Once again, the Consumer Financial Protection Bureau (“CFPB”) is providing compliance tips through its Supervisory Highlights for lenders making non-Qualified Mortgages (“non-QMs”). In its latest set of Highlights, the CFPB addresses how a lender must consider a borrower’s assets in underwriting those loans, and clarifies that a borrower’s down payment cannot be treated as an asset for that purpose, apparently even if that policy has been shown to be predictive of strong loan performance.
The Dodd-Frank Act and the CFPB’s Ability to Repay Rule generally require a lender making a closed-end residential mortgage loan to determine that the borrower will be able to repay the loan according to its terms. A lender may choose to follow the Rule’s safe harbor by making loans within the QM parameters. Alternatively, a lender may opt for more underwriting flexibility (and somewhat less compliance certainty). When making a non-QM, a lender must consider eight mandated underwriting factors and verify the borrower’s income or assets on which it relies using reasonably reliable third-party records. As one of those eight factors, the lender must base its determination on current or reasonably expected income from employment or other sources, assets other than the dwelling that secures the covered transaction, or both.