CFPB Ability-to-Repay Rule a Whole Lot of Nothing

In 2012, mortgage lenders and their lobby groups cried that the sky was falling. They claimed new mortgage rules being forged by the Consumer Financial Protection Bureau (CFPB) would devastate the mortgage industry and limit homeownership to financially superlative borrowers.

But the sky didn’t fall after all. Aside from prohibiting a few high-risk mortgage features, the new mortgage rules bring nothing new to the table.

Consider the Ability-to-Repay (ATR) rule, for example. This rule was introduced by CFPB in January of 2013, along with the broader Qualified Mortgage (QM) rule. The ATR rule states that mortgage lenders must “make a reasonable, good-faith determination … that the consumer has a reasonable ability to repay the loan.”

It’s groundbreaking stuff, I know. What does it say about the U.S. lending industry when the government has to mandate something so basic as income verification? That’s a rhetorical question.

Ability-to-Repay (ATR) Rule at a Glance

So what does the CFPB’s Ability-to-Repay rule say? Here’s a rundown of the key points.

  • The ATR rule requires mortgage lenders to genuinely verify the borrower’s ability to repay the loan. Lenders can do this by examining the borrower’s income, assets, and employment status (if employment is relied upon to repay the loan).
  • Mortgage lenders must weigh the borrower’s income and assets against (A) the expected mortgage payments; (B) other expenses relating to the mortgage, such as home insurance and property taxes; (C) payments for other loans associated with the property, such as a second mortgage; and (D) all other recurring debt obligations.
  • The Ability-to-Repay rule also requires lenders to verify the consumer’s credit history, if they have one. If the borrower has no credit history with any of the major credit bureaus, the lender can use nontraditional credit sources like rental payment history or utility payments.
  • Lenders must consider the eight ATR underwriting factors when reviewing applicants. These include the borrower’s income, assets and employment status, as well as the items mentioned above.
  • Mortgage lenders can use a wide variety of documents when verifying the eight underwriting factors required by the Ability-to-Repay rule. These documents include (but are not limited to) IRS W2 forms, payroll statements, tax returns, bank statements, benefits program documents, and receipts from check-cashing or funds-transfer services.
  • Mortgage lenders can use the borrower’s credit report to verify his or her debt obligations. These obligations are used to calculate the debt-to-income ratio.

This is just an overview of key points found in the Ability-to-Repay rule. This information was gleaned from a document published by CFPB recently, a “small entity compliance guide” intended for mortgage lenders. The complete document can be found on the CFPB website,

As stated in the compliance guide, the ATR rule does not take effect until January 2014. Or as they put it: “This rule applies to transactions covered under the rule for which [lenders] receive an application on or after January 10, 2014.”