One of my valued clients asked me about the applicability of the Qualified Mortgage Rule and the Ability to Repay Rule ……did they apply to loans securing investment or commercial properties. Apparently there are some attorneys and compliance people out there who think they do. As a mortgage guy, I think they do not.
It was a great question and something I think you all should read. Even though many of you do not work in the commercial or investment property arena, you must know the rules. Because a deal might come through your door and you want to handle it correctly.
This question demonstrated how complex things have become. Here we have one question where the answer involves careful study of QM, ATR, RESPA and TILA.
Keep Calm and ask questions! If you are not my client, you probably should be. I still have a few openings.
Transactions Covered by QM and ATR Rules
QM and ATR rules apply to the following:
- Purchase and refinance transactions secured by owner-occupied and second homes.
QM and ATR rules do not apply to the following:
- Investment property*
NOTE: Investment properties that are for business purposes are exempt from QM rules.
If the borrower occupies any investment property for > 14 days in any given year the investment property is no longer considered for business purposes only and would be subject to QM and ATR rules.
Additionally, there can be no evidence that the borrower purchased/refinanced the investment property for personal rather than business reasons (e.g. property purchased for a family member).
This statement is derived from the ABA Opinion http://www.americanbar.org/publications/blt/2013/04/02_shatz.html published in part below. The author is well known and reliable.
The Ability-to-Repay Rule, Regulation Z Section 1026.43, requires that a creditor make 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.” The creditor must follow underwriting requirements and verify the information by using reasonably relied upon third-party records. The rule applies to all residential mortgages including purchase loans, refinances, home equity loans, first liens, and subordinate liens. In short, if the creditor is making a loan secured by a principal residence, second or vacation home, condominium, or mobile or manufactured home, the creditor must verify the borrowers’ ability to repay the loan. The section does not apply to commercial or business loans, even if secured by a personal dwelling. It also does not apply to loans for timeshares, reverse mortgages, loan modifications, and temporary bridge loans.
Any questions, call me at (800) 656-4584