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Is Ability-To-Repay Back in the Spotlight?

The folks out in good ole DC look to be bringing the good ole ATR/QM requirements back into focus. In the past couple months there have been a few publications that have focused on ATR requirements. One is a refresher, while the other is more of a possible lifeline.

In the most recent version of the Supervisory Highlights from the CFPB, they note that they have seen an uptick in issues when it comes to FIs meeting the ability-to-repay requirements. They give a few reminders (AKA things they are seeing other institutions do wrong) on how to properly comply with the rule.

Making a reasonable and good faith determination.

Not really a black and white sort of topic is it. The folks at the Bureau call out that FIs have the ability to determine their own underwriting standards, as long as those standards meet the minimum requirements of the regulation when it comes to determining ATR. My guess here is that they are starting to see shops that are relaxing a bit when it comes to qualifying their members. This is a fine line to balance when you are trying to meet the needs of your members, while at the same time meeting the demands of the regulators. Not a bad thing to take a look at within your own shop.

Validating income and assets through third party documentation.

Now this one seems like a no brainer to me. That could be because I am the compliance guy, but I felt the same way in my past life as an operations guy. I know we all just want to be able to believe what the member is telling us is true and then move right along. But is that really helping out everyone in the long run? You don’t have to see it as a situation where you “don’t trust the member.” You are actually helping them out be providing them financial guidance. They don’t do this kind of thing day in and day out. Just because they think they can afford it, doesn’t mean they actually can. So in order to put them in the best financial situation possible wouldn’t you want to make sure what they are saying is true?

Relying on assets and not income as support of ATR. Using the size of a down payment as support without validating income or assets.

Do you get the feeling this is something they might be running into during exams? Seems pretty specific doesn’t it? It also seems pretty clear cut as well. Assets are tricky. Just because they have them now, doesn’t mean they will have them later. You could say the same for income, but income you can at least show a history and schedule of when they will have it. Assets could be riding out the showroom floor the next day looking like a baby blue convertible. Also, just because I have a large down payment doesn’t mean I still don’t have to pay later down the line. Your equity position might be pretty good with that large down payment, but that doesn’t guarantee you won’t be handcuffed by the foreclosure process sometime in the near future.

The Bureau is also soliciting feedback on the current ATR/QM rule to see if there are ways it can be improved. With Fannie loosening their requirements this summer, I think a case can be made for this rule. The disclaimer here is that the CFPB plans to release their findings by 1/1/2019, so you may want to reign in that excitement.

Relief may be in sight, but until then, make sure those T’s are still crossed and I’s are still dotted.

 

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