The Consumer Financial Protection Bureau (“CFPB”), in its most recent set of Supervisory Highlights, provides a bit of insight into how it interprets its Ability to Repay Rule for loans that are not Qualified Mortgages (“QMs”). However, it fails to reconcile the Rule’s contradiction that while a lender making a non-QM is not required to consider or verify the borrower’s income if it reasonably finds the borrower’s assets to be sufficient, it is nonetheless required to consider and verify a borrower’s income! Make sense?
By way of background, the Dodd-Frank Act and CFPB’s regulations generally require lenders making a closed-end residential mortgage loan to reasonably determine that the consumer will be able to repay the loan according to its terms. If the lender wants to take advantage of a safe harbor of compliance with that requirement, it may choose to make a QM in accordance with the Rule’s strict criteria for those loans. However, a lender may decide to make non-QMs, for which the Rule offers more underwriting flexibility. Still, the lender must consider eight specified factors, and verify the amounts of income or assets on which it relies using reasonably reliable third-party records.