In 2013, the Consumer Financial Protection Bureau (CFPB) issued an Ability -to-Repay (ATR) and Qualified Mortgage (QM) rule. The ATR and QM rule asserts that lenders must make a reasonable good faith determination of a consumer’s ability to repay a mortgage loan based on verified borrower financial information.
Because of the Dodd Frank regulation, along with the CFPB’s implementation of the Ability-to-Repay (ATR) and the Qualify Mortgage (QM) rules; as of January of 2014, income and financial where-with-all of borrowers applying for a mortgage loan had to be verified and assessed to determine whether the applicant(s) could afford the mortgage loan they were obtaining.
The financial crisis was as enveloping as it was partly due to borrowers buying homes above their means, hoping that their incomes would rise, or hoping the mortgage payments would be more comfortable as they paid off other debt. Only, the income did not continue to rise, adjustable rate mortgage payments rose, and refinance options narrowed when real estate values began to fall.
After January 2014, borrowers were denied for mortgages payments that were unaffordable. Liars Loans, where the applicants stated their income to qualify for bigger mortgages, went away. Instead, in order to qualify more minority borrowers for home purchases, the GSE’s or Government sponsored enterprises implemented a GSE Patch that supported slightly elevated debt ratios (mortgage payment as percent of total monthly expenses). The patch allowed reasonable exceptions and circumstances for stable borrowers to buy homes. That patch is due to expire no later than January 10, 2021. The CFPB, Consumer Financial Protection Bureau, has reviewed and assessed the performance of the ATR and QM Rule, and proposes to let the GSE patch expire.