Simple Explanation of Latest Rules: Qualified Mortgage and Ability to Repay

Posted on: 02/05/2014

How to Explain QM & ATR to Your Clients


Written By: Bridget McGee, Real Estate Mortgage Broker with CrossCountry Mortgage, Inc. 410-960-2061 NMLS 196068

I have recently been asked by both clients and real estate agents about Qualified Mortgage, The Ability to Repay, and the all-important question:  How is this going to affect me when I buy a home or refinance my mortgage?

So, I decided to post this on my blog and have given Karen Deis the okay to share it with you too. 

“Here Comes Another Mortgage Rule to Make Loans Harder to Get!”


Qualified Mortgage (QM) and Ability to Repay (ATR) are the newest rules of the Dodd-Frank to be implemented. Going into effect January 10th, there seem to be a lot of folks up in arms about it.   I have heard both lenders and real estate agents grumbling about this new rule, and that it is going to cause more buyers not to qualify for mortgage loans.

Probably Not.

Here’s how Cola Galvin Register explains QM and ATR to her clients: 

We are going back to “driving the car” the way we used to.  Staying between the lines, adhering to the speed limits, making sure drivers are educated and licensed to drive. If we are all driving sensibly, there should be fewer wrecks. 

These “new” rules are in place to make sure that lenders ensure that buyers have the ability to repay a mortgage loan…for the long haul, and that lenders are not putting a borrower into a loan that is not “good” for them.  

Lenders must make a reasonable, good faith determination that the borrower can afford the mortgage payment and that they have income that supports expenses beyond the mortgage.

Guess what? 

Lenders have already increased the minimum credit score requirements, lowered the maximum debt-to-income ratio, and are already asking for a slew of documentation to prove income, assets and creditworthiness.

Here’s what I am telling you…these procedures are already in place at most lenders; QM and ATR just makes it “official.”

There seems to be MISINFORMATION that the maximum total debt to income will be 43% after January 10, 2014. THIS IS NOT CORRECT, though some lenders may limit the debt ratio at 43% for their loans.

According to the CFPB (Consumer Finance Protection Division) Qualified Mortgage Rule:

The General definition category of QMs is that any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM.



“GSE-eligible” category of QMs [Conventional financing is often through Fannie Mae and Freddie Mac, which are currently “Government Secured Entities”]: any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio.

Basically this means that as long as loans meet Fannie and Freddie, FHA, USDA AND VA guidelines and get an approve/eligible or LP Accept through Desktop underwriting, they are OK (for now anyway!).  

Borrowers, please note:

  • Assume that the underwriter will ask you for BOTH your firstborn and a blood test; anything less will be a win!
  • Hold on to ALL documentation – pay stubs, w-2’s, savings, checking, 401k.  Be able to provide written proof of all deposits that are not direct deposits (e.g., payroll, tax refunds, social security, etc.) 
  • Your loan officer and underwriter are not asking you for additional documentation because they want to frustrate you, or because they don’t believe you. They are asking because they may need to prove to anyone who has a right to ask that they reviewed everything possible to ensure that you have the ability to repay the loan. 

Provide the required documentation for a loan that is in your comfort zone and you will find yourself APPROVED!

Copyright – 2014 –

Written By: Bridget McGee




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