Smaller financial institutions that originate residential mortgage loans to hold for investment would be relieved from compliance with the federal ‘‘ability to repay’’ (ATR) requirements by classifying such loans as “qualified mortgages” (QM loans) under the US Senate’s recently passed banking reform bill, S.2155. This bill is one indication of the continued interest of the residential mortgage industry to try to maneuver within the regulatory labyrinth of the ATR requirements. For example, some industry participants have found a way as evidenced by last year’s increase in private label securitizations of “non-qualified mortgages” (Non-QM loans).
This Legal Update, originally published by Bloomberg, discusses the ATR requirements, the QM loan criteria, Non-QM satisfaction of the ATR requirements, the state of the Non-QM market and the prospects for regulatory reform of the ATR requirements.