Does the points and fees test apply to investment properties?
* Note: Investment properties which are for business purposes (borrower does not intend to occupy for greater than 14 days in the year) are exempt from ATR/QM; however, such loans must meet agency eligibility requirements and are subject to the applicable points and fees threshold.
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.
Refunds are made within 210 days after closing and prior to: Institution of any action by the consumer in connection with the loan; Receipt of a written notice from the consumer that the points and fees exceeded any QM limit; or, The obligation being 60 days past due.
The CFPB recently issued a final rule delaying the mandatory compliance date for the new general qualified mortgage (QM) rule based on an annual percentage rate (APR) limit from July 1, 2021 to October 1, 2022. The final rule is effective on June 30, 2021. The CFPB also issued an executive summary of the final rule.
* Note: Investment properties which are for business purposes (borrower does not intend to occupy for greater than 14 days in the year) are exempt from ATR/QM; however, such loans must meet agency eligibility requirements and are subject to the applicable points and fees threshold.
The General ATR/QM definition applies to first lien mortgage loans secured by a home for personal, family, or household use. Meaning, it applies to primary residences and second homes, but does not apply to investment properties.
Refunding excess points and fees: Under the Ability-to-Repay rule, certain loans called Qualified Mortgages are subject to certain requirements that protect consumers. The points and fees charged to a consumer on a Qualified Mortgage generally cannot exceed 3 percent of the loan principal at the time the loan is made.
For a loan amount greater than or equal to $114,847, points and fees may not exceed 3 percent of the total loan amount. For a loan amount greater than or equal to $68,908 but less than $114,847, points and fees may not exceed $3,445.
The 1 Percent Fee
This flat 1 percent fee covers the lender's costs associated with originating, processing, and underwriting the loan. On a $200,000 VA loan, this fee would be $2,000. If the lender is charging the 1 percent fee, they are not allowed to tack on additional charges for things the VA considers overhead.
Investment property*
NOTE: Investment properties that are for business purposes are exempt from QM rules. If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to QM and ATR rules.
What loans are subject to QM?
Small creditor category of QMs
If you have less than $2B in assets and originate 500 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower's debt-to-income ratio (though no specific DTI limit applies).
- Type 1: General QM Loans. ...
- Type 2: Temporary QM Loans. ...
- Type 3: Small Creditor QM Loans. ...
- Balloon Payments & QM. ...
- Safe Harbor vs.
A significant difference between a QM loan and a Non-QM loan is that a Non-QM loan uses alternative methods of income verification (vs. the standard income methods of verification of a QM loan) to help the borrower get approved for a mortgage loan.
To make sure borrowers don't pay very high fees, a lender making a Qualified Mortgage can only charge up to the following upfront points and fees: For a loan of $100,000 or more: 3% of the total loan amount or less. For a loan of $60,000 to $100,000: $3,000 or less.
Under § 1026.32(b)(1)(i)(B), mortgage insurance premiums or guaranty fees in connection with a Federal or State agency program are excluded from points and fees, even though they are included in the finance charge under § 1026.4(a) and (b).
Transactions Covered by QM and ATR Rules
QM and ATR rules apply to the following: Purchase and refinance transactions secured by owner-occupied and second homes.
An HPML does not include a second home or Investment Property. A first-lien Mortgage secured by a Primary Residence that has an annual percentage rate (APR) of 1.5% or more above the average prime offer rate (APOR) for a comparable transaction as of the rate lock date.
Which of the following would be subject to the ATR Rule? The answer is a purchase money mortgage. A purchase money mortgage would be subject to the ATR Rule.
The rule exempts from the HPML escrow requirement any loan made by a bank or credit union and secured by a first lien on the principal dwelling of a consumer if: the institution has assets of $10 billion or less (as of Dec. 31 in the preceding year);
Notably, in this ruleissued on December 10, 2020, the CFPB replaces the dreaded Appendix Q and strict 43% debt-to- income (DTI) underwriting threshold with a priced-based QM loan definition. The rule takes effect on February 27, 2021, but compliance with it is not mandatory until July 1, 2021.
What is the safe harbor test in mortgage?
Under that threshold, a loan is a safe harbor QM if its APR exceeds APOR for a comparable transaction by less than 1.5 percentage points as of the date the interest rate is set or by less than 3.5 percentage points for subordinate-lien transactions.
If you have points, they should be listed in Box 6 of your Form 1098, Mortgage Interest Statement. If you have your closing documents, you can do the following: Locate the “Settlement Statement” in the closing documents. The name should be clearly defined at the top of the document.
One point is 1% of the loan value or $1,000. To calculate that amount, multiply 1% by $100,000. For that payment to make sense, you need to benefit by more than $1,000. Points aren't always in round numbers, and your lender might offer several options.
Based on the annual percentage increase in the CPI-W as of June 1, 2021, the exemption threshold will increase from $58,300 to $61,000, effective Jan. 1, 2021, effective January 1, 2022.
Which of the following would be subject to the ATR Rule? The answer is a purchase money mortgage. A purchase money mortgage would be subject to the ATR Rule.
Small creditor category of QMs
If you have less than $2B in assets and originate 500 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower's debt-to-income ratio (though no specific DTI limit applies).
The ATR/QM rule applies to almost every loan made to consumers secured by a dwelling, or residence. Therefore, there are exemptions. Transactions that fall outside that definition are not covered under the ATR/QM rule.
The Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) requires a creditor to make a reasonable, good faith determination of a consumer's ability to repay a residential mortgage loan according to its terms.
