Q for the

purpose of meeting the 43% DTI requirement under the

general QM provision.

6 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Date Version Summary of Changes

April 30,

2013

1.0 Original Document.

7 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Table of contents

Table of contents ..............................................................................................................7

1. Introduction ..................................................................................................................9

1.1 Scope of this guide ...................................................................................... 10

1.2 Additional resources ................................................................................... 11

2. Overview of the ATR/QM Rule ..................................................................................12

2.1 Cove rage ......................................................................................................13

2.2 Effective date...............................................................................................15

2.3 Record retention .........................................................................................15

3. General ATR Standard………………………………………………………… 16

3.1 Determining ATR ....................................................................................... 16

3.2 Eight ATR underwriting factors ................................................................ 18

3.3 Verifying information using reasonably reliable third-party records ..... 22

4. Qualified mortgages..................................................................................................28

4.1 Presumptions of compliance ..................................................................... 28

4.2 Requirements that apply to all QMs under the ATR/QM Rule ................31

4.3 General QMs ...............................................................................................31

4.4 Seasoned QMs............................................................................................ 36

4.5 Temporary QM Definitions ....................................................................... 38

4.6 QMs that only certain creditors are eligible to originate ......................... 39

4.7 Points-and-fees limits ................................................................................ 43

5. Refinancing from Non-Standard to Standard Loans ............................................50

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6. Limits on prepayment penalties...............................................................................52

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1. Introduction

In the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),

Congress adopted ability-to-repay (ATR) requirements for virtually all closed-end residential

mortgage loans. Congress also established a presumption of compliance with the ATR

requirements for certain categories of mortgages, called Qualified Mortgages (QMs).

In January 2013, the Consumer Financial Protection Bureau (Bureau) adopted a final rule

(January 2013 Final Rule) that implements the Dodd Frank Act’s ATR/QM provisions and

prepayment penalty limits. In May, July, and October 2013 and in October 2014, the Bureau

issued final rules amending certain provisions of the January 2013 Final Rule. In September

2015 and March 2016, the Bureau issued rules further amending certain small creditor

provisions. In October 2020, the Bureau issued a final rule extending an existing, temporary

category of QMs for loans eligible for purchase or guarantee by the government-sponsored

enterprises (GSEs), while operating under the conservatorship or receivership of the Federal

Housing Finance Agency. In December 2020, the Bureau issued final rules creating a new

category of QMs called Seasoned QMs and amending an existing category of QMs, General QMs.

On April 27, 2021, the Bureau issued a final rule extending the mandatory compliance date of

the December 2020 final rule that amended the General QM definition from July 1, 2021 to

October 1, 2022. This guide uses the term “ATR/QM Rule” or “Rule” to refer to the January

2013 Final Rule as amended by these additional rules.

Separately, in section 101 of the 2018 Economic Growth, Regulatory Relief, and Consumer

Protection Act (EGRRCPA), Congress provided protection from liability for insured depository

institutions and insured credit unions with assets below $10 billion with respect to certain ATR

requirements regarding residential mortgage loans.

Specifically, the protection from liability is

available if a loan: (1) is originated by and retained in portfolio by the institution, (2) complies

with requirements regarding prepayment penalties and points and fees, and (3) does not have

any negative amortization or interest-only features. Further, for the protection from liability to

apply, the institution must consider and document the debt, income, and financial resources of

the consumer. Section 101 of EGRRCPA also provides that the protection from liability is not

available in the event of legal transfer except for transfers: (1) to another person by reason of

EGRRCPA section 101, 15 U.S.C. 1639c(b)(2)(F).

10 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

bankruptcy or failure of a covered institution; (2) to a covered institution that retains the loan in

portfolio; (3) in the event of a merger or acquisition as long as the loan is still retained in

portfolio by the person to whom the loan is sold, assigned, or transferred; or (4) to a wholly

owned subsidiary of a covered institution, provided that, after the sale, assignment, or transfer,

the loan is considered to be an asset of the covered institution for regulatory accounting

purposes. Section 101 did not require rulemaking to be effective and, as of February 2021, the

Bureau has not engaged in rulemaking addressing this category of QM loans. Further

discussion of section 101 of EGRRCPA therefore is beyond the scope of this guide, which focuses

specifically on the ATR/QM Rule.

1.1 Scope of this guide

This guide focuses on the ATR/QM Rule. Except when specifically needed to explain the Rule,

this guide does not discuss other laws, regulations, or regulatory guidance that may apply. The

content of this guide does not include any rules, bulletins, guidance, or other interpretations

issued or released after the date on the guide’s cover page. Additionally, except as noted in the

introduction in Section 1, this guide does not discuss protections from liability separately

provided by Congress under section 101 of the EGRRCPA.

This guide meets the requirements of section 212 of the Small Business Regulatory Enforcement

Fairness Act of 1996 with regard to the ATR/QM Rule and is a Compliance Aid issued by the

Consumer Financial Protection Bureau. The Bureau published a Policy Statement on

Compliance Aids, available at

www.consumerfinance.gov/policy-compliance/rulemaking/final-

rules/policy-statement-compliance-aids/, that explains the Bureau’s approach to Compliance

Aids.

Users of this guide should review the ATR/QM Rule as well as this guide. The ATR/QM Rule is

available at www.consumerfinance.gov/compliance/compliance-resources/mortgage-

resources/ability-repay-qualified-mortgage-rule/ .

11 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

1.2 Additional resources

Additional resources to help industry understand and comply with the ATR/QM Rule are

available on the Bureau’s website at

www.consumerfinance.gov/compliance/compliance-

resources/mortgage-resources/ability-repay-qualified-mortgage-rule/. You may also sign up on

this website for an email distribution list that the Bureau will use to announce additional

resources as they become available.

If you have a specific regulatory interpretation question about the ATR/QM Rule after reviewing

these resources, you can submit the question to the Bureau on its website at

reginquiries.consumerfinance.gov

. Bureau staff provides only informal responses to regulatory

inquiries, and the responses do not constitute official interpretations or legal advice. Bureau

staff is not able to respond to specific inquiries within a particular requested timeframe. Actual

response times will vary based on the number of questions Bureau staff is handling and the

amount of research needed to respond to a specific question.

12 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

2. Overview of the ATR/QM

Rule

The ATR/QM Rule requires a creditor to make a reasonable and good-faith determination of a

consumer’s ability to repay at or before consummation of a covered mortgage loan. A creditor

complies with this ATR requirement if the creditor satisfies the Rule’s general ATR standard

when originating a loan. Additionally, the creditor is presumed to comply with the ATR

requirement with regard to a particular loan the creditor originates if the loan satisfies the

criteria to be a QM pursuant to the Rule.

To satisfy the ATR/QM Rule’s general ATR

standard, a creditor must consider eight factors:

 The consumer’s current or reasonably

expected income or assets (other than the

value of the dwelling and attached real

property securing the loan);

 The consumer’s employment status, if the

creditor relies on income from employment

in determining the consumer’s ATR;

 The consumer’s monthly mortgage loan payment;

 The consumer’s monthly payment for mortgage-related obligations (e.g., property taxes,

homeowner’s association and condominium fees, and certain ongoing expenses that are

related to the mortgage loan and required by the creditor);

 The consumer’s monthly payments on simultaneous loans that are secured by the same

property;

 The consumer’s current debt obligations, alimony, and child-support payments;

 The consumer’s monthly debt-to-income ratio or residual income; and

 The consumer’s credit history.

The ATR/QM Rule does not ban any

particular loan features or transaction types,

but a particular loan to a particular consumer

is not permissible if the creditor does not

make a reasonable, good-fait h determination

that the consumer has the ability to repay.

For example, it is no longer possible to

originate loans based on stated income.

Additionally, the Rule has specific

requirements and limitations related to loans

with certain nontraditional features.

13 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

The creditor must also verify information it relied on when making its ATR determination. The

Rule’s general ATR standard is discussed in Section 3.

The ATR/QM Rule provides a presumption that a creditor has complied with the ATR

requirement if the creditor originates a QM. In exchange for meeting certain requirements,

QMs receive either a conclusive or a rebuttable presumption that the creditor complied with the

ATR/QM Rule’s requirements. Except for Seasoned QMs, the type of presumption depends on

the pricing of the loan, i.e., whether the loan is not higher-priced or is higher-priced. The Rule’s

provisions related to QMs are discussed in Section 4.

A creditor is not required to comply with the Rule’s ATR requirements if the creditor satisfies

the Rule’s conditions for the refinancing of a non-standard mortgage loan to a standard

mortgage loan. The conditions for this exception are discussed in Section 5.

The ATR/QM Rule implements other provisions of the Dodd-Frank Act that limit prepayment

penalties. The Rule’s limits on prepayment penalties are discussed in Section 6.

2.1 Coverage

The ATR/QM Rule applies to almost all closed-end

consumer credit transactions secured by a dwelling

including any real property attached to the

dwelling. 12 CFR 1026.43(a). This means that the

Rule generally applies to loans made to consumers

and secured by residential structures that contain

one to four units, including condominiums and co-

ops. See 12 CFR 1026.2(a)(19). Unlike some other

mortgage rules, the ATR/QM Rule is not limited to

first-lien loans or to loans secured by a primary residence.

However, some specific categories of loans are excluded from the Rule’s ATR requirements.

Specifically, the Rule’s ATR requirements do not apply to any of the following:

The ATR/QM Rule’s ATR requirements only

apply to a loan modification if it is a

refinancing under Regulation Z, 12 CFR

1026.20. See comment 43(a)-1. For

information on how the ATR/QM Rule

applies to assumptions, see the Bureau’s

2014 interpretive rule, 79 Fed. Reg. 41631

(July 17, 2014).

14 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 Open-end credit plans (home equity lines of credit or HELOCs) subject to 12 CFR

1026.40. However, a loan may not be structured as open-end credit to evade the Rule’s ATR

requirements. 12 CFR 1026.43(h).

 Timeshare plans.

 Reverse mortgages subject to 12 CFR 1026.33.

 Temporary or bridge loans with terms of 12 months or less (with possible renewal).

 A construction phase of 12 months or less (with possible renewal) of a construction-to-

permanent loan.

 Loans secured by vacant land.

12 CFR 1026.43(a).

In addition, certain types of creditors or loan programs may be exempt from the ATR/QM Rule’s

ATR requirements. See 12 CFR 1026.43(a)(3)(iv) through (vi). Extensions of credit made by

any of the following creditors are exempt from the ATR/QM Rule’s ATR requirements:

 Creditors designated by the U.S. Department of the Treasury as Community

Development Financial Institutions.

 Creditors designated by the U.S. Department of Housing and Urban Development

(HUD) as either a Community Housing Development Organization or a Downpayment

Assistance Provider of Secondary Financing, under certain conditions.

 Creditors designated as nonprofit organizations under section 501(c)(3) of the Internal

Revenue Code of 1986 that extend dwelling-secured credit no more than 200 times

annually, provide dwelling-secured credit only to low-to-moderate income consumers,

and follow their own written procedures to determine that consumers have a reasonable

ability to repay their loans. Note that some subordinate liens are not counted towards

the 200-credit extension limit. See 12 CFR 1026.43(a)(3)(vii).

12 CFR 1026.43(a)(3)(v).

Extensions of credit made by housing finance agencies directly to consumers, as well as

extensions of credit made by other creditors pursuant to a program administered by a housing

finance agency, are exempt from the ATR requirements. This ATR exemption applies to

extensions of credit made pursuant to a program administered by a housing finance agency,

15 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

regardless of the funding source (e.g., federal, state, or other sources). 12 CFR

1026.43(a)(3)(iv).

Extensions of credit made pursuant to an Emergency Economic Stabilization Act program, such

as extensions of credit made pursuant to a State Hardest Hit Fund program, are also exempt

from the ATR requirements. 12 CFR 1026.43(a)(3)(vi).

The exemptions above apply to all loans made by these creditors or pursuant to these loan

programs, provided the conditions for the exemption are satisfied. An exempt loan remains

exempt even if it is sold, assigned, or otherwise transferred to a creditor that would not qualify

for the exemption. The ATR/QM Rule’s ATR requirements do not apply to these loans. Thus, a

loan that is eligible for one of these exemptions is not eligible for QM status, as the QM

provisions are only applicable to loans subject to the Rule’s ATR requirements. A consumer who

obtained a loan that was exempt would have no ATR claim under the Rule.

2.2 Effective date

The ATR/QM Rule originally took effect on January 10, 2014. The Bureau has—from time to

time—issued rule updates that have different effective dates. Most recently, the Bureau issued

the Patch Extension Final Rule, the General QM Final Rule, and the Seasoned QM Final Rule.

The Patch Extension Final Rule took effect on December 28, 2020. The General QM Final Rule

and the Seasoned QM Final Rules are effective on March 1, 2021. However, compliance with the

General QM Final Rule is not mandatory until October 1, 2022. See Sections 4.3 through 4.5 of

this Guide for more information.

2.3 Record retention

The ATR/QM Rule requires creditors to retain evidence of compliance with the ATR/QM Rule,

including the prepayment penalty limits, for three years after consummation. 12 CFR

1026.25(c)(3). Creditors may want to keep records for a longer period, and nothing in the Rule

prohibits them from doing so.

16 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

3. General ATR standard

Section 3.1 provides general information about the general ATR standard and making a

reasonable and good-faith determination of a consumer’s ability to repay a loan. Section 3.2 sets

forth the eight factors a creditor must consider when making a reasonable and good-faith

determination of a consumer’s ability to repay a covered mortgage loan. Section 3.3 discusses

the use of reasonably reliable third-party records to verify the information used to make a

reasonable and good-faith determination of a consumer’s ability to repay.

3.1 Determining ATR

The general ATR standard requires a creditor to make a reasonable and good-faith

determination of a consumer’s ability to repay at or before consummation of a covered mortgage

loan. 12 CFR 1026.43(c)(1). However, the ATR/QM Rule does not provide comprehensive

underwriting standards for creditors to use when making such a determination. As long as

creditors consider the eight factors discussed in Section 3.2 and verify the information that they

relied on when considering those factors as discussed in Section 3.3, creditors are permitted to

develop their own underwriting standards and make changes to those standards over time in

response to empirical information and changing economic and other conditions. See comment

43(c)(1)-1.i.

To help creditors incorporate the ATR concepts into their operations, the Bureau has prepared

some examples that illustrate how internal policies can influence ATR determinations. The list

below is not a comprehensive list of all the ways

underwriting guidelines might measure ATR. Each

creditor must look at the issue of ATR in the context of

the facts and circumstances relevant to the applicable

market, the creditor’s organization, and the creditor’s

individual consumers.

Given these caveats, here are some of the types of factors

that may show that an ATR determination was

reasonable and in good faith:

Creditors should check their

policies and procedures to ensure

that they incorp orate

consideration of each of the eight

factors. However, the ATR/QM

Rule does not require validation

of underwriting criteria using

mathematical models.

17 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 Underwriting standards: The creditor 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.

Comment 43(c)(1)-1.ii.

Among the types of factors that may show that an

ATR determination was not reasonable and in

good faith:

 Underwriting standards: The creditor

ignored evidence that its underwriting

standards are not effective at determining

consumers’ repayment ability.

 Inconsistency: The creditor applied

underwriting standards inconsistently or used

underwriting standards different from those it

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.

Comment 43(c)(1)-1.ii.

The reasonableness and good faith of a 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. Comment 43(c)(1)-1.

If a consumer has trouble repaying a loan,

the consumer could claim that the creditor

violated the ATR/QM Rule by failing t o m ake

a reasonable, good-faith d etermination of

their ATR before making the loan. However,

the ATR determination applies to

information known at or before

consummation. For example, a reduction in

the consumer’s income due to a job loss that

cannot be reasonably anticipated at or before

origination is not relevant to determining

compliance with the ATR/QM Rule.

Comment 43(c)(1)-2.

There is a three-year statute of limitations on

ATR claims brought as affirmative cases.

Additionally, after the statute of limitations

on affirmative ATR claims expires,

consumers can bring ATR claims as

setoff/recoupment claims in a defense to

foreclosure.

18 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

If the records the creditor reviews indicate there will be a change in the consumer’s repayment

ability after consummation (for example, the consumer plans to retire and not obtain new

employment or plans to transition from full-time to part-time work), the creditor must consider

that information. Comment 43(c)(1)-2. However, the creditor may not make inquiries or

verifications prohibited by Regulation B. Comment 43(c)(1)-3.

3.2 Eight ATR underwriting factors

To satisfy the general ATR standard, a creditor must consider the following eight factors at or

before consummation of a covered mortgage loan:

1. The consumer’s current or reasonably expected income or assets (other than the value of

the dwelling and attached real property that secures the loan) that the consumer will rely

on to repay the loan. Income does not have to

be income from full-time employment or

salaried income to be considered in an ATR

determination. A creditor can consider

seasonal or bonus income, rental income,

commissions, interest payments, dividends,

retirement benefits, trust income, public assistance payments, alimony, child support, and

other sources of income. Comment 43(c)(2)(i)-1. A creditor can also consider future income

if a creditor verifies it is using reasonably reliable third-party records. See comment

43(c)(2)(i)-3. A creditor may also consider assets other than the value of the dwelling and

any attached real property that secures the loan. For example, a creditor may consider funds

in a savings account, amounts vested in a retirement account, stocks, bonds, certificates of

deposit, and amounts available to the consumer from a trust fund. Comment 43(c)(2)(i)-1.

2. The consumer’s current employment status (if a creditor relies on employment income

when assessing the consumer’s ability to repay). A creditor can consider many types of

employment to make an ATR determination, including full-time, part-time, seasonal,

irregular, military, and self-employment. Comment 43(c)(2)(ii)-1. A creditor must consider

the characteristics of the consumer’s type of employment.

3. The monthly mortgage payment for the loan that the creditor is underwriting. The

creditor generally must calculate this monthly mortgage payment using the introductory or

fully indexed interest rate, whichever is higher, and monthly, fully amortizing payments that

Creditors must retain evidence that they

considered the eight factors, to comply with

the ATR/QM Rule’s record retention

requirement. See 12 CFR 1026.25(c)(3).

19 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

are substantially equal. Additional information on calculating monthly mortgage payments

is in Section 3.2.1.

4. The monthly payment on any simultaneous loans secured by the same dwelling.

Additional information on calculating payments for simultaneous loans is in Section 3.2.2.

5. Monthly mortgage-related obligations. These obligations include expected property

taxes, fees and special assessments imposed by a condominium, cooperative, or

homeowner’s association, ground rent, certain lease payments, and certain insurance

premiums and similar charges that are required by the creditor. See 12 CFR 1026.43(b)(8)

and related commentary.

6. The consumer’s current debts, alimony, and child-support obligations. Examples of

current debts include student loans, auto loans, revolving debt, and existing mortgages not

being paid off at or before consummation. Comment 43(c)(2)(vi)-1. Creditors have

significant flexibility to consider current debt obligations in light of facts and circumstances,

including that an obligation is likely to be paid off soon after consummation. Similarly,

creditors should consider whether debt obligations in forbearance or deferral at the time of

underwriting are likely to affect the consumer’s ability to pay after the expiration of the

forbearance or deferral period. Comment 43(c)(2)(vi)-1. When two or more consumers

apply as joint obligors with primary liability on a loan, a creditor must consider the debt

obligations of both of them in assessing their ability to repay the loan. However, the creditor

does not have to consider the debt obligations of someone who is merely a guarantor or

surety on the loan. Comment 43(c)(2)(vi)-2. See the discussion in comment 43(c)(3)-3

regarding when it is appropriate to disregard information in a credit report because it is

disputed or inaccurate.

7. The consumer’s monthly debt-to-income (DTI) ratio or residual income. The monthly

DTI ratio or residual income must be calculated using the total of all of the mortgage and

non-mortgage obligations listed above, compared to total monthly income. Additional

information on calculating the DTI ratio and residual income is in Section 3.2.3.

8. The consumer’s credit history. Credit history might include information about number

and age of credit lines, payment history, judgments, collections, bankruptcies, and

nontraditional credit references, such as rental payment history or utility payments. See

comment 43(c)(2)(viii)-1. While the ATR/QM Rule requires that the creditor consider the

consumer’s credit history, it does not prescribe a particular type of credit history to consider

or prescribe specifically how to evaluate the credit history information. 12 CFR

1026.43(c)(2)(viii); comment 43(c)(2)(viii)-1. When two or more consumers apply as joint

obligors with primary liability on a loan, a creditor must consider the credit histories of both

20 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

of them in assessing their ability to repay the loan. However, the creditor does not have to

consider the credit history of someone who is merely a guarantor or surety on the loan.

Comment 43(c)(2)(viii)-2. See the discussion in comment 43(c)(3)-3 regarding when it is

appropriate to disregard information in a credit report because it is disputed or inaccurate.

12 CFR 1026.43(c)(2).

The ATR/QM Rule does not preclude a creditor from considering additional factors when

making a determination of a consumer’s ability to repay a loan but requires a creditor to

consider at least these eight factors in order to satisfy the Rule’s general ATR standard.

3.2.1 Calculating payments under the ATR standard for

the covered mortgage loan being originated

Generally, the creditor calculates the monthly payment on the covered mortgage loan for ATR

purposes using the greater of the fully indexed rate or the introductory rate and substantially

equal monthly payments that would fully amortize the loan. 12 CFR 1026.43(c)(5). Payments

are substantially equal if, for example, no two monthly payments vary by more than 1 percent.

For loans paid quarterly or annually, the creditor must convert the payments into monthly

payments for purposes of determining ATR. Comment 43(c)(5)(i)-3.

However, there are also special rules and guidance provided for certain types of loans:

 For balloon loans, the calculation depends on whether the loan is a higher-priced loan.

Higher-priced loans are generally defined as having an annual percentage rate (APR)

that, as of the date the interest rate is set, exceeds the Average Prime Offer Rate (APOR)

by 1.5 percentage points or more for first-lien loans and 3.5 percentage points or more

for subordinate-lien loans. 12 CFR 1026.43(b)(4). APOR is published weekly at

www.ffiec.gov/ratespread

. For non-higher-priced balloon loans, the monthly payment

used for ATR purposes is the maximum payment scheduled during the first five years

after the first regular periodic payment comes due. 12 CFR 1026.43(c)(5)(ii)(A)(1). For

higher-priced balloon loans, the monthly payment used for ATR purposes is the

maximum payment in the payment schedule, including any balloon payment. 12 CFR

1026.43(c)(5)(ii)(A)(2).

 For interest-only loans, the creditor calculates the monthly payment using the greater of

the fully indexed or introductory rate and substantially equal, monthly payments of

21 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

principal and interest that will repay the outstanding loan amount on the date the loan

recasts over the remaining term of the loan. 12 CFR 1026.43(c)(5)(ii)(B).

 For negative-amortization loans, the creditor calculates the monthly payment using the

maximum loan amount (which will include the potential added principal assuming the

consumer makes the minimum required payments until the date the loan recasts), the

greater of the fully indexed or introductory rate, and substantially equal monthly

payments of principal and interest that will repay that maximum loan amount on the

date the loan recasts over the remaining term of the loan. 12 CFR 1026.43(c)(5)(ii)(C).

3.2.2 Calculating payments for simultaneous loans

secured by the same property

If a creditor knows or has reason to know that there is going to be a simultaneous loan (such as a

piggy-back loan or a silent second mortgage loan) made at or before the time the covered

mortgage loan will be consummated, the creditor must consider the payment on the

simultaneous loan in accordance with the following requirements:

 For simultaneous loans that are not HELOCs subject to 12 CFR 1026.40, the ATR

assessment must include a monthly payment for the simultaneous loan that is calculated

using the appropriate calculation method for covered mortgage loans as discussed in

Section 3.2.1. 12 CFR 1026.43(c)(6)(i).

 For simultaneous loans that are HELOCs subject to 12 CFR 1026.40, the ATR

assessment must include a payment for the simultaneous loan that is calculated based on

the periodic payment required under the terms of the plan and the amount of credit to be

drawn down at or before consummation of the covered mortgage loan. 12 CFR

1026.43(c)(6)(ii).

The creditor must also take into account any mortgage-related obligations for the simultaneous

loan. 12 CFR 1026.43(c)(6).

22 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

3.2.3 Calculating and considering DTI ratio and residual

income under the general ATR standard

The general ATR standard requires creditors to consider the consumer’s DTI ratio or residual

income but does not contain specific DTI ratio or residual income thresholds. 12 CFR

1026.43(c)(2)(vii) and (c)(7); comment 43(c)(7)-1.

When calculating the consumer’s monthly income for purposes of the DTI ratio or residual

income, a creditor can include earned income (e.g., wages or salary), unearned income (e.g.,

interest and dividends), and other regular payments to the consumer (e.g., alimony, child

support, or government benefits). 12 CFR 1026.43(c)(7)(i)(B). In all cases, the creditor must

verify the amounts it relies upon to determine ATR. Additional information on verification is

discussed in Section 3.3.

When calculating a consumer’s monthly debt for purposes of the DTI ratio or residual income,

the creditor will need to determine the consumer’s total monthly payments for:

 The loan that the creditor is underwriting (calculated as discussed in Section 3.2.1);

 Any simultaneous loans secured by the same property (calculated as discussed in Section

3.2.2);

 Mortgage-related obligations (e.g., property taxes, insurance required by the creditor,

and certain other costs related to the property such as fees owed to a condominium,

cooperative, or homeowner’s association, ground rent or leasehold payments, and special

assessments); and

 Current debt obligations, alimony, and child support.

12 CFR 1026.43(c)(7)(i)(A).

3.3 Verifying information using reasonably

reliable third-party records

A creditor generally must verify the information it relies on when determining a consumer’s

repayment ability using reasonably reliable third-party records. 12 CFR 1026.43(c)(3) and (4).

23 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

The ATR/QM Rule defines third-party records to include, among other things, records prepared

by an appropriate person other than the consumer, the creditor, the mortgage broker, or the

creditor’s or mortgage broker’s agent. 12 CFR 1026.43(b)(13)(i). For example, a creditor

generally cannot rely on what consumers say about their income. A creditor must verify a

consumer’s income using reasonably reliable third-party records such as W-2s or payroll

statements. See 12 CFR 1026.43(c)(4) and related commentary.

A creditor may rely on third-party records a consumer provides as long as the records are

reasonably reliable and specific to the consumer. 12 CFR 1026.43(b)(13); comments 43(c)(3)-1

and -2. The Rule defines third-party records to

include, among other things, records prepared by

the consumer, the creditor, the mortgage broker, or

the creditor’s or mortgage broker’s agent, if the

record is reviewed by an appropriate third party.

Comment 43(b)(13)(i)-1. For example, a cattle

rancher might provide an updated profit-and-loss

statement for the current year to supplement tax

returns from prior years. These records are

reasonably reliable third-party records to the extent

that an appropriate third party has reviewed them.

For example, if a third-party accountant prepared

or reviewed the cattle rancher’s profit-and-loss

statement, then a creditor can use the statement to

verify the rancher’s current income. Comment

43(b)(13)(i)-1.

Although a creditor must verify the income it relies

on to determine ATR, it is not required to verify

income that it does not rely on to determine ATR.

For example, if a consumer has a full-time job and a part-time job and the creditor uses only the

income from the full-time job to determine the consumer’s ability to repay, the creditor does not

need to verify the income from the part-time job. Additionally, if two or more consumers apply

for a mortgage, a creditor does not have to consider and verify both incomes—unless both

incomes are required to qualify for the loan and demonstrate ability to repay the loan. 12 CFR

1026.43(c)(3) and (4); comments 43(c)(4)-1 and -2.

While a creditor does not have to retain

actual paper copies of records used in

underwriting a transaction, the creditor

must be able to reproduce such records

accurately. For example, if a creditor

uses a consumer’s W-2 tax form to

verify income, the creditor must be able

to reproduce the form itself, not merely

the income information that was

contained in the form. Comment

25(c)(3)-1. Accordingly, a creditor can

obtain records transmitted

electronically, such as via email or a

secure external Internet link to access

information, if the creditor can retain or

otherwise reproduce such records

accurately during the three years the

creditor must retain ATR records.

Comment 43(b)(13)-1.

24 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

3.3.1 Verification of income, assets, and employment

status

A creditor must use reasonably reliable third-party records to verify the amounts of income and

assets that the creditor relies on when making

its ATR determination. The following list

provides some examples of records that a

creditor may be able to use, but is not an

exhaustive or all-inclusive list:

 Tax return transcript issued by the IRS;

 Copies of tax returns the consumer filed

with the IRS or a state taxing authority;

 Federal, state, or local government

agency letters detailing the consumer’s

income, benefits, or entitlements;

 W-2 forms or other IRS forms for

reporting wages or tax withholding;

 Payroll statements, including military

leave and earnings statements;

 Financial institution records, such as bank account statements or investment account

statements reflecting the value of particular assets;

 Records from the consumer’s employer or a third party that obtained consumer-specific

income information from the employer;

 Check-cashing receipts; and

 Remittance-transfer receipts.

12 CFR 1026.43(c)(4) and related commentary.

Copies of tax-return transcripts or payroll

statements can be obtained directly from the

consumer or from a service provider and

need not be obtained directly from a

government agency or employer, as long as

the records are reasonably reliable and

specific to the individual consumer.

Comment 43(c)(3)-2.

A creditor can also consider future income if

a creditor verifies it is using reasonably

reliable third-party records. For example, if

a consumer accepts a job in March, but will

not start until May, the creditor can consider

the future expected income if the employer

will confirm the job offer and salary in

writing. Comment 43(c)(2)(i)-3.

25 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

A creditor is required to confirm that an inflow of funds into a consumer’s account are the

consumer’s personal income if the creditor relies on those funds in making an ATR

determination. For example, a creditor would not meet the verification requirements of the

ATR/QM Rule if it observes an unidentified deposit in the consumer’s account but fails to take

any measures to confirm or lacks any basis to conclude that the deposit represents the

consumer’s personal income and is not from another source, such as proceeds from a loan.

Comment 43(c)(4)-4.

If a consumer has more income than, in the creditor’s reasonable and good-faith judgment, is

needed to repay the loan, the creditor does not have to verify the extra income. For example, if a

consumer has both a full-time and a part-time job and the creditor reasonably determines that

income from the full-time job is enough for the consumer to be able to repay the loan, the

creditor does not have to verify income from the part-time job. 12 CFR 1026.43(c)(3) and (4);

comment 43(c)(4)-1.

A creditor can document a consumer’s employment status by calling the employer and getting

oral verification, as long as the creditor maintains a record of the information obtained on the

call. 12 CFR 1026.43(c)(3)(ii).

3.3.2 Verification of mortgage-related obligations

The following list provides some examples of records that a creditor may be able to use to verify

mortgage-related obligations, but is not an exhaustive or all-inclusive list:

 Title report listing expected property taxes if the source of the information was a local

taxing authority;

 Records from government organizations such as a tax authority or local government;

 Billing statement from a condominium, homeowner’s or other association;

 Statement from the assessing entity (for example, a water district bill); and

 A current ground rent agreement or an existing lease agreement.

Comment 43(c)(3)-5.

26 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

3.3.3 Verification of debt obligations, child support,

alimony, and simultaneous loans

Generally, a creditor does not need to obtain individual statements for each of a consumer’s

debts and can use a credit report to verify a consumer’s debt obligations. However, a credit

report does not serve as a reasonably reliable third-party record for purposes of verifying items

that do not appear on the credit report. For example, certain monthly debt obligations, such as

legal obligations like alimony or child support, may not be reflected on a credit report. Thus, a

credit report that does not list a consumer’s monthly alimony obligation does not serve as a

reasonably reliable third-party record for purposes of verifying that obligation. Comment

43(c)(3)-3. Additionally, if a creditor knows or has reason to know that a credit report may be

inaccurate in whole or in part, the creditor complies with the ATR/QM Rule by disregarding an

inaccurate or disputed item, items, or credit report, but does not have to obtain additional third-

party records. For additional information on verification of debt obligations using a credit

report, see comments 43(c)(3)-3 and -6.

A credit report will not reflect a simultaneous loan that has not yet been consummated and may

not reflect a loan that has just recently been consummated. If a creditor knows or has reason to

know that there will be a simultaneous loan extended at or before consummation, the creditor

may verify the simultaneous loan by obtaining third-party verification from the creditor of the

simultaneous loan. For example, the creditor may obtain a copy of the promissory note or other

written verification. Comment 43(c)(3)-4.

If the consumer lists a debt obligation that does not show up on the credit report, a creditor may

accept the consumer’s statement about the existence and amount of the obligation without

further verification. 12 CFR 1026.43(c)(3)(iii).

3.3.4 Verification of credit history

Generally, a credit report is considered a reasonably reliable third-party record for verification

of a consumer’s credit history. However, if a creditor knows or has a reason to know that the

information on a consumer’s credit report may be inaccurate, the creditor can ignore it. For

example, there might be a fraud alert or a dispute on the credit report, or the consumer may

present other evidence that the creditor reasonably finds to be reliable and contradicts the credit

report. In those cases, the creditor may choose to disregard the inaccurate or disputed items.

Comment 43(c)(3)-3.

27 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

A creditor can verify credit history using reasonably reliable third-party records that show

nontraditional credit references, such as rental payment history or utility payments. Comment

43(c)(3)-7.

28 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4. Qualified mortgages

The ATR/QM Rule has several categories of QMs. All creditors are eligible to originate General

QMs, which are discussed in Section 4.3, and loans that become Seasoned QMs, which are

discussed in Section 4.4. However, only certain small creditors are eligible to originate Small

Creditor QMs and Balloon-Payment QMs, which are discussed in Section 4.6. In addition to

these four categories of QMs, the Rule has a temporary category of QMs, which expires on the

earlier of October 1, 2022 or the date on which the government-sponsored enterprises (GSEs)

exit conservatorship. A loan may qualify as a Temporary GSE QM only if the creditor receives

the application for the loan before October 1, 2022 or the date the applicable GSE exists

conservatorship, whichever occurs first. Additional information regarding Temporary QMs is

available in Section 4.5. Criteria that apply to all QMs under the Rule are discussed in Sections

4.2 and 4.7.

Mortgage loans that satisfy the criteria for one or more categories of QMs set forth in the

ATR/QM Rule are presumed to comply with the Rule’s ATR requirements. If a QM is higher-

priced (as defined in the Rule) and is not a Seasoned QM, the presumption of compliance is

rebuttable. Otherwise, the presumption of compliance is conclusive (i.e., the QM has a safe

harbor from liability under the Rule). The presumptions of compliance are discussed in Section

4.1.

4.1 Presumptions of compliance

A mortgage loan that satisfies the criteria for one or more categories of QMs set forth in the

ATR/QM Rule is presumed to comply with the Rule’s ATR requirements. 12 CFR 1026.43(e)(1).

Generally, originating a loan as a QM provides the creditor with either a rebuttable or a

conclusive presumption of compliance with the ATR/QM Rule’s ATR requirement for that loan.

Whether the presumption of compliance is rebuttable or conclusive generally depends on

whether the QM is a higher-priced loan, as defined in the Rule. If the QM is a higher-priced

loan, the creditor receives a rebuttable presumption of compliance for that loan. If the QM is

not a higher-priced loan, the creditor receives a conclusive presumption of compliance for that

loan. 12 CFR 1026.43(e)(1). However, if a loan is a Seasoned QM, the creditor receives a

conclusive presumption of compliance regardless of whether the loan is a higher-priced loan. 12

CFR 1026.43(e)(1)(i)(B). For more information on these presumptions of compliance, see

29 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Sections 4.1.1 and 4.1.2. For more information on determining whether a QM is a higher-priced

loan, see Section 4.1.3.

4.1.1 Conclusive presumption of compliance (i.e., safe

harbor)

All Seasoned QMs and other QMs that are not higher-priced loans are conclusively presumed to

comply with the ATR/QM Rule’s ATR requirements (i.e., the QM has a safe harbor from liability

under the Rule). 12 CFR 1026.43(e)(1)(i).

Under the safe harbor, if a court finds that a loan is a QM, then that finding conclusively

establishes compliance with the ATR/QM Rule’s ATR requirements.

For example, a consumer could claim that a creditor did not make a reasonable and good-faith

determination of repayment ability when it originated a loan subject to the ATR/QM Rule. If a

court finds that the loan is a Seasoned QM or is another type of QM and is not a higher-priced

loan, the consumer would lose this claim.

The consumer could attempt to show that the loan is not a QM, and therefore is not presumed to

comply with the ATR requirements. However, if the loan is indeed a QM and is not higher-

priced, the consumer has no recourse under the ATR/QM Rule.

4.1.2 Rebuttable presumption of compliance

QMs (other than Seasoned QMs) that are higher-priced loans provide the creditor with a

rebuttable presumption of compliance with the ATR requirements, but that presumption can be

rebutted. 12 CFR 1026.43(e)(1)(ii).

If a court finds that a loan is a QM (other than a Seasoned QM) and a higher-priced loan, a

consumer can rebut the presumption that the creditor complied with ATR/QM Rule. However,

to prevail on that argument, it must be proven that based on the information available to the

creditor at the time the loan was made, the consumer did not have enough income or assets

(other than the dwelling and any attached real property securing the loan) left to meet living

expenses after paying the loan, any simultaneous loan of which the creditor was aware,

mortgage-related expenses, alimony, child support, and other debts. 12 CFR 1026.43(e)(1)(ii);

comment 43(e)(1)(ii)-1.

30 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4.1.3 Higher-priced loans

A General QM or Temporary GSE QM is a higher-priced loan if:

 It is a first-lien mortgage for which, at the time the interest rate on the loan was set, the

APR was 1.5 percentage points or more over the APOR for a comparable transaction.

 It is a subordinate-lien mortgage with an APR that, when the interest rate was set,

exceeded the APOR for a comparable transaction by 3.5 percentage points or more.

12 CFR 1026.43(b)(4).

For example, if the APOR for a comparable transaction is 5 percent at the time when the interest

rate on a mortgage is set, then a first-lien mortgage is higher-priced if it has an APR of 6.5

percent or more.

A Small Creditor QM or Balloon-Payment QM is a higher-priced loan if it has an APR that, when

the interest rate was set, exceeded the APOR for a

comparable transaction by 3.5 percentage points or

more, for both first-lien and subordinate-lien

mortgages. 12 CFR 1026.43(b)(4). For example, if the

APOR for a comparable transaction is 5 percent at the

time when the interest rate on a mortgage is set, a

mortgage that is a Small Creditor Qualified Mortgage is

higher-priced if it has an APR of 8.5 percent or more,

regardless of whether it is first- or subordinate-lien

loan.

Rate-spread calculators and other guidance are

available online at http://www.ffiec.gov/ratespread/

They may be used to calculate the difference between a

loan’s APR and the APOR for a comparable loan.

This special definition of higher-

priced loan for Small Creditor

and Balloon-Payment QMs only

determines whether a loan has a

safe harbor or rebuttable

presumption of compliance with

the ATR requirements. It does

not affect whether a loan is a

“higher-priced mortgage loan”

(HPML) under other Bureau

rules and does not exempt a loan

from other requirements for

HPMLs.

31 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4.2 Requirements that apply to all QMs

under the ATR/QM Rule

The ATR/QM Rule has some requirements that are common across all types of QMs defined in

the Rule. These requirements include:

 A prohibition on negative amortization or interest-only payments;

 A prohibition on loan terms in excess of 30 years; and

 Limits on points and fees. Additional information on the limits on points and fees is

available in Section 4.7.

12 CFR 1026.43(e)(2) and (5)-(7).

4.3 General QMs

The ATR/QM Rule has permitted creditors to originate General QMs since January 1, 2014.

However, on December 10, 2020, the Bureau issued a final rule, the General QM Final Rule,

which amended the General QM definition. The General QM Final Rule is effective on March 1,

2021 but has a mandatory compliance date of October 1, 2022. Thus, a creditor must satisfy

different criteria to originate a General QM depending on when a creditor receives an

application for a covered mortgage loan. If a creditor received an application before March 1,

2021 (i.e., the effective date of the General QM Final Rule), the creditor had to satisfy the criteria

discussed in Section 4.3.1 (the DTI-based General QM definition) in order to originate a General

QM. If a creditor receives an application between March 1, 2021 and September 30, 2022, the

creditor may satisfy either the criteria discussed in Section 4.3.1 (the DTI-based General QM

definition) or the criteria discussed in Section 4.3.2 (the price-based General QM definition) to

originate a General QM. If a creditor receives an application on or after October 1, 2022 (i.e.,

the mandatory compliance date for the General QM Final Rule), the creditor must satisfy the

criteria in Section 4.3.2 (the price-based General QM definition) in order to originate a General

QM.

32 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4.3.1 DTI-based General QM definition

As noted above, if a creditor receives an application for a covered mortgage loan before March 1,

2021, the creditor must satisfy the criteria discussed in this Section 4.3.1 in order to originate a

General QM. These criteria existed prior to the issuance of the General QM Final Rule on

December 10, 2020 and remain available until

September 30, 2022. If a creditor receives an

application between March 1, 2021 and September

30, 2022, the creditor may satisfy either the criteria

discussed in this Section 4.3.1 or the criteria

discussed in Section 4.3.2. The criteria discussed in

this Section 4.3.1 do not apply to applications

received on or after October 1, 2022. See Section

4.3.2 for the General QM criteria that apply to

applications received on or after October 1, 2022. See

also comment 43-2.

In order for a loan to be a General QM pursuant to

the definition that existed prior to the effective date of

the General QM Final Rule, the creditor must:

 Underwrite based on a fully amortizing

schedule using the maximum rate permitted

during the first five years after the date of the

first periodic payment;

 Consider and verify the consumer’s income or

assets, current debt obligations, alimony and

child-support obligations; and

 Determine that the consumer’s total monthly debt-to-income ratio is no more than 43

percent, using the definitions and other requirements provided in appendix Q to

Regulation Z.

Additionally, General QMs must have regular periodic payments that are substantially equal

(except for the effect that any interest rate change after consummation has on the payment in

the case of an adjustable-rate or step-rate mortgage) and may not have negative-amortization,

Although consideration and

verification of a consumer’s

credit history is not specifically

incorporated into the General

QM definition, a creditor must

verify a consumer’s debt

obligations using reasonably

reliable third-party records,

which may include use of a

credit report or records that

evidence nontraditional credit

references.

When appendix Q does not

resolve how a specific type of

debt or income should be

treated, creditors may rely on

guidelines of the GSEs or certain

federal agencies to resolve the

issue. However, a creditor may

not rely on GSE or agency

guidelines where such guidelines

are in conflict with appendix Q

standards.

33 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

interest-only features, balloon-payment features, terms that exceed 30 years, or points and fees

that exceed the specified limits as discussed in Section 4.7.

4.3.2 Price-based General QM definition

As noted above, the General QM Final Rule issued on December 10, 2020 is effective for

applications received on or after March 1, 2021. For applications received on or after March 1,

2021, a creditor may use the revised General QM definition discussed in this Section 4.3.2 or the

General QM definition discussed in Section 4.3.1 above to determine if a loan is a General QM.

The mandatory compliance date for the General QM Final Rule is October 1, 2022. Thus, for

applications received on or after October 1, 2022, creditors must use the criteria set forth in the

revised definition and discussed in this Section 4.3.2 to determine if a loan is a General QM. See

comment 43-2.

In order for a loan to be a General QM pursuant to the revised definition that is effective on

March 1, 2021, the loan must meet a priced-based limit and certain underwriting criteria.

Pursuant to the revised definition, a loan is a General QM only if the APR for the loan exceeds

the APOR for a comparable transaction by less than the applicable threshold as of the date the

interest rate is set. The thresholds for General QM status are:

 For a first-lien loan with a loan amount

greater than or equal to $110,260, 2.25

percentage points;

 For a first-lien loan with a loan amount

greater than or equal to $66,156 but less

than $110,260, 3.5 percentage points;

 For a first-lien loan with a loan amount less

than $66,156, 6.5 percentage points;

 For a first-lien loan secured by a

manufactured home

with a loan amount

less than $110,260, 6.5 percentage points;

 For a subordinate-lien loan with a loan amount greater than or equal to $66,156, 3.5

percentage points; and

This threshold applies to first-lien loans of less than $110,260 (indexed for inflation) that are secured by a

manufactured home and land, or by a manufactured home only. For a first-lien loan with a loan amount equal to or

greater than $110,260 (indexed for inflation) that is secured by a manufactured home or a manufactured home and

land, the threshold is 2.25 percentage points.

Manufactured home means any

residential structure as defined under

HUD regulations establishing

manufactured home construction and

safety standards. 24 CFR 3280.2.

Modular or other factory-built homes

that do not meet the HUD code

standards are not manufactured homes

for this purpose.

34 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 For a subordinate-lien loan with a loan amount less than $66,156, 6.5 percentage points.

12 CFR 1026.43(e)(2)(vi).

If a loan’s interest rate may or will change in the first five years after the date on which the first

regular periodic payment will be due, the creditor must treat the highest interest rate that may

apply during that five year period as the loan’s interest rate for the entire loan term when

determining the APR for purposes of these thresholds. 12 CFR 1026.43(e)(2)(vi).

In order for a loan to be a General QM pursuant to the revised definition that is effective on

March 1, 2021, the creditor also must satisfy both of the following with regard to the loan:

 Consider the consumer’s current or reasonably expected income or assets (other than

the value of the dwelling that secures the loan and any real property attached to that

dwelling), debt obligations, alimony, child support, and monthly DTI ratio or residual

income. To meet this requirement for General QM status, the creditor must:



Take into account current or reasonably

expected income or assets (other than the

value of the dwelling that secures the

loan and any real property attached to

that dwelling), debt obligations, alimony,

child support, and monthly DTI ratio or residual income in its ATR determination;



Maintain written policies and procedures for how it takes into account income or

assets, debt obligations, alimony, child support, and monthly DTI ratio or residual

income in its ATR determination; and



Retain documentation showing how it took into account income or assets, debt

obligations, alimony, child support, and monthly DTI ratio or residual income in its

ATR, including how it applied its policies and procedures. Examples of such

documentation may include an underwriter worksheet or a final automated

underwriting system certification, in combination with the creditor’s applicable

underwriting standards and any applicable exceptions described in its policies and

procedures, that shows how these required factors were taken into account in the

creditor’s ATR determination.

 Verify the consumer’s current or reasonably expected income or assets (other than the

value of the dwelling that secures the loan and any real property attached to that

A creditor may only consider amounts

that it has verified in accordance with the

verification requirements discussed in

this Section 4.3.2.

35 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

dwelling) as well as the consumer’s debt obligations, alimony, and child support. A

creditor must verify such amounts using reasonably reliable third-party records and

reasonable methods and criteria. Creditors can meet the Rule’s verification requirement

either by satisfying this general standard or by complying with the verification standards

in one or more

specified manuals. If the creditor meets the standards for verifying

current or reasonably expected income or assets (other than the value of the dwelling

securing the transaction) in one or more of the specified manuals, the creditor has a safe

harbor for compliance with the General QM verification requirement. These standards

include relevant provisions in specified versions of the Fannie Mae Single Family Selling

Guide, the Freddie Mac Single-Family Seller/Servicer Guide, the FHA’s Single Family

Housing Policy Handbook, the VA’s Lenders Handbook, and the USDA’s Field Office

Handbook for the Direct Single Family Housing Program and Handbook for the Single

Family Guaranteed Loan Program. The General QM definition sets forth the specific

provisions and versions of these manuals that creditors must use to obtain a safe harbor,

and notes a creditor also obtains a safe harbor if it complies with revised versions of the

manuals, provided that the two versions are substantially similar. To receive the

verification safe harbor, the creditor need only comply with requirements in the manuals

to verify income, assets, debt obligations, alimony and child support using specified

reasonably reliable third-party records or to include or exclude particular inflows,

property, and obligations as income, assets, debt obligations, alimony, and child support.

12 CFR 1026.43(e)(2)(iv) and (v).

Additionally, General QMs must have regular periodic payments that are substantially equal

(except for the effect that any interest rate change after consummation has on the payment in

the case of an adjustable-rate or step-rate mortgage) and may not have negative-amortization,

interest-only features, balloon-payment features, terms that exceed 30 years, or points and fees

that exceed the specified limits as discussed in Section 4.7. 12 CFR 1026.43(e)(2)(i) through

(iii).

Accordingly, a creditor may, but need not, satisfy the verify requirements by complying with the verification

standards from more than one manual (in other words, by “mixing and matching” verification standards).

36 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4.4 Seasoned QMs

The Seasoned QM category is available for loans for which a creditor receives an application on

or after March 1, 2021.

Seasoned QMs must have regular, substantially equal periodic payments that are fully

amortizing payments. A Seasoned QM may not have negative-amortization, interest-only

payments, balloon-payment features, terms that exceed 30 years, or points and fees that exceed

the specified limits as discussed in Section 4.7. 12 CFR 1026.43(e)(7)(i)(A) and (B).

Additionally, all of the following must be satisfied in order for a loan to be eligible to become a

Seasoned QM:

 The loan must be a fixed-rate loan and secured by a first lien. If a loan is a subordinate-

lien loan, an adjustable-rate loan, or a step-rate loan, the loan is not eligible to be a

Seasoned QM.

 The loan must not be a high-cost mortgage as defined in Regulation Z, 12 CFR

1026.32(a).

 The creditor must satisfy the consider

and verify requirements under the

revised definition for General QMs.

These requirements are discussed in

Section 4.3.2.

 The loan must have no more than two

delinquencies of 30 or more days and no

delinquencies of 60 or more days at the

end of the seasoning period. In

determining whether a loan is a Seasoned

QM, delinquency generally means the

failure to make a periodic payment

sufficient to cover principal, interest, and escrow (if applicable) for a given billing cycle

by the date the periodic payment is due under the terms of the legal obligation. For more

information about this definition of delinquency, see 12 CFR 1026.43(e)(7)(iv)(A).

12 CFR 1026.43(e)(7)(i) and (ii).

A periodic payment is 30 days delinquent

when it is not paid before the due date of the

following scheduled periodic payment.

A periodic payment is 60 days delinquent if

the consumer is more than 30 days

delinquent on the first of two sequential

scheduled periodic payments and does not

make both sequential scheduled periodic

payments before the due date of the next

scheduled periodic payment after the two

sequential scheduled periodic payments.

37 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Generally, the seasoning period is the 36-month period that begins on the date on which the

first periodic payment is due after consummation. 12 CFR 1026.43(e)(7)(iv)(C). The end of the

seasoning period occurs later in two situations:

 First, if there is a delinquency of 30 days or more at the end of the 36

month of the

seasoning period, the seasoning period is extended until there is no delinquency.

 Second, time spent in a temporary payment accommodation extended in connection

with a disaster or pandemic-related national emergency does not count towards the

seasoning period, provided that during or at the end of the temporary payment

accommodation there is a qualifying change or the consumer cures the loan’s

delinquency under its original terms. For the definitions of qualifying change and

temporary payment accommodation extended in connection with a disaster or

pandemic-related national emergency, see 12 CFR 1026.43(e)(7)(iv)(B) and (D).

12 CFR 1026.43(e)(7)(iv)(C).

To become a Seasoned QM, the loan must also satisfy a portfolio requirement. 12 CFR

1026.43(e)(7)(iii). Generally, the loan must not be subject, at consummation, to a commitment

to be acquired by another person, and the loan must not be sold, assigned, or otherwise

transferred prior to the end of the seasoning period, except that:

 The loan may be transferred once before the end of the seasoning period provided that

the loan is not securitized as part of the transfer or at any other time before the end of

the seasoning period;

 The loan may be transferred pursuant to a supervisory action or agreement; and

 The loan may be transferred as part of a merger or acquisition of or by the creditor.

12 CFR 1026.43(e)(7)(iii).

38 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

4.5 Temporary QM Definitions

4.5.1 Temporary GSE QM Definition

The ATR/QM Rule extends QM status to certain loans that are originated during a transitional

period if the loans are eligible for purchase or guarantee by Fannie Mae or Freddie Mac (the

GSEs) while are under federal conservatorship or receivership and if the loans meet certain

other requirements. This Temporary GSE QM category expires on the date that the GSEs exit

federal conservatorship or receivership or on October 1, 2022, whichever occurs first. Loans that

receive QM status under the Temporary GSE QM category will retain QM status after the

Temporary GSE QM category expires.

While the ATR/QM Rule sets October 1, 2022 as the expiration date of the Temprary GSE QM

definition, the availability of the Temporary GSE QM loan definition may be affected by policies

or agreements created by parties other than the Bureau. For example, the Preferred Stock

Purchase Agreements include restrictions on GSEs purchases that rely on the Temporary QM

definition after July 1, 2021.

Temporary GSE QMs must have regular periodic payments that are substantially equal (except

for the effect that any interest rate change after consummation has on the payment in the case of

an adjustable-rate or step-rate mortgage) and may not have negative-amortization, interest-only

features, balloon-payment features, terms that exceed 30 years, or points and fees that exceed

the specified limits as discussed in Section 4.7. 12 CFR 1026.43(e)(4). Additionally, a loan must

be eligible for purchase or guarantee by Fannie Mae or Freddie Mac while operating under

federal conservatorship. However, the creditor does not have to satisfy GSE standards that are

wholly unrelated to the credit risk or underwriting of the loan or any standards that apply after

the consummation of the loan. Eligibility for purchase or guarantee by a GSE can be established

based on any of the following methods:

 Valid recommendation from a GSE Automated Underwriting System (AUS) or an AUS

that relies on an agency underwriting tool.

See Section 5.14(c) of the PSPAs (Jan. 14, 2021), https://home.treasury.gov/system/files/136/Executed-Letter-

Agreement-for-Fannie -Mae.pdf.

39 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 GSE guidelines contained in official manuals.

 Written agreements between a GSE and the creditor (or a direct sponsor or aggregator of

the creditor).

 Individual loan waivers from a GSE.

4.5.2 QMs eligible to be purchased, insured or

guaranteed by specified government agencies

Initially, the ATR/QM Rule had categories of QMs for loans that met certain criteria and were

eligible to be purchased, insured, or guaranteed by specified government agencies. Under these

QM categories, a loan was generally considered a QM if it was eligible to be insured or

guaranteed under certain programs administered by the Department of Housing and Urban

Development (HUD), the Department of Veterans Affairs (VA), or the Department of

Agriculture (USDA). The Rule provided that these QM categories would expire on the effective

date of a rule issued by each respective agency to define QMs for its loan programs. All of the

specified government agencies have since issued their own QM rules, and those rules have taken

effect. Thus, these QM categories have expired. However, a loan that is defined as QM under

any of these agencies’ rules is a QM for purposes of the ATR/QM Rule. See comment 43(e)(4)-1.

4.6 QMs that only certain creditors are

eligible to originate

In addition to the categories of QMs that all creditors are eligible to originate, there are two

additional categories of QMs in the ATR/QM Rule that only small creditors are eligible to

originate. See 12 CFR 1026.43(e)(5) and (f).

A creditor can make these categories of QMs only if it meets both of the following requirements:

 The creditor and its affiliates that regularly extended covered loans (i.e., closed-end

residential mortgage loans that are subject to the ATR requirements) in the last calendar

year had assets below $2 billion (to be adjusted annually for inflation by the Bureau) at

the end of the last calendar year; and

40 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 The creditor and all its affiliates together originated no more than 2,000 first-lien

covered loans in the preceding calendar year. A creditor is not required to count loans

that the creditor originated and kept in portfolio or loans that an affiliate originated and

kept in its portfolio.

12 CFR 1026.43(e)(5)(i)(D) and (f)(1)(vi). See also 12 CFR 1026.35(b)(2)(iii)(B) and (C).

The ATR/QM Rule has a grace period for creditors that no longer meet the small creditor

origination limit or asset-size limit. If a creditor exceeded the asset-size or origination limit

during the immediately preceding calendar year but met the limit in the calendar year before the

immediately preceding year, the creditor can operate as a small creditor for purposes of

originating QMs for applications received before April 1 of the current calendar year.

An affiliate is any company that controls, is controlled by, or is under common control with, the

creditor. This generally means that a creditor’s affiliates are its parent company, its

subsidiaries, and its sister companies. For example, if a creditor is a bank owned by a bank

holding company that also owns another bank, both the bank holding company and the other

bank are the creditor’s affiliates.

To determine if it meets the asset-size limit, a creditor counts its assets and the assets of its

affiliates that, during the relevant period, regularly extended

first-lien, closed-end mortgage

loans subject to the ATR/QM Rule’s ATR requirements.

To determine if it meets the originations limit, a creditor counts all first-lien, closed-end covered

loans (i.e., mortgage loans subject to the ATR/QM Rule’s ATR requirements) originated by the

creditor or one of its affiliates. A creditor does not count subordinate-lien mortgage loans or

mortgage loans that are not subject to the ATR/QM Rule, such as HELOCs, time-share plans,

reverse mortgages, or temporary or bridge loans with terms of 12 months or less.

4.6.1 Small Creditor QMs

Small Creditor QMs may not have negative-amortization, interest-only features, balloon-

payment features, or terms that exceed 30 years. They may not have points and fees that exceed

the specified QM limits discussed in Section 4.7. 12 CFR 1026.43(e)(5)(i)(A).

In addition, in order for a loan to be a Small Creditor QM:

41 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

 The creditor must underwrite the loan based on a fully amortizing schedule using the

maximum rate permitted during the first five years after the date of the first periodic

payment.

 The loan must not be subject to a commitment made at or prior to consummation of a

loan to sell the loan after consummation, other than to a creditor that itself is eligible to

make Small Creditor QMs.

 The creditor must consider and verify the consumer’s income or assets, and debts,

alimony, and child support.

 The creditor must consider the consumer’s DTI ratio or residual income, although the

Small Creditor QM definition sets no specific threshold for DTI ratio or residual income.

12 CFR 1026.43(e)(5)(i).

A loan generally loses its Small Creditor QM status if the small creditor sells or otherwise

transfers the loan less than three years after the loan’s consummation. 12 CFR 1026.43(e)(5)(ii).

However, a loan keeps its Small Creditor QM status if it meets one of these criteria:

 It is sold or otherwise transferred more than three years after consummation.

 It is sold or otherwise transferred to another small creditor, at any time.

 It is sold or otherwise transferred pursuant to a supervisory action or agreement, at any

time.

 It is sold or otherwise transferred as part of a merger or acquisition of or by the creditor,

at any time.

12 CFR 1026.43(e)(5)(ii).

4.6.2 Balloon-Payment QMs

Small creditors that operate in a rural or underserved area are eligible to make Balloon-P ayment

QMs. 12 CFR 1026.43(f)(1)(vi).

A creditor is eligible to originate Balloon-Payment QMs if the creditor is a small creditor (i.e.,

satisfies the asset-size and originations limits), and operated in a rural or underserved area in

the preceding calendar year. 12 CFR 1026.43(f)(1)(vi).

42 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

If a creditor is not a small creditor or did not operate in a rural or underserved area in the

preceding calendar year, the creditor may be able to originate Balloon-Payment QMs during a

grace period. A small creditor that did not operate in a rural or underserved area in the

preceding calendar year can originate Balloon-Payment QMs for transactions with applications

received prior to April 1 of the current calendar year if the small creditor operated in a rural or

underserved area in the calendar year before the preceding calendar year. Similarly, a creditor

that operated in a rural or underserved area in the preceding calendar year but that did not

satisfy the small creditor origination limit or asset-size limit in the preceding calendar year can

originate Balloon-Payment QMs for transactions with applications received before April 1 of the

current calendar year if the creditor met the limit in the calendar year before the preceding

calendar year.

Balloon-Payment QMs must not have negative-amortization or interest-only features and must

comply with the points-and-fees limits discussed in Section 4.7. 12 CFR 1026.43(f)(1)(i).

In addition, a loan must satisfy all of the following criteria to be a Balloon-Payment QM:

 The loan must have a fixed interest rate and periodic payments (other than the balloon

payment) that would fully amortize the loan over 30 years or less.

 The loan must have a term of five years or longer.

 The loan must not be subject to a commitment made at or prior to consummation of a

loan to sell the loan after consummation, other than to a creditor that itself is eligible to

make Balloon-Payment QMs.

 The creditor must determine that the consumer will be able to make the scheduled

periodic payments (including mortgage-related obligations) other than the balloon

payment. Unlike the calculation of balloon loan monthly payments for determining

ATR, the Balloon-Payment QM calculation excludes the balloon payment even if the loan

is a higher-priced loan.

 The creditor must consider and verify the consumer’s income or assets, and debts,

alimony, and child support.

 The creditor must consider the consumer’s DTI ratio or residual income, although the

Balloon-Payment QM definition sets no specific threshold for the DTI ratio or residual

income.

43 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

12 CFR 1026.43(f)(1)(ii) through (v).

A loan generally loses its Balloon-Payment QM status if the creditor sells or otherwise transfers

the loan less than three years after the loan’s consummation. 12 CFR 1026.43(f)(2). However, a

loan keeps its Balloon-Payment QM status if it meets one of these criteria:

 It is sold or otherwise transferred more than three years after consummation.

 It is sold or otherwise transferred to another small creditor operating in rural or

underserved areas at any time.

 It is sold or otherwise transferred pursuant to a supervisory action or agreement at any

time.

 It is sold or otherwise transferred as part of a merger or acquisition of or by the creditor

at any time.

12 CFR 1026.43(f)(2).

4.7 Points-and-fees limits

For a loan to be a QM pursuant to the ATR/QM Rule, the points and fees may not exceed the

points-and-fees limits. The points-and-fees limits are higher for smaller loans. Initially, the

points-and-fees limits were:

 3 percent of the total loan amount for a loan greater than or equal to $100,000;

 $3,000 for a loan greater than or equal to $60,000 but less than $100,000;

 5 percent of the total loan amount for a loan greater than or equal to $20,000 but less

than $60,000;

 $1,000 for a loan greater than or equal to $12,500 but less than $20,000; and

 8 percent of the total loan amount for a loan less than $12,500.

12 CFR 1026.43(e)(3)(i).

44 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

The dollar amounts listed above are adjusted annually for inflation and published each year in

the commentary to Regulation Z.

See 12 CFR 1026.43(e)(3)(ii) and accompanying

commentary.

To determine whether a loan is within the QM points-and-fees limits, one may

follow these steps:

 First, determine which of the limits applies to the loan amount on the face of the note.

 Second, calculate the maximum points and fees for that loan amount:



For a loan amount that has a fixed-dollar limit (for example, $3,000 for loan

amounts of $60,000 but less than $100,000), that fixed-dollar cap is the maximum

allowable points and fees.



For a loan amount that has a percentage limit (for example, 5 percent of the total

loan amount for loan amounts greater than or equal to $20,000 but less than

$60,000) determine the “total loan amount” for your transaction. The total loan

amount equals the “amount financed” minus any points and fees that are rolled into

the loan amount. Multiply the total loan amount by the percentage cap to determine

the maximum allowable points and fees.

 Finally, calculate the total points and fees for the transaction. If the total points and fees

for the transaction exceed the maximum allowable points and fees, then the loan is not a

QM.

For certain transactions consummated on or before January 10, 2021, if the creditor or an

assignee determines after consummation that the total points and fees exceed the applicable

points and fees limit, the ATR/QM Rule allows the creditor or assignee to take certain steps

within 210 days after consummation to cure the overage and maintain QM status. In order to

cure an overage and maintain QM status, the creditor or assignee must maintain and follow

For 2021, the points-and-fees limits are: (1) for a loan amount greater than or equal to $110,260: 3 percent of the

total loan amount; (2) for a loan amount greater than or equal to $66,156 but less than $110,260: $3,308; (3) for a

loan amount greater than or equal to $22,052 but less than $66,156: 5 percent of the total loan amount; (4) for a

loan amount greater than or equal to $13,783 but less than $22,052: $1,103; and (5) for a loan amount less than

$13,783: 8 percent of the total loan amount.

45 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

policies and procedures for post-consummation review of points and fees and for making

payments to cure overages pursuant to the ATR/QM Rule. For more information, see 12 CFR

1026.43(e)(3)(iii) and (iv) and accompanying commentary.

4.7.1 Points-and-fees calculation

To calculate points and fees for the QM points-and-fees limits, use the same approach that is

used for calculating points and fees for closed-end loans under the Home Ownership and Equity

Protection Act (HOEPA) thresholds in the Bureau’s High-Cost Mortgage and Homeownership

Counseling Amendments to the Truth in Lending Act (Regulation Z) and Homeownership

Counseling Amendments to the Real Estate Settlement Procedures Act (Regulation X)

rulemakings. 12 CFR 1026.43(e)(3)(i). Those rules are available online at

www.consumerfinance.gov/regulations/

Unless specified otherwise, include amounts that are known at or before consummation, even if

the consumer pays them after consummation by rolling them into the loan amount.

In addition, unless specified otherwise, closing costs that a creditor pays and recoups from the

consumer over time through the interest rate are not counted in points and fees.

To calculate points and fees, add together the amounts paid in connection with the transaction

for the categories of charges listed below:

1. FINANCE CHARGE

In general, include all items included in the finance charge. 12 CFR 1026.4(a) and (b).

However, the following types and amounts of charges may be excluded, even if they normally

would be included in the finance charge:

 Interest or the time-price differential.

 Mortgage insurance premiums (MIPs).

 Federal or state government-sponsored MIPs. For example, exclude up-front and

annual FHA premiums, VA funding fees, and USDA guarantee fees.

 Private mortgage insurance (PMI) premiums. Exclude monthly or annual PMI

premiums. Up-front PMI premiums may be excluded if the premium is refundable on a

prorated basis and a refund is automatically issued upon loan satisfaction. However,

46 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

even if the premium is excludable, one must include any portion that exceeds the up-

front MIP for FHA loans. Those amounts are published in HUD Mortgagee Letters,

which you can access on HUD’s website at

portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters

/mortgagee/.

 Certain charges paid by a third party. A charge paid by a third party may be included in

points and fees but is not included in points and fees under 12 CFR 1026.32(b)(1)(i) if the

exclusions to points and fees in 12 CFR 1026.32(b)(1)(i)(A) through (F) apply. For

example, seller’s points are not included in points and fees under 12 CFR

1026.32(b)(1)(i) as they are not included in the finance charge. But they still may be

included in points and fees under 12 CFR 1026.32(b)(1)(ii) through (vi)—for example, if

they cover loan originator compensation, credit life insurance premiums, or a

prepayment penalty.

 Bona fide third-party charges not retained by the creditor, loan originator, or an affiliate

of either. 12 CFR 1026.32(b)(1)(i)(D). In general, bona fide third-party charges may be

excluded even if they would be included in the finance charge. For example, a bona fide

charge imposed by a third-party settlement agent (for example, an attorney) may be

excluded so long as neither the creditor nor the loan originator (or their affiliates) retains

a portion of the charge. However, third-party charges that are specifically required to be

included under other provisions of the points-and-fees calculation must be included (for

example, certain PMI premiums, certain real estate-related charges, and premiums for

certain credit insurance and debt cancellation or suspension coverage). Note that up-

front fees a creditor charges consumers to recover the costs of loan-level price

adjustments imposed by secondary market purchasers of loans, including the GSEs, are

not considered bona fide third-party charges and must be included in points and fees.

 Bona fide discount points. 12 CFR 1026.32(b)(1)(i)(E), 32(b)(1)(i)(F), and 32(b)(3).

Exclude up to 2 bona fide discount points if the interest rate before the discount does

not exceed the APOR for a comparable transaction by more than 1 percentage point; or

exclude up to 1 bona fide discount point if the interest rate before the discount does not

exceed the APOR for a comparable transaction by more than 2 percentage points.

A discount point is “bona fide” if it reduces the consumer’s interest rate by an amount that

reflects established industry practices, such as secondary mortgage market norms. An example

is the pricing in the to-be-announced market for mortgage-backed securities.

47 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

2. LOAN ORIGINATOR COMPENSATION

Include compensation paid directly or indirectly by a consumer or creditor to a loan originator

other than compensation paid by a mortgage broker, creditor, or retailer of manufactured

homes to an employee. 12 CFR 1026.32(b)(1)(ii).

Include compensation that is attributable to the

transaction, to the extent that such compensation is

known as of the date the interest rate for the

transaction is set. 12 CFR 1026.32(b)(1)(ii). In

general, include the following:

 Compensation paid directly by a consumer

to a mortgage broker: Include the amount

the consumer pays directly to the mortgage broker. If this payment is already included

in points and fees because it is included in the finance charge under 12 CFR

1026.32(b)(1)(i), it does not have to be included again as loan originator compensation

under 12 CFR 1026.32(b)(1)(ii).

 Compensation paid by a creditor to a mortgage broker: Include the amount the creditor

pays to the broker for the transaction. Include this amount even if the creditor included

origination or other charges paid by the consumer to the creditor as points and fees

under 12 CFR 1026.32(b)(1)(i) as a finance charge or if the creditor does not receive an

up-front payment from the consumer to cover the broker’s fee but rather recoups the fee

from the consumer through the interest rate over time.

 Compensation paid by a consumer or creditor to a manufactured home retailer: Include

the amount paid by a consumer or creditor to a manufactured home retailer that

qualifies as a loan originator under 12 CFR 1026.36(a)(1) for loan origination activities.

Compensation paid by the manufactured home retailer to its employees does not have to

be included. 12 CFR 1026.32(b)(1)(ii)(D); comment 32(b)(1)(ii)-5.

 Compensation included in the sales price of a manufactured home: Include loan

originator compensation that the creditor has knowledge is included in the sales price of

a manufactured home. The creditor is not required to investigate the sales price of a

manufactured home to determine if the sales price includes loan originator

compensation. Comment 32(b)(1)(ii)-5.

In the context of determining what

loan originator compensation must be

included in points and fees, the term

“mortgage broker” refers to both

brokerage firms and individual

brokers. Compensation paid by a

mortgage broker to an employee is not

included in points and fees.

48 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

3. REAL ESTATE-RELATED FEES

Include real estate-related fees unless all of the following conditions are satisfied:

 The charge is reasonable;

 The creditor receives no direct or indirect compensation in connection with the charge;

and

 The charge is not paid to an affiliate of the creditor.

If one or more of those three conditions is not satisfied, include the charge in points and fees

even if it would be excluded from the finance charge. 12 CFR 1026.32(b)(1)(iii).

Real estate-related charges include:

 Fees for title examination, abstract of title, title insurance, property survey, and similar

purposes;

 Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance

or settlement documents;

 Notary and credit-report fees;

 Property appraisal fees or inspection fees to assess the value or condition of the property

if the service is performed prior to consummation, including fees related to pest-

infestation or flood-hazard determinations; and

 Amounts paid into escrow or trustee accounts that are not otherwise included in the

finance charge (except amounts held for future payment of taxes).

4. PREMIUMS FOR CREDIT INSURANCE; CREDIT PROPERTY INSURANCE; OTHER LIFE,

ACCIDENT, HEALTH OR LOSS-OF-INCOME INSURANCE WHERE THE CREDITOR IS

BENEFICIARY; OR DEBT CANCELLATION OR SUSPENSION COVERAGE PAYMENTS

Include premiums for these types of insurance that are payable at or before consummation even

if such premiums are rolled into the loan amount, if permitted by law. 12 CFR 1026.32(b)(1)(iv).

These charges may be excluded if they are paid after consummation (e.g., monthly premiums).

Note that credit property insurance means insurance that protects the creditor’s interest in the

property. It does not include homeowner’s insurance that protects the consumer.

49 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

Premiums for life, accident, health, or loss-of-income insurance may be excluded if the

consumer (or another person designated by the consumer) is the sole beneficiary of the

insurance.

5. MAXIMUM PREPAYMENT PENALTY

Include the maximum prepayment penalty that a consumer could be charged for prepaying the

loan. 12 CFR 1026.32(b)(1)(v).

6. PREPAYMENT PENALTY PAID IN A REFINANCE

If the creditor is refinancing a loan that the creditor or its affiliate currently holds or is currently

servicing, then include any penalties charged to the consumers for prepaying their previous

loan(s). 12 CFR 1026.32(b)(1)(vi).

7. CHARGES PAID BY THIRD PARTIES

Include charges paid by third parties that fall within the definition of points and fees in 12 CFR

1026.32(b)(1)(i) through (vi) (discussed above), including charges included in the finance

charge. Comment 32(b)(1)-2. Charges paid by third parties that fall within the exclusions to

points and fees in 12 CFR 1026.32(b)(1)(i)(A) through (F) do not have to be included in points

and fees. Seller’s points are excluded from the finance charge (see 12 CFR 1026.4(c)(5)) and

therefore can be excluded from points and fees, but charges paid by the seller should be included

if they are for items listed as points and fees in 12 CFR 1026.32(b)(1)(ii) through (vi).

8. CREDITOR-PAID CHARGES

Charges paid by the creditor, other than loan originator compensation paid by the creditor that

is required to be included in points and fees under 12 CFR 1026.32(b)(1)(ii), can be excluded

from points and fees. Comment 32(b)(1)-2.

50 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

5. Refinancing from Non-

Standard to Standard Loans

The ATR/QM Rule gives creditors the option to refinance a current mortgage customer from a

non-standard mortgage loan (which includes various types of mortgages that can lead to

payment shock and can result in default) into a standard mortgage loan without having to meet

the Rule’s ATR requirements. 12 CFR 1026.43(d).

This option applies only to mortgage loans a creditor holds or services. Subservicers and third

parties cannot use it. 12 CFR 1026.43(d)(2). A creditor can use this option only when:

 The payments under the refinance will not cause the consumer’s principal balance to

increase.

 The consumer uses the proceeds to pay off the original mortgage loan and for closing or

settlement charges required to be disclosed under the Real Estate Settlement Procedures

Act, 12 U.S.C. 2601 et seq. The consumer takes out no cash.

 The consumer’s monthly payment will materially decrease (i.e., at least 10 percent).

 The consumer has only one 30-day late payment in the past 12 months and no late

payments within six months.

 The consumer’s written application for the standard mortgage is received no later than

two months after the non-standard mortgage has recast.

 The creditor has considered whether the standard mortgage likely will prevent the

consumer from defaulting on the non-standard mortgage once the loan is recast.

 If the non-standard mortgage was consummated on or after January 10, 2014, the non-

standard mortgage was made in accordance with the Rule’s ATR requirements or QM

provisions, as applicable.

12 CFR 1026.43(d)(2) and (3)(ii).

51 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

The new loan has to meet all of the following:

 The loan cannot have deferred

principal, negative amortization, or

balloon payments.

 Points and fees must fall within the

thresholds for QMs.

 The loan term cannot exceed 40 years.

 The interest rate must be fixed for at

least the first five years of the loan.

12 CFR 1026.43(d)(1)(ii).

To calculate payments when comparing non-standard loans to standard loans, a creditor first

calculates the payment the consumer will have to make if the non-standard loan reaches a recast

point. 12 CFR 1026.43(d)(5). Recast occurs when:

 For an adjustable-rate mortgage, the introductory fixed-rate period ends.

 For an interest-only loan, the interest-only period ends.

 For a negatively amortizing loan, the negatively amortizing payment period ends.

12 CFR 1026.43(b)(11).

A creditor then calculates the payment for the standard loan, using the fully indexed rate and

the monthly payment that will fully amortize the loan based on equal monthly payments. 12

CFR 1026.43(d)(5). Finally, the creditor compares the two payments. A material decrease must

be evaluated in light of the facts and circumstances for the particular loan. A payment reduction

of 10 percent or more meets the “materially lower” standard. 12 CFR 1026.43(d)(2)(ii);

comment 43(d)(2)-1.

Note that the payment calculation for this special refinancing provision is slightly different from

the payment calculation used under the general ATR standard. Under this special provision, a

creditor must base the calculation of the loan amount on the amount of principal that will be

outstanding at the time of recast, taking into account any principal payments that the consumer

will have made by that time. 12 CFR 1026.43(d)(5)(i).

The ATR/QM Rule does not apply when

a creditor modifies an existing loan

without refinancing it. A creditor can

provide a loan modification to a

defaulted (or non-defaulted) consumer

without complying with the ATR/QM

Rule’s ATR requirements. See 12 CFR

1026.20 and related commentary.

52 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

6. Limits on prepayment

penalties

In addition to setting forth ATR requirements, the ATR/QM Rule includes limits on the use of

prepayment penalties that apply to almost all closed-end consumer credit transactions secured

by a dwelling including any real property attached to the dwelling. 12 CFR 1026.43(a). The

Rule’s limits on prepayment penalties do not apply to any of the following:

 Open-end credit plans (home equity lines of credit or HELOCs) subject to 12 CFR

1026.40. However, a loan may not be structured as open-end credit to evade the Rule. 12

CFR 1026.43(h).

 Timeshare plans.

12 CFR 1026.43(a)(1) and (2).

A prepayment penalty may only be included in a covered mortgage loan if all of the following

conditions are met:

 The loan has an APR that cannot increase after consummation;

 The loan is a General QM, a Temporary QM, a Small Creditor QM, or a Balloon-Payment

QM;

 The loan is not a higher-priced mortgage loan as defined in 12 CFR 1026.35(a); and

 The prepayment penalty is otherwise permitted by law.

12 CFR 1026.43(g)(1).

Additionally, a prepayment penalty cannot be imposed after the first three years of the loan term

and cannot be greater than:

 Two percent of the outstanding loan balance prepaid during the first two years of the

loan; or

 One percent of the outstanding loan balance prepaid during the third year of the loan.

53 SMALL ENTITY COMPLIANCE GUIDE: ATR/QM RULE v3.1

12 CFR 1026.43(g)(2).

If a creditor wants to include a prepayment penalty in a covered transaction, the creditor must

also offer the consumer an alternative transaction that the creditor believes the consumer will

qualify for. The alternative loan cannot have a prepayment penalty. The alternative loan must

be similar to the loan with the prepayment penalty, so the consumer can choose between two

products the consumer will likely qualify for. The alternative loan:

 Must be a fixed-rate or graduated-payment loan and must match the rate type from the

loan with the prepayment penalty;

 Must have the same term as the mortgage with the prepayment penalty; and

 Cannot have deferred principal, balloon or interest-only payments, or negative

amortization.

The alternative loans do not have to come from the same secondary market partner, and a

creditor may show the consumer alternative loans from more than one investor or aggregator.

12 CFR 1026.43(g)(3).