ATR – Lending over 43% ATR

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    Good morning,

    If a customer is requesting a small home equity loan (under 20K), and that loan will put the total debt to income ratio for the customer at 50%:

    Is the lender out of compliance with ATR if they grant the loan to the customer, based on a good faith determination that the customer can repay the loan without hardship? There are no teaser rates, etc.and the loan file would be marked as an exception and documented to the mitigating factors that aided in the decision to extend credit. Our lien would be in second position.

    Thanks in advance for any help, it’s much appreciated!


    With certain exceptions, the Ability-To-Repay/Qualified Mortgage Rule (ATR/QM Rule or Rule) requires creditors to make a reasonable, good faith determination of a consumer’s ability to repay. Regulation Z currently prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan. Based on what you describe, it appears you have a made a good faith effort to ensure they can repay the loan.

    My question back to you, is based on fair lending. Have you clearly provided in policy/procedures requirements for granting this exception so that if another borrower is in the same situation, it can easily be applied to their loan utilizing similar standards? But in addition, the loan notes documenting the exception match back to FI standards. Hope this helps.


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    In my opinion, a debt to income ratio of 50% does not indicate an ability to repay. I would not want to be in a second lien position on this one. The mitigating factors would have to be really good to change my mind and make this loan.


    The home equity loan would be closed end, I’m assuming.

    We claim the small creditor exemption, and follow the 8 factor rules. I understood the 43% D2I maximum was out of Appendix Q rules (which we don’t follow).

    There are times when we have approved loans with a D2I that exceeds 43%. Our maximum D21 (per loan policy) is 36%. If we exceed the internal policy maximum, it is an exception to loan policy, that must obtain additional approval.

    Hope this helps…


    Thanks to everyone for taking the time to answer this questions. It’s much appreciated!

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