United States: CFPB Ability-To-Repay Rule And Qualified Mortgage Definition

More than twenty months ago, the Board of Governors of the Federal Reserve System (the "Board") first proposed a rule amending Regulation Z to implement an expanded ability-to-repay requirement and to define a "qualified mortgage" in accordance with various Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") amendments to the Truth in Lending Act ("TILA"). Responsibility for rulemaking with respect to Regulation Z passed to the Consumer Financial Protection Bureau ("CFPB") on July 21, 2011. On January 10, 2013, the CFPB completed the initial phase of this rulemaking process by promulgating a final rule that will fundamentally reshape the residential mortgage market (the "2013 ATR Final Rule").1 Effective January 10, 2014, the 2013 ATR Final Rule (i) institutes a broad ability-to-repay requirement applicable to virtually the entire residential mortgage market, (ii) defines a new category of "qualified mortgage" and (iii) establishes a two-tier safe harbor/rebuttable presumption architecture for assessing compliance with the ability-to-repay requirement for "qualified mortgages" that roughly distinguishes between "prime" and "subprime" mortgage loans.

The significance of the 2013 ATR Final Rule cannot be overstated: the ability-to-repay requirement and the "qualified mortgage" standard will define the U.S. residential mortgage market for the foreseeable future. At this juncture, we do not believe that there will be a market for loans that do not meet the "qualified mortgage" standard. We further believe that while these new provisions will contract the availability of credit and likely increase its cost, the provisions will also be effective in improving the credit quality of new residential mortgage loans.

It should be emphasized that a mortgage loan that is not a "qualified mortgage" and that does not meet the ability-to-repay requirement would subject the creditor and subsequent assignees to, among other things, civil liability under TILA and provide the borrower with a defense to foreclosure. In addition to actual damages, statutory damages in an individual or class action, and court costs and attorneys fees, the Dodd-Frank Act also amended TILA to include special statutory damages for a violation of the ability-to-repay requirement equal to the sum of all finance charges and fees paid by the consumer, unless the failure to comply was not material.2

The statute of limitations for civil actions arising from ability-to-repay claims has been extended to three years, and the borrower's defense to foreclosure is not subject to any statute of limitations.

Ability-to-Repay Requirement

The amendments to Regulation Z in the 2013 ATR Final Rule, including the ability-to-repay requirement, apply to a "covered transaction," which is defined as a consumer credit transaction that is secured by a dwelling, including any real property attached to a dwelling.3

The 2013 ATR Final Rule establishes the following general ability-to-repay requirement: "A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms."4 The 2013 ATR Final Rule thus expands and extends the ability-to-repay rule in Regulation Z that has been applicable to "higher-priced mortgage loans" since 20095 to virtually all closed-end consumer credit transactions secured by a dwelling. The specific ability-to-repay requirements in the 2013 ATR Final Rule are similar, but not identical, to those currently in effect for "higher-priced mortgage loans" under Regulation Z. To date, "higher-priced mortgage loans" have been originated and sold in the secondary market without incident. They are fully eligible for sale to Fannie Mae and Freddie Mac as long as they satisfy the underwriting and documentation requirements applicable to that category of loan. The concern for the residential mortgage market is whether or not the 2013 ATR Final Rule in any way compromises the current acceptance of such mortgage loans in the secondary market.

Although the 2013 ATR Final Rule does not impose a particular underwriting model, the creditor must, at a minimum, consider eight (8) discrete underwriting factors pertaining to the individual consumer in determining ability-to-repay:

  • the consumer's current or reasonably expected income or assets (other than the value of the dwelling, including any real property attached to the dwelling) that secures the loan;
  • the consumer's current employment status, if the creditor relies on income from the consumer's employment in determining repayment ability;
  • the consumer's monthly payment on the covered transaction, calculated using the greater of a fully-indexed rate or any introductory rate and using monthly, fully amortizing payments that are substantially equal;6
  • the consumer's monthly payment on any simultaneous loan that the creditor knows, or has reason to know, will be made;7
  • the consumer's monthly payment for mortgage-related obligations (i.e., property taxes, insurance premiums and similar charges required by the creditor, fees and special assessments imposed by a condominium, cooperative or homeowners association, ground rent, and leasehold payments);
  • the consumer's current debt obligations, alimony, and child support;
  • the consumer's monthly debt-to-income ratio, meaning the ratio of total monthly debt obligations to total monthly income ("DTI"), or residual income;8 and
  • the consumer's credit history.

Creditors may develop their own underwriting standards and make changes thereto over time in response to empirical information and changing economic and other conditions.

The creditor must verify the information that it relies upon in determining a consumer's ability-to-repay using reasonably reliable third-party records.9 As a corollary, a creditor generally need not verify, for example, income or assets that it does not rely upon to evaluate the consumer's repayment ability. For the verification of income or assets, the creditor may use tax return transcripts from the IRS, copies of tax returns, Form W-2s, payroll statements, financial institution records, government benefit or entitlement records, check cashing service receipts or funds transfer service receipts. The creditor may verify employment orally, if it prepares a record thereof. If the creditor relies on a credit report to verify current debt obligations or the consumer's application states a current debt obligation not shown in the credit report, the creditor need not independently verify such an obligation. Third-party records include records transmitted electronically. In effect, the 2013 ATR Final Rule prohibits no-documentation and low-documentation loans.

Exemption for Refinancing of "Non-Standard" Mortgages

The 2013 ATR Final Rule includes a special exemption from the general ability-to-repay requirement for a creditor that refinances a "riskier" non-standard mortgage (i.e., an adjustable rate loan, an interest-only loan or a negative amortization loan) into a standard mortgage with more "stable" characteristics. This exemption applies if the following conditions are met:

  • the creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast;10
  • the creditor for the standard mortgage is the current holder or servicer of the existing non-standard mortgage;
  • the monthly payment for the standard mortgage is materially lower than that for the non-standard mortgage;11
  • the creditor receives the consumer's written application within two (2) months after the non-standard mortgage has recast;
  • the consumer has made no more than one (1) payment more than thirty (30) days late during the twelve (12) months preceding the creditor's receipt of the written application;
  • the consumer has made no payment more than thirty (30) days late during the six (6) months preceding the creditor's receipt of the written application; and
  • if the non-standard mortgage was consummated after January 10, 2014, it was made in accordance with the ability-to-repay requirement or was a "qualified mortgage."

The standard loan must have regular periodic payments that do not cause the principal balance to increase, do not allow the consumer to defer repayment of principal and do not result in a balloon payment. In addition, total points and fees may not exceed the level required for a "qualified mortgage," the term cannot exceed forty (40) years, interest must be fixed for at least the first five (5) years, and the proceeds must be used to pay off the outstanding balance of the non-standard mortgage and closing or settlement charges.

These types of transactions would be used to "rescue" consumers in existing adjustable rate, interest-only or negative amortization loans who are vulnerable to default, but likely have far greater prospects of performing under a more conservative obligation.

"Safe Harbor" and "Rebuttable Presumption"

Section 1412 of the Dodd-Frank Act amended TILA to provide that a creditor with respect to a residential mortgage loan, and any assignee of such loan, may presume that the loan has met the ability-to-repay requirement if the loan is a "qualified mortgage." However, as the Board observed in its proposed rule, it is unclear whether Congress intended this provision to constitute a "safe harbor" or a "rebuttable presumption" of compliance with the ability-to-repay requirement. The Board offered two alternative formulations to address this statutory ambiguity, based on competing policy considerations. In the 2013 ATR Final Rule, the CFPB adopted both a "safe harbor" and a "rebuttable presumption," albeit using a much different approach than the Board.

The 2013 ATR Final Rule includes a "safe harbor" for a covered transaction that meets the definition of "qualified mortgage" and that is not a "higher-priced covered transaction," a definition that is substantially the same as the one applicable to a "higher-priced mortgage loan" in current Regulation Z.12 The CFPB views covered transactions eligible for the "safe harbor" as being lower-priced, less risky "prime" loans. For any covered transaction that meets the definition of a "qualified mortgage" and is not a "higher-priced covered transaction," the creditor or assignee complies with the ability-to-repay requirement (i.e., will be conclusively presumed to have made a good faith and reasonable determination of the consumer's ability to repay), although the consumer could still subsequently contend that the covered transaction did not actually meet the criteria for a "qualified mortgage."

The 2013 ATR Final Rule also includes a "rebuttable presumption" standard for a covered transaction that meets the definition of "qualified mortgage" but that is a "higher-priced covered transaction." The CFPB considers "higher-priced covered transactions" to be "subprime" loans extended primarily to consumers with a weaker or less established credit history. For any covered transaction that meets the definition of a "qualified mortgage" but is a "higher-priced covered transaction," the creditor or assignee is merely presumed to comply with the ability-to-repay requirement. However, the 2013 ATR Final Rule sets forth limited grounds on which the presumption may be rebutted.

Rebutting this presumption for "higher-priced covered transactions" requires proof that the creditor did not make a good faith and reasonable determination of the consumer's ability to repay at the time of consummation, and specifically a consumer asserting a violation of Regulation Z must demonstrate that, at the time that the loan was originated,13 the consumer's income, debt obligations, alimony, child support and monthly payments (including mortgage-related obligations) on the covered transaction and any simultaneous loans of which the creditor was aware at consummation left insufficient residual income or assets (other than the value of the dwelling and any attached real property) to meet living expenses, including any recurring, material non-debt expenses of which the creditor was aware at consummation. Importantly, the CFPB indicated that a consumer is less likely to prevail in rebutting the presumption the longer that the consumer has made timely payments, without modification or accommodation, and, for adjustable rate mortgage loans, after recast.

"Qualified Mortgage" Definition

Under the 2013 ATR Final Rule, a "qualified mortgage" must be a covered transaction that meets the following criteria:

  • the covered transaction provides for regular periodic payments that are substantially equal (except for the effect of interest rate changes after consummation on adjustable-rate or step-rate mortgages) and that
    • do not result in an increase of the principal balance (e.g., no negative amortization loans);
    • do not allow the consumer to defer repayment of principal (e.g., no interest-only or graduated payment loans);
    • do not result in a balloon payment (i.e., a scheduled payment that is more than twice as large as the average of earlier scheduled payments), except that certain special criteria apply to a smaller creditor operating predominantly in rural or underserved areas;
  • the covered transaction does not have a loan term in excess of thirty (30) years;
  • the covered transaction does not have total points and fees (including loan originator compensation14) in excess of three percent (3%) of the total loan amount for a loan equal to or greater than $100,00015, less up to two (2) bona fide discount points if the interest rate without any discount does not exceed the average prime offer rate by more than one (1) percentage point;
  • the creditor underwrites the loan (taking into account the monthly payment for mortgage-related obligations) using (i) the maximum interest rate that may apply during the first five (5) years after the date on which the first regular periodic payment will be due and (ii) periodic payments of principal and interest that will repay either the loan amount (i.e., the principal amount of the promissory note or loan contract, even if not fully disbursed at origination) over the loan term or the outstanding principal balance over the remaining loan term as of the date the interest rate adjusts to the maximum;
  • the creditor considered and verified at or before consummation the consumer's current or reasonably expected income or assets (other than the value of the dwelling and any real property attached to the dwelling that secures the loan) and the consumer's current debt obligations, alimony and child support;16 and
  • the consumer's DTI ratio at consummation does not exceed 43%, determined using the consumer's monthly payment17 on the covered transaction (including any mortgage-related obligation) and on any simultaneous loan that the creditor knows, or has reason to know, will be made.

The 2013 ATR Final Rule contains a special exemption to the DTI limitation for a transitional period, based on the CFPB's concern that creditors may be unwilling to make a loan that is not a "qualified mortgage" in the current market, even if the loan is responsibly underwritten. Under the special exemption, a covered transaction with a DTI in excess of 43% may nonetheless constitute a "qualified mortgage" if the other criteria for a "qualified mortgage" are satisfied and if the loan is (i) eligible to be purchased or guaranteed by either Fannie Mae or Freddie Mac while they operate under government conservatorship (or any limited-life regulatory entity succeeding the charter of either), (ii) eligible to be insured by the Department of Housing and Urban Development, (iii) eligible to be guaranteed by the Department of Veterans Affairs, (iv) eligible to be guaranteed by the Department of Agriculture or (v) eligible to be insured by the Rural Housing Service. If one of the aforementioned agencies in (ii) - (v) implements its own definition of "qualified mortgage" in accordance with TILA, the special exemption will expire with respect to that agency. In no event will the special exemption apply to a covered transaction consummated after January 10, 2021. We suspect that the residential mortgage lending market will avail itself of this special exemption, which is the closest that the CFPB comes in allowing a "near miss" category to enjoy the benefits of a "qualified mortgage."

The 2013 ATR Final Rule addresses issues in connection with the points and fees calculation that are part of a broader, integrated set of revisions to Regulation Z. The provisions adopted in the 2013 ATR Final Rule will have the effect of excluding some covered transactions from the category of "qualified mortgages" because they exceed the total points and fees limit. For example, the 3% limit on points and fees includes charges paid to and retained by an affiliate of the creditor (e.g., affiliated title insurance vendor commission, affiliated appraisal provider fee) without regard to whether such costs were actually lower than the consumer could have obtained from an independent third party.18 Consumers may be unable to avail themselves of the efficiencies that affiliated service providers can offer (i.e., consumers may pay higher overall closing costs), and creditors may simply decline to extend credit if confronted with originating a less profitable loan in order for it to be eligible as a "qualified mortgage." In any event, consumers face the prospect of paying higher mortgage costs while creditors will earn less compensation under these new rules.

On a related matter, the CFPB also invited comment on how to calculate loan origination compensation, which is part of the points and fees calculation applicable to the "qualified mortgage" criteria. The CFPB expects to resolve these additional matters in Spring 2013, well in advance of the January 10, 2014 effective date.

Additional Provisions

The 2013 ATR Final Rule also includes other provisions related to statutory mandates in the Dodd-Frank Act, including:

  • a prohibition on prepayment penalties in covered transactions, unless (i) the covered transaction is a fixed-rate, "qualified mortgage" that is not a "higher-priced mortgage loan," (ii) the prepayment penalties do not apply after three (3) years and do not exceed two (2) percent of the outstanding loan balance during the first two years and one (1) percent during the third year, and (iii) the creditor has offered the consumer an alternative covered transaction without a prepayment penalty that contains certain other specified terms;19
  • extension of the record retention requirement to three years to evidence compliance with the ability-to-repay requirement and the prepayment penalty restrictions;20 and
  • a prohibition on inappropriately structuring a closed-end extension of credit as an open-end plan in order to evade compliance.21

Concurrent Proposal

The CFPB also invited comment on proposed amendments to the general ability-to-repay and "qualified mortgage" rule that were not contained in the original proposal or in the text of the Dodd-Frank Act, including:

  • exemptions for nonprofit community-based creditors that help low- to moderate-income consumers obtain affordable housing;
  • exemptions for housing finance agencies and lenders participating in housing finance agency programs intended to foster community development;
  • exemptions for homeownership stabilization programs that work to prevent foreclosures (e.g., programs operating in conjunction with the Making Home Affordable program);
  • extending "qualified mortgage" status to loans originated by smaller creditors (e.g., community banks and credit unions) that make and hold loans in their own portfolios (i.e., a more broadly applicable of version of the exception that now exists for loans with balloon payments made by small creditors operating primarily in rural and underserved areas); and
  • increasing the threshold separating "safe harbor" and "rebuttable presumption" qualified mortgages for smaller creditors (e.g., rural balloon-payment qualified mortgages) to 3.5 percentage points above the average prime offer rate for first-lien loans to reflect the higher cost of funds for such creditors.

SNR Denton Observations

In evaluating the 2013 ATR Final Rule, residential mortgage market participants will need to assess the potential impact on both primary and secondary market activities.

Origination of Non-Qualified Mortgages

In light of the fact that a non-qualified mortgage that does not meet the ability-to-repay requirement, a determination that would be made well after origination, will likely prevent the holder from foreclosing on the loan—as well as expose the holder to having to repay the consumer's finance charges—it is unlikely that any loan other than a "qualified mortgage" will be sold in the mainstream residential mortgage markets for the foreseeable future. Such loans would likely be very illiquid and part of a relationship lending business.

Effect on Origination

The "rebuttable presumption" for "higher-priced covered transactions" may affect the marketability of loans that have, until now, been readily salable in the secondary market. If such loans are perceived to be less marketable because of an enhanced litigation risk, creditors may be deterred from extending credit to consumers at the margin, resulting in a net contraction of access to credit for lower income consumers. This same dynamic may also restrict extensions of credit to creditworthy consumers who have sources of income or other financial resources that do not meet the documentation or verification requirements of the 2013 ATR Final Rule.

Effect on Jumbo Prime Loans

The "qualified mortgage" definition would put a hard 43% DTI ratio cap on jumbo prime loans (i.e., loans with balances in excess of conforming limits for purchase by Fannie Mae or Freddie Mac, but that otherwise meet the eligibility criteria). The transitional period exception to the 43% DTI ratio requirement would not apply to such loans precisely because of their non-conforming balances. In contrast, loans with conforming balances but with a DTI ratio above 43% may be eligible for purchase by Fannie Mae or Freddie Mac based on compensating factors applied through their respective underwriting guidelines, and therefore could meet the "qualified mortgage" definition. Under current lending practices, jumbo prime loans that have high debt-to-income ratios may be permitted under a creditor's underwriting guidelines on the basis of compensating factors, such as cash reserves or residual income. The 2013 ATR Final Rule may cause creditors to be unwilling to originate loans to jumbo prime borrowers with a DTI ratio over 43% even with compensating factors, which could result in some creditworthy consumers being unable to obtain financing.

Effect of the Two-Tier Structure on Pricing

The bifurcation of the mortgage market between loans eligible for the "safe harbor" and those relegated to the "rebuttable presumption" category may have unintended economic consequences for consumers with relatively better credit. Given the disparate legal risk for creditors between the two categories, creditors may be inclined to lower rates on otherwise "higher-priced covered transactions" in order to meet the "safe harbor" requirements. However, creditors may simultaneously seek to recoup this lost income—and to offset the greater financial risk that they would undertake by lowering rates for less creditworthy consumers—by offering rates for prime loans at incrementally higher rates. In effect, consumers with better credit could wind up subsidizing consumers with poorer credit.

Effect on the Risk Retention Requirement.

The import of this issue extends well beyond TILA. Section 941 of the Dodd-Frank Act provides that the definition of a "qualified residential mortgage" ("QRM") for purposes of the still-pending risk-retention rules applicable to asset-backed securities can be no broader than the definition of a "qualified mortgage" for purposes of TILA. The interplay of the two provisions is significant because asset-backed securities collateralized exclusively by QRMs will be exempt from the risk-retention requirements.

Footnotes

Please note that we are not members of the Bar of any jurisdiction other than New York, New Jersey, Pennsylvania and the District of Columbia, and we are not licensed to opine on matters in jurisdictions other than in those states.

1

Bureau of Consumer Financial Protection, Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z), RIN 3170-AA17 (January 10, 2013)

2

Dodd-Frank Act § 1416(a).

3

"Dwelling" means a residential structure containing one-to-four units, regardless of whether or not the structure is attached to real property. However, the ability-to-repay requirement does not apply to home equity lines of credit or timeshares, reverse mortgages, temporary or "bridge" loans with a term of twelve (12) months or less, and the construction phase of twelve (12) months or less of a construction-to-permanent loan. More generally, the ability-to-repay requirement does not apply to an extension of credit primarily for a business, commercial or agricultural purpose, even if secured by a dwelling.

4

The 2013 ATR Final Rule uses language of similar import to the statutory mandate in the Dodd-Frank Act, adding the clarification that the "reasonable and good faith determination" may be made at or before consummation. Section 1411 of the Dodd-Frank Act provides that "no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance (including mortgage guarantee insurance), and assessments."

5

12 C.F.R. § 1026.35(a)(1) ("For purposes of this section, except as provided in paragraph (b)(3)(v) of this section [certain jumbo loans], a higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling"). The ability-to-repay requirement for "higher-priced mortgage loans" provides that "[a] creditor shall not extend credit based on the value of the consumer's collateral without regard to the consumer's repayment ability as of consummation as provided in § 1026.34(a)(4) [the repayment ability requirements applicable to "high-cost mortgages]. 12 C.F.R. § 1026.35(b)(1). Note also that, for purposes of the definition of "higher-priced mortgage loan," the term "average prime offer rate" means "an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage transactions that have low-risk pricing characteristics." 12 C.F.R. § 1026.35(b)(2). Regulation Z states that the CFPB publishes the "average prime offer rate" and the underlying methodology, but the data is available on the Federal Financial Institutions Examination Council website.

6

Special rules apply to mortgage loans with balloon payments, interest-only payments or negative amortization.

7

To constitute a simultaneous loan, the other covered transaction or home equity line of credit must be secured by the same dwelling and made to the same consumer at or before consummation of the covered transaction or, if to be made after consummation, will cover closing costs of the first covered transaction. If the simultaneous loan is a home equity line of credit, the payment calculation must reflect the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction.

8

The DTI ratio is calculated using total monthly debt obligations (i.e., the sum of the payments on the covered transaction, any simultaneous loans, mortgage-related obligations and current debt obligations, alimony and child support) and total monthly income (i.e., the sum of the current or reasonably expected income, including any income from assets). Monthly residual income is the consumer's remaining income after subtracting total monthly debt obligations from total monthly income.

9

Third-party records consist of (i) a document or record prepared or reviewed by a person other than the consumer, the creditor, the mortgage broker or an agent of the creditor or mortgage broker, (ii) a copy of a filed tax return, (iii) a record the creditor maintains for an account of the consumer held by the creditor or (iv) a document or record of employment status or income maintained by the creditor or mortgage broker if the consumer is an employee of such party.

10

The term "recast" means the expiration of an introductory period for an adjustable rate loan, the expiration of an interest-only period for an interest-only loan or the expiration of the period during which negatively amortizing payments are permitted for a negative amortization loan.

11

Special calculation rules apply for the comparison. For the non-standard loan, the monthly payment must be based on substantially equal, monthly, fully amortizing payments of principal and interest using a fully indexed rate, the remaining term of the loan as of the date of recast, and a remaining loan amount equal to the outstanding principal balance as of the date of recast (or, for a negative amortization loan, the maximum loan amount). For the standard loan, the monthly payment must be based on substantially equal, monthly, fully amortizing payments based on the maximum interest rate that may apply during the first five (5) years after consummation).

12

The term "higher-priced covered transaction" means "a covered transaction with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien covered transaction."

13

The Official Interpretations to Regulation Z add the crucial qualifying language "based on the information available to the creditor" at this point, which modifies the entire concept.

14

This includes all compensation paid directly or indirectly by a consumer or a creditor to a loan originator that can be attributed to that transaction at the time the interest rate is set (regardless of when actually paid), which would exclude compensation based on long-term loan performance, base salary, etc.

15

Different tiers—either flat dollar amounts or percentages—apply for smaller loans: for a loan amount greater than or equal to $60,000 but less than $100,000, $3,000; for a loan amount greater than or equal to $20,000 but less than $60,000, 5% of the total loan amount; for a loan amount greater than or equal to $12,500 but less than $20,000, $1,000; and for a loan amount less than $12,500, 8% of the loan amount. These amounts are indexed for inflation.

16

The 2013 ATR Final Rule adds an appendix "Standards for Determining Monthly Debt and Income," which contains detailed procedures for the calculations.

17

For purposes of this requirement, the DTI calculation generally must be made in accordance with the aforementioned appendix "Standards for Determining Monthly Debt and Income." However, the monthly payment for the covered transaction is calculated in the same manner as set forth elsewhere in the definition of "qualified mortgage" (e.g., using the maximum interest rate that may apply during the first five (5) years), and the monthly payment for any simultaneous loan is calculated in the same manner as set forth in the ability-to-repay requirement.

18

Note that bona fide third-party charges that are not retained by the creditor, loan originator or an affiliate of either are generally excluded.

19

Although reverse mortgages, temporary or "bridge" loans with a term of twelve (12) months or less, and the construction phase of twelve (12) months or less of a construction-to-permanent loan are not subject to the ability-to-repay requirement, they are subject to the restriction on prepayment penalties.

20

The extension of the recordkeeping requirement parallels the three-year statute of limitations for violations of the ability-to-repay requirement. Dodd-Frank Act § 1416(b). As the CFPB noted in the Supplementary Information to the 2013 ATR Final Rule, creditors will likely elect to retain records of compliance for a period of time well beyond three years because TILA allows consumers to bring a defensive claim for recoupment or setoff in the event that a creditor or an assignee initiates foreclosure proceedings.

21

Reverse mortgages, temporary or "bridge" loans with a term of twelve (12) months or less, and the construction phase of twelve (12) months or less of a construction-to-permanent loan are subject to the anti-evasion provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Stephen F.J. Ornstein
 
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We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.