Summary of the Ability-to-Repay and Qualified
Mortgage Rule

Abstract

On January 10, 2013, the Consumer Financial Protection Bureau issued a final rule titled “Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act” pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. This summary addresses the contents and implications of the final rule, capturing the general implications of that rule on the primary and secondary mortgage markets and highlighting key definitions. The final rule, set forth in Regulation Z, encompasses definitions, the ability-to-repay requirement, requirements for refinancing of non-standard mortgages, the various qualified mortgage definitions, certain limitations on prepayment penalties, and an anti-evasion provision. The final rule applies to any consumer credit transaction that is secured by a dwelling, other than a home equity line of credit or a timeshare. The mortgage loans, or transactions, covered by the final rule are divided into two types: covered transactions that are not higher-priced covered transactions and higher-priced covered transactions.