At the beginning of 2014, the Consumer Financial Protection Bureau (CFPB) officially implemented the Qualified Mortgage (QM). The QM, along with the Ability-To-Repay (ATR), was designed to provide lenders with additional protections from being left in the lurch if borrowers defaulted on their mortgage. It did so by requiring more paperwork and information from potential buyers, giving lenders who followed these guidelines a more complete picture of the borrower and their ability to repay the mortgage they were seeking.
Between QM and ATR, lenders have a standard approach to determine if a borrower will be able to make their monthly mortgage payments without facing financial hardship. Prior to these two sets of guidelines, lenders lacked an outline of what paperwork they should request. Some lenders would ask for much less than what was truly needed. Today, those lenders who follow QM are protected from loan buybacks, which means they do not face major financial risk if a borrower defaults on their loan.
Being stuck with loan buybacks was one of the contributing factors in the housing market collapse. By alleviating this risk, the CFPB hopes to avoid another such crash.
The QM and ATR programs require lenders to assemble a QM loan file that includes specific types of documentation, including paystubs, tax returns, W2 and 1099 forms, bank statements, and much more. Lenders who do not take the time to gather and examine this information may find that the loans they make are buyback eligible, providing motivation to follow this process.
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