United States
Hong KongAbility to repay and qualified mortgages
A creditor must make a reasonable, good-faith determination of ability to repay using eight factors. A qualified mortgage gets a presumption of compliance and caps points and fees at 3 percent on loans of 100,000 dollars or more.
A rule written after a crisis in which a great many loans were made to people who could not repay them.
It sits at 12 CFR 1026.43 and it has two halves: a general duty, and a safe harbor for loans that meet a definition.
The eight factors
A creditor must consider, at 12 CFR 1026.43(c)(2), the consumer's current or reasonably expected income or assets, employment status, the monthly payment on this loan, the monthly payment on any simultaneous loan, monthly mortgage-related obligations, other debts, alimony and child support, and the monthly debt-to-income ratio or residual income.
Eight. Learn the count as well as the contents - questions ask for the number.
What a qualified mortgage is
A loan meeting a defined set of product and underwriting limits. Meeting them gives the creditor a presumption that ability to repay was properly assessed.
- Points and fees capped at 3 percent of the total loan amount on a loan of 100,000 dollars or more
- No negative amortization, no interest-only period, no balloon payment in most cases
- A term not exceeding 30 years
- Income and assets verified
It defined the General QM until a price-based standard replaced it in 2021. Plenty of prep material still calls it current. If a question offers 43 percent as the General QM threshold, the question is probably old - but know the figure, because it is asked.
Safe harbor and rebuttable presumption
A qualified mortgage that is not higher-priced gets a safe harbor: conclusive protection.
A higher-priced qualified mortgage gets a rebuttable presumption instead, which a borrower may challenge by showing they lacked sufficient residual income.
What is excluded
The rule does not apply to open-end credit, timeshares, reverse mortgages, temporary bridge loans of twelve months or less, or construction phases of twelve months or less.
Reverse mortgages are the exclusion most often tested, because the repayment logic runs backwards.
Common questions
What is the ability-to-repay rule?
A requirement that a creditor make a reasonable, good-faith determination that the consumer can repay, considering eight specified factors.
How many ability-to-repay factors are there?
Eight, listed at 12 CFR 1026.43(c)(2).
What is a qualified mortgage?
A loan meeting defined product and underwriting limits, which gives the creditor a presumption of compliance with ability to repay.
Is the 43 percent DTI limit still the rule?
Not for the General QM. A price-based standard replaced it in 2021, though the figure still appears in older material.
What is the points and fees cap?
3 percent of the total loan amount for a loan of 100,000 dollars or more.