Complying with the CFPB’s New Ability-to-Repay Rule and QM Standards is as easy as 1, 2, 3

Starting January 10, 2014, new Consumer Financial Protection Bureau (CFPB) Ability-to-Repay Rule and Qualified Mortgage Standards go into effect.

These rules require lenders to verify that borrowers have the ability to repay their mortgage.

In its rule, the CFPB states creditors must generally use reasonably reliable third-party records to verify the information they use to evaluate the factors. Third-party records are defined as:

  • A document or other record prepared or reviewed by a person other than the consumer, the creditor, any mortgage broker, as defined in § 1026.36(a)(2), or any agent of the creditor or mortgage broker;
  • A copy of a tax return filed with the Internal Revenue Service or a state taxing authority;
  • A record the creditor maintains for an account of the consumer held by the creditor; or
  • If the consumer is an employee of the creditor or the mortgage broker,
    a document or other record regarding the consumer’s employment status or
    income.
  • Click here to view actual source of the above definition.

Credit Plus makes compliance EASY

The final CFPB Ability-to-Repay Rule describes certain minimum requirements for creditors making ability-to-repay determinations, but does not dictate that they follow particular underwriting models. At a minimum, creditors generally must consider eight underwriting factors.

Credit Plus offers solutions creditors need to meet those eight underwriting requirements:

  1. Current or reasonably expected income or assets – Credit Plus provides income verifications through a written VOE with year-to-date income. We also offer instant VOEs with income verification as a certified reseller of The Work Number®, a solution offered through Equifax Workforce Solutions*, and the largest collection of payroll records contributed directly from employers. In addition, we verify income by obtaining 4506-T/Tax Return Verifications.
  2. Current employment status – Credit Plus provides a 100 percent solution with employment
    verifications through The Work Number® or by manually verifying.
  3. The monthly payment on the covered transaction – Lender will provide on the 1003.
  4. The monthly payment on any simultaneous loan – Lender will provide a copy of the note.
  5. The monthly payment for mortgage-related obligations – Lender will provide a copy of the note.
  6. Current debt obligations, alimony, and child support – Credit Plus provides this information through Tri-Merge Credit Reports; Undisclosed Debt Verifications; and 4506-T/Tax Return Verifications.
  7. The monthly debt-to-income ratio or residual income – Credit Plus provides employment and income verifications through The Work Number®; and through consistent, auditable manual verifications; 4506-T/Tax Return Verifications; and Tri-Merge Credit Reports.
  8. Credit history – Credit Plus provides Tri-Merge Credit Reports.

*Equifax Workforce Solutions is a business unit of Equifax Inc., Atlanta, Georgia. Credit Plus is an authorized reseller of products and services provided through Equifax. 

Credit Plus offers simple solutions to compliance requirements. Contact us to learn more.

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More information on the CFPB Ability-to-Repay Rule and the QM Standards can be found on the Consumer Finance website by clicking here.