[rcooper]

1 – I agree, this transaction would not qualify for the refinance exception to 1026.43(c).
2 – Unfortunately, there is no special rule exempting workouts from the ATR requirements.
3- Although it would not work in the specific example you’ve given, consider that the ATR rules do not apply to modifications.

CFPB ATR Small Entity Compliance Guide
Click on this link, https://files.consumerfinance.gov/f/201308_cfpb_atr-qm-implementation-guide_final.pdf and see excerpts below:

P. 12: The Truth in Lending Act applies to a loan modification only if it is considered a refinancing under Regulation Z. If a loan modification is not subject to the Truth in Lending Act, it is not subject to the ATR/QM rule. Therefore, you should determine if a loan modification is a refinancing to see if the ATR/QM rule applies. You will find the rules for determining whether a loan workout is a modification or a refinance in Regulation Z at § 1026.20(a) and accompanying Commentary.

P. 44:
The ATR/QM rule does not apply when you alter an existing loan without refinancing it. So you can provide a loan modification to a defaulted (or non-defaulted) consumer without complying with ATR. You can find a discussion of what changes to a loan will be treated as a modification rather than a refinancing in Regulation Z at § 1026.20(a).

[jholzknecht]

Keep in mind that there are seven ability to repay standards. The 43% DTI ratio appears in some but not all of the ATR options. for example under the Eight Factors there is no limit on the DTI% other than the bank’s own standards. I doubt that bank policy allows a debt-to-income ration of 63%.

[Author]

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