Repayment ability
Repayment ability -
(1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
(2) Basis for determination. Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following:
(i) The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan;
(ii) If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status;
(iii) The consumer's monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section;
(iv) The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section;
(v) The consumer's monthly payment for mortgage-related obligations;
(vi) The consumer's current debt obligations, alimony, and child support;
(vii) The consumer's monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; and
(viii) The consumer's credit history.
(3) Verification using third-party records. A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records, except that:
(i) For purposes of paragraph (c)(2)(i) of this section, a creditor must verify a consumer's income or assets that the creditor relies on in accordance with § 1026.43(c)(4);
(ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally; and
(iii) For purposes of paragraph (c)(2)(vi) of this section, if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation.
(4) Verification of income or assets. A creditor must verify the amounts of income or assets that the creditor relies on under § 1026.43(c)(2)(i) to determine a consumer's ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer's income or assets. A creditor may verify the consumer's income using a tax-return transcript issued by the Internal Revenue Service (IRS). Examples of other records the creditor may use to verify the consumer's income or assets include:
(i) Copies of tax returns the consumer filed with the IRS or a State taxing authority;
(ii) IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;
(iii) Payroll statements, including military Leave and Earnings Statements;
(iv) Financial institution records;
(v) Records from the consumer's employer or a third party that obtained information from the employer;
(vi) Records from a Federal, State, or local government agency stating the consumer's income from benefits or entitlements;
(vii) Receipts from the consumer's use of check cashing services; and
(viii) Receipts from the consumer's use of a funds transfer service.
(5) Payment calculation -
(i) General rule. Except as provided in paragraph (c)(5)(ii) of this section, a creditor must make the consideration required under paragraph (c)(2)(iii) of this section using:
(A) The fully indexed rate or any introductory interest rate, whichever is greater; and
(B) Monthly, fully amortizing payments that are substantially equal.
(ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. A creditor must make the consideration required under paragraph (c)(2)(iii) of this section for:
(A) A loan with a balloon payment, as defined in § 1026.18(s)(5)(i), using:
(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction; or
(2) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;
(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv), using:
(1) The fully indexed rate or any introductory interest rate, whichever is greater; and
(2) Substantially equal, monthly payments of principal and interest that will repay the loan amount over the term of the loan remaining as of the date the loan is recast.
(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v), using:
(1) The fully indexed rate or any introductory interest rate, whichever is greater; and
(2) Substantially equal, monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast.
(6) Payment calculation for simultaneous loans. For purposes of making the evaluation required under paragraph (c)(2)(iv) of this section, a creditor must consider, taking into account any mortgage-related obligations, a consumer's payment on a simultaneous loan that is:
(i) A covered transaction, by following paragraph (c)(5)of this section; or
(ii) A home equity line of credit subject to § 1026.40, by using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction.
(7) Monthly debt-to-income ratio or residual income -
(i) Definitions. For purposes of this paragraph (c)(7), the following definitions apply:
(A) Total monthly debt obligations. The term total monthly debt obligations means the sum of: the payment on the covered transaction, as required to be calculated by paragraphs (c)(2)(iii) and (c)(5) of this section; simultaneous loans, as required by paragraphs (c)(2)(iv) and (c)(6) of this section; mortgage-related obligations, as required by paragraph (c)(2)(v) of this section; and current debt obligations, alimony, and child support, as required by paragraph (c)(2)(vi) of this section.
(B) Total monthly income. The term total monthly income means the sum of the consumer's current or reasonably expected income, including any income from assets, as required by paragraphs (c)(2)(i) and (c)(4) of this section.
(ii) Calculations -
(A) Monthly debt-to-income ratio. If a creditor considers the consumer's monthly debt-to-income ratio under paragraph (c)(2)(vii) of this section, the creditor must consider the ratio of the consumer's total monthly debt obligations to the consumer's total monthly income.
(B) Monthly residual income. If a creditor considers the consumer's monthly residual income under paragraph (c)(2)(vii) of this section, the creditor must consider the consumer's remaining income after subtracting the consumer's total monthly debt obligations from the consumer's total monthly income.
(d) Refinancing of non-standard mortgages -
(1) Definitions. For purposes of this paragraph (d), the following definitions apply:
(i) Non-standard mortgage. The term non-standard mortgage means a covered transaction that is:
(A) An adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer;
(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv); or
(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v).
(ii) Standard mortgage. The term standard mortgage means a covered transaction:
(A) That provides for regular periodic payments that do not:
(1) Cause the principal balance to increase;
(2) Allow the consumer to defer repayment of principal; or
(3) Result in a balloon payment, as defined in § 1026.18(s)(5)(i);
(B) For which the total points and fees payable in connection with the transaction do not exceed the amounts specified in paragraph (e)(3) of this section;
(C) For which the term does not exceed 40 years;
(D) For which the interest rate is fixed for at least the first five years after consummation; and
(E) For which the proceeds from the loan are used solely for the following purposes:
(1) To pay off the outstanding principal balance on the non-standard mortgage; and
(2) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.
(iii) Refinancing. The term refinancing has the same meaning as in § 1026.20(a).
(2) Scope. The provisions of this paragraph (d) apply to the refinancing of a non-standard mortgage into a standard mortgage when the following conditions are met:
(i) The creditor for the standard mortgage is the current holder of the existing non-standard mortgage or the servicer acting on behalf of the current holder;
(ii) The monthly payment for the standard mortgage is materially lower than the monthly payment for the non-standard mortgage, as calculated under paragraph (d)(5) of this section.
(iii) The creditor receives the consumer's written application for the standard mortgage no later than two months after the non-standard mortgage has recast.
(iv) The consumer has made no more than one payment more than 30 days late on the non-standard mortgage during the 12 months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage.
(v) The consumer has made no payments more than 30 days late during the six months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage; and
(vi) If the non-standard mortgage was consummated on or after January 10, 2014, the non-standard mortgage was made in accordance with paragraph (c) or (e) of this section, as applicable.
(3) Exemption from repayment ability requirements. A creditor is not required to comply with the requirements of paragraph (c) of this section if:
(i) The conditions in paragraph (d)(2) of this section are met; and
(ii) The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast.
(4) Offer of rate discounts and other favorable terms. A creditor making a covered transaction under this paragraph (d) may offer to the consumer rate discounts and terms that are the same as, or better than, the rate discounts and terms that the creditor offers to new consumers, consistent with the creditor's documented underwriting practices and to the extent not prohibited by applicable State or Federal law.
(5) Payment calculations. For purposes of determining whether the consumer's monthly payment for a standard mortgage will be materially lower than the monthly payment for the non-standard mortgage, the following provisions shall be used:
(i) Non-standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the creditor must calculate the monthly payment for a non-standard mortgage based on substantially equal, monthly, fully amortizing payments of principal and interest using:
(A) The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer's written application for the standard mortgage;
(B) The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; and
(C) A remaining loan amount that is:
(1) For an adjustable-rate mortgage under paragraph (d)(1)(i)(A) of this section, the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date;
(2) For an interest-only loan under paragraph (d)(1)(i)(B) of this section, the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; or
(3) For a negative amortization loan under paragraph (d)(1)(i)(C) of this section, the maximum loan amount, determined after adjusting for the outstanding principal balance.
(ii) Standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the monthly payment for a standard mortgage must be based on substantially equal, monthly, fully amortizing payments based on the maximum interest rate that may apply during the first five years after consummation.
(e) Qualified mortgages -
(1) Safe harbor and presumption of compliance -
(i) Safe harbor for loans that are not higher-priced covered transactions. A creditor or assignee of a qualified mortgage, as defined in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, complies with the repayment ability requirements of paragraph (c) of this section.
(ii) Presumption of compliance for higher-priced covered transactions.
(A) A creditor or assignee of a qualified mortgage, as defined in paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, is presumed to comply with the repayment ability requirements of paragraph (c) of this section.
(B) To rebut the presumption of compliance described in paragraph (e)(1)(ii)(A) of this section, it must be proven that, despite meeting the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, the creditor did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support, and the consumer's monthly payment (including mortgage-related obligations) on the covered transaction and on any simultaneous loans of which the creditor was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan with which to meet living expenses, including any recurring and material non-debt obligations of which the creditor was aware at the time of consummation.
(2) Qualified mortgage defined - general. Except as provided in paragraph (e)(4), (e)(5), (e)(6), or (f) of this section, a qualified mortgage is a covered transaction:
(i) That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not:
(A) Result in an increase of the principal balance;
(B) Allow the consumer to defer repayment of principal, except as provided in paragraph (f) of this section; or
(C) Result in a balloon payment, as defined in § 1026.18(s)(5)(i), except as provided in paragraph (f) of this section;
(ii) For which the loan term does not exceed 30 years;
(iii) For which the total points and fees payable in connection with the loan do not exceed the amounts specified in paragraph (e)(3) of this section;
(iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using:
(A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and
(B) Periodic payments of principal and interest that will repay either:
(1) The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth in paragraph (e)(2)(iv)(A) of this section, assuming the consumer will have made all required payments as due prior to that date; or
(2) The loan amount over the loan term;
(v) For which the creditor considers and verifies at or before consummation the following:
(A) The consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, in accordance with appendix Q and paragraphs (c)(2)(i) and (c)(4) of this section; and
(B) The consumer's current debt obligations, alimony, and child support in accordance with appendix Q and paragraphs (c)(2)(vi) and (c)(3) of this section; and
(vi) For which the ratio of the consumer's total monthly debt to total monthly income at the time of consummation does not exceed 43 percent. For purposes of this paragraph (e)(2)(vi), the ratio of the consumer's total monthly debt to total monthly income is determined:
(A) Except as provided in paragraph (e)(2)(vi)(B) of this section, in accordance with the standards in appendix Q;
(B) Using the consumer's monthly payment on:
(1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
(2) Basis for determination. Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following:
(i) The consumer's current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan;
(ii) If the creditor relies on income from the consumer's employment in determining repayment ability, the consumer's current employment status;
(iii) The consumer's monthly payment on the covered transaction, calculated in accordance with paragraph (c)(5) of this section;
(iv) The consumer's monthly payment on any simultaneous loan that the creditor knows or has reason to know will be made, calculated in accordance with paragraph (c)(6) of this section;
(v) The consumer's monthly payment for mortgage-related obligations;
(vi) The consumer's current debt obligations, alimony, and child support;
(vii) The consumer's monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; and
(viii) The consumer's credit history.
(3) Verification using third-party records. A creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records, except that:
(i) For purposes of paragraph (c)(2)(i) of this section, a creditor must verify a consumer's income or assets that the creditor relies on in accordance with § 1026.43(c)(4);
(ii) For purposes of paragraph (c)(2)(ii) of this section, a creditor may verify a consumer's employment status orally if the creditor prepares a record of the information obtained orally; and
(iii) For purposes of paragraph (c)(2)(vi) of this section, if a creditor relies on a consumer's credit report to verify a consumer's current debt obligations and a consumer's application states a current debt obligation not shown in the consumer's credit report, the creditor need not independently verify such an obligation.
(4) Verification of income or assets. A creditor must verify the amounts of income or assets that the creditor relies on under § 1026.43(c)(2)(i) to determine a consumer's ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer's income or assets. A creditor may verify the consumer's income using a tax-return transcript issued by the Internal Revenue Service (IRS). Examples of other records the creditor may use to verify the consumer's income or assets include:
(i) Copies of tax returns the consumer filed with the IRS or a State taxing authority;
(ii) IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;
(iii) Payroll statements, including military Leave and Earnings Statements;
(iv) Financial institution records;
(v) Records from the consumer's employer or a third party that obtained information from the employer;
(vi) Records from a Federal, State, or local government agency stating the consumer's income from benefits or entitlements;
(vii) Receipts from the consumer's use of check cashing services; and
(viii) Receipts from the consumer's use of a funds transfer service.
(5) Payment calculation -
(i) General rule. Except as provided in paragraph (c)(5)(ii) of this section, a creditor must make the consideration required under paragraph (c)(2)(iii) of this section using:
(A) The fully indexed rate or any introductory interest rate, whichever is greater; and
(B) Monthly, fully amortizing payments that are substantially equal.
(ii) Special rules for loans with a balloon payment, interest-only loans, and negative amortization loans. A creditor must make the consideration required under paragraph (c)(2)(iii) of this section for:
(A) A loan with a balloon payment, as defined in § 1026.18(s)(5)(i), using:
(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction; or
(2) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;
(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv), using:
(1) The fully indexed rate or any introductory interest rate, whichever is greater; and
(2) Substantially equal, monthly payments of principal and interest that will repay the loan amount over the term of the loan remaining as of the date the loan is recast.
(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v), using:
(1) The fully indexed rate or any introductory interest rate, whichever is greater; and
(2) Substantially equal, monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast.
(6) Payment calculation for simultaneous loans. For purposes of making the evaluation required under paragraph (c)(2)(iv) of this section, a creditor must consider, taking into account any mortgage-related obligations, a consumer's payment on a simultaneous loan that is:
(i) A covered transaction, by following paragraph (c)(5)of this section; or
(ii) A home equity line of credit subject to § 1026.40, by using the periodic payment required under the terms of the plan and the amount of credit to be drawn at or before consummation of the covered transaction.
(7) Monthly debt-to-income ratio or residual income -
(i) Definitions. For purposes of this paragraph (c)(7), the following definitions apply:
(A) Total monthly debt obligations. The term total monthly debt obligations means the sum of: the payment on the covered transaction, as required to be calculated by paragraphs (c)(2)(iii) and (c)(5) of this section; simultaneous loans, as required by paragraphs (c)(2)(iv) and (c)(6) of this section; mortgage-related obligations, as required by paragraph (c)(2)(v) of this section; and current debt obligations, alimony, and child support, as required by paragraph (c)(2)(vi) of this section.
(B) Total monthly income. The term total monthly income means the sum of the consumer's current or reasonably expected income, including any income from assets, as required by paragraphs (c)(2)(i) and (c)(4) of this section.
(ii) Calculations -
(A) Monthly debt-to-income ratio. If a creditor considers the consumer's monthly debt-to-income ratio under paragraph (c)(2)(vii) of this section, the creditor must consider the ratio of the consumer's total monthly debt obligations to the consumer's total monthly income.
(B) Monthly residual income. If a creditor considers the consumer's monthly residual income under paragraph (c)(2)(vii) of this section, the creditor must consider the consumer's remaining income after subtracting the consumer's total monthly debt obligations from the consumer's total monthly income.
(d) Refinancing of non-standard mortgages -
(1) Definitions. For purposes of this paragraph (d), the following definitions apply:
(i) Non-standard mortgage. The term non-standard mortgage means a covered transaction that is:
(A) An adjustable-rate mortgage, as defined in § 1026.18(s)(7)(i), with an introductory fixed interest rate for a period of one year or longer;
(B) An interest-only loan, as defined in § 1026.18(s)(7)(iv); or
(C) A negative amortization loan, as defined in § 1026.18(s)(7)(v).
(ii) Standard mortgage. The term standard mortgage means a covered transaction:
(A) That provides for regular periodic payments that do not:
(1) Cause the principal balance to increase;
(2) Allow the consumer to defer repayment of principal; or
(3) Result in a balloon payment, as defined in § 1026.18(s)(5)(i);
(B) For which the total points and fees payable in connection with the transaction do not exceed the amounts specified in paragraph (e)(3) of this section;
(C) For which the term does not exceed 40 years;
(D) For which the interest rate is fixed for at least the first five years after consummation; and
(E) For which the proceeds from the loan are used solely for the following purposes:
(1) To pay off the outstanding principal balance on the non-standard mortgage; and
(2) To pay closing or settlement charges required to be disclosed under the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.
(iii) Refinancing. The term refinancing has the same meaning as in § 1026.20(a).
(2) Scope. The provisions of this paragraph (d) apply to the refinancing of a non-standard mortgage into a standard mortgage when the following conditions are met:
(i) The creditor for the standard mortgage is the current holder of the existing non-standard mortgage or the servicer acting on behalf of the current holder;
(ii) The monthly payment for the standard mortgage is materially lower than the monthly payment for the non-standard mortgage, as calculated under paragraph (d)(5) of this section.
(iii) The creditor receives the consumer's written application for the standard mortgage no later than two months after the non-standard mortgage has recast.
(iv) The consumer has made no more than one payment more than 30 days late on the non-standard mortgage during the 12 months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage.
(v) The consumer has made no payments more than 30 days late during the six months immediately preceding the creditor's receipt of the consumer's written application for the standard mortgage; and
(vi) If the non-standard mortgage was consummated on or after January 10, 2014, the non-standard mortgage was made in accordance with paragraph (c) or (e) of this section, as applicable.
(3) Exemption from repayment ability requirements. A creditor is not required to comply with the requirements of paragraph (c) of this section if:
(i) The conditions in paragraph (d)(2) of this section are met; and
(ii) The creditor has considered whether the standard mortgage likely will prevent a default by the consumer on the non-standard mortgage once the loan is recast.
(4) Offer of rate discounts and other favorable terms. A creditor making a covered transaction under this paragraph (d) may offer to the consumer rate discounts and terms that are the same as, or better than, the rate discounts and terms that the creditor offers to new consumers, consistent with the creditor's documented underwriting practices and to the extent not prohibited by applicable State or Federal law.
(5) Payment calculations. For purposes of determining whether the consumer's monthly payment for a standard mortgage will be materially lower than the monthly payment for the non-standard mortgage, the following provisions shall be used:
(i) Non-standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the creditor must calculate the monthly payment for a non-standard mortgage based on substantially equal, monthly, fully amortizing payments of principal and interest using:
(A) The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer's written application for the standard mortgage;
(B) The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; and
(C) A remaining loan amount that is:
(1) For an adjustable-rate mortgage under paragraph (d)(1)(i)(A) of this section, the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date;
(2) For an interest-only loan under paragraph (d)(1)(i)(B) of this section, the outstanding principal balance as of the date of the recast, assuming all scheduled payments have been made up to the recast date and the payment due on the recast date is made and credited as of that date; or
(3) For a negative amortization loan under paragraph (d)(1)(i)(C) of this section, the maximum loan amount, determined after adjusting for the outstanding principal balance.
(ii) Standard mortgage. For purposes of the comparison conducted pursuant to paragraph (d)(2)(ii) of this section, the monthly payment for a standard mortgage must be based on substantially equal, monthly, fully amortizing payments based on the maximum interest rate that may apply during the first five years after consummation.
(e) Qualified mortgages -
(1) Safe harbor and presumption of compliance -
(i) Safe harbor for loans that are not higher-priced covered transactions. A creditor or assignee of a qualified mortgage, as defined in paragraphs (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is not a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, complies with the repayment ability requirements of paragraph (c) of this section.
(ii) Presumption of compliance for higher-priced covered transactions.
(A) A creditor or assignee of a qualified mortgage, as defined in paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, that is a higher-priced covered transaction, as defined in paragraph (b)(4) of this section, is presumed to comply with the repayment ability requirements of paragraph (c) of this section.
(B) To rebut the presumption of compliance described in paragraph (e)(1)(ii)(A) of this section, it must be proven that, despite meeting the prerequisites of paragraph (e)(2), (e)(4), (e)(5), (e)(6), or (f) of this section, the creditor did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support, and the consumer's monthly payment (including mortgage-related obligations) on the covered transaction and on any simultaneous loans of which the creditor was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan with which to meet living expenses, including any recurring and material non-debt obligations of which the creditor was aware at the time of consummation.
(2) Qualified mortgage defined - general. Except as provided in paragraph (e)(4), (e)(5), (e)(6), or (f) of this section, a qualified mortgage is a covered transaction:
(i) That provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not:
(A) Result in an increase of the principal balance;
(B) Allow the consumer to defer repayment of principal, except as provided in paragraph (f) of this section; or
(C) Result in a balloon payment, as defined in § 1026.18(s)(5)(i), except as provided in paragraph (f) of this section;
(ii) For which the loan term does not exceed 30 years;
(iii) For which the total points and fees payable in connection with the loan do not exceed the amounts specified in paragraph (e)(3) of this section;
(iv) For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using:
(A) The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and
(B) Periodic payments of principal and interest that will repay either:
(1) The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth in paragraph (e)(2)(iv)(A) of this section, assuming the consumer will have made all required payments as due prior to that date; or
(2) The loan amount over the loan term;
(v) For which the creditor considers and verifies at or before consummation the following:
(A) The consumer's current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan, in accordance with appendix Q and paragraphs (c)(2)(i) and (c)(4) of this section; and
(B) The consumer's current debt obligations, alimony, and child support in accordance with appendix Q and paragraphs (c)(2)(vi) and (c)(3) of this section; and
(vi) For which the ratio of the consumer's total monthly debt to total monthly income at the time of consummation does not exceed 43 percent. For purposes of this paragraph (e)(2)(vi), the ratio of the consumer's total monthly debt to total monthly income is determined:
(A) Except as provided in paragraph (e)(2)(vi)(B) of this section, in accordance with the standards in appendix Q;
(B) Using the consumer's monthly payment on: