Re: Ability to Repay


1) At one case you inquire about what happens to a balloon loan that is refinanced. In the other you inquire about a balloon note that is renewed. The questions are similar, but the answers are very different. A refinance is a new loan, therefore you must verify the borrowers ability to repay under one of the six different ability-to-repay rules. A renew is not a new transaction therefore it does not have to new e ability-to-repay rules.
2) if the consumer does not meet one of the standards, such as the 43% debt-to-income ratio, then the loan does not meet the standard for a qualified mortgage. In that case you must qualify the borrower under one of the other ability-to-repay options.
3) ARM loans are generally easy to qualify under various ability-to-repay options. For the QM option you must underwrite using the highest rate in the first five years.

To determine whether your loans qualify under the balloon QM rules check the CFPB’s list of rural and undeserved counties. If most of your bank’s lending occurs in such counties you meet that requirement. Your must also look at other factors such as the size of your bank and the volume of originations. You must also hold the balloon loans in your portfolio for at least three years.