Understanding the basics of the Ability-to-Repay Standards
Discover what new information is required of potential borrowers with regard to new mortgage loan applications now that Ability-to-Repay (ATR) Standards are in effect.
In 2013, federal regulators issued Ability-to-Repay (ATR) Standards intended to ensure that borrowers can comfortably afford a home loan. The ATR Standards go into effect for loan applications received on or after January 10, 2014.
Clients should be aware that the new rules require lenders to collect and verify eight types of financial information from a potential borrower:
- Current income and assets
- Current employment status
- Credit history
- Monthly payment for the mortgage
- Monthly payments on other mortgage loans (second-lien loans made at the same time as the first-lien mortgage)
- Monthly payments for other housing-related expenses, such as property taxes, homeowner’s insurance and homeowner’s association fees
- Amounts paid on all other debts
- Monthly debt payments compared to monthly income, aka debt-to-income ratio
Taking all of this into consideration, the lender must determine that a borrower has sufficient income/assets and a debt-to-income ratio that would enable the borrower to comfortably afford their monthly mortgage payment.