How do I calculate ATR?

ATR means Ability to Repay. I have been preaching about this for some time. I have seen a trend in the courts to require ATR regardless of what type of loan, or what type of borrower, or even, what type of lender.

Most lenders in the conventional or government arena require proof of ATR in order to confirm the mortgage is QM. And, they tell you how to calculate the number.

What about the weird loans we make where there is no guidance from anyone regarding the source of funds relied on to repay the loan? One thing is certain. The legal trend is that no matter what kind of loan to whatever type of person or entity, a formula for determining the ATR is necessary on almost all loans.

That’s when YOU have to rely on yourself. Because whether the lender wants to see it or not, you need to have it. Without ATR, you could find yourself defending a regulator assertion that you are a predatory lender.

Here’s my guidance, where guidance is lacking from your lender of choice.

In those cases where there is no set guidance for Ability to Repay, you must use your common sense and a formula that shows adequate assets and cash flow to support a total DTI of no higher than 50%. That maximum back end is defensible in the event of a lawsuit or a regulator challenge. If assets are the principal source of the ATR, then they MUST be highly liquid. You have to confirm that is the case.

Any questions? Give us a call. If you need a new compliance firm, we are presently offering a special package. Let us hear from you.


Nelson A. Locke, Esq

(800) 656-4584






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