The CFPB established eight underwriting factors that must be considered when determining if a borrower has a reasonable ability to repay the loan. Unlike with QM loans, lenders and assignees of Non-QM loans will not have a presumption of compliance with the ATR rule. As a result, borrower claims, specifically those raised as a defense to a foreclosure action, may pose a greater risk of loss, increase litigation costs and could further extend liquidation timelines.
The absence of a presumption of compliance further highlights the need for industry participants originating or purchasing Non-QM loans to engage in a thorough due diligence process to be certain that the eight underwriting factors have been appropriately documented, as applicable.
AMC's due diligence output and consultation is an invaluable tool in determining the appropriate compliance designation and allowing clients to formulate the proper strategy including portfolio, securitization, and disposition/ sale.