Ability-to-Repay (ATR) Rule

Updated 2026-05-18

The Ability-to-Repay (ATR) Rule is a core requirement under the Truth in Lending Act (TILA) and its implementing Regulation Z, established by the Dodd Frank Act. It mandates that creditors make a reasonable and good faith determination, based on verified and documented information, that a Consumer will have the ability to repay a mortgage loan according to its terms, including any Mortgage Related Obligations like property taxes and mortgage insurance [12 CFR § 1026.43(c)].

The purpose of the ATR Rule is to protect consumers from loans they cannot afford and to ensure responsible mortgage lending practices.

Eight Underwriting Factors

At a minimum, creditors must consider and verify the following eight underwriting factors when making an ATR determination [12 CFR § 1026.43(c)(2)]:

1. Current or Reasonably Expected Income or Assets: Income or assets the consumer will rely on to repay the loan.
2. Current Employment Status: Verification of the consumer's employment.
3. Monthly Payment on the Covered Loan: The principal and interest payment for the new mortgage.
4. Monthly Payment on Any Simultaneous Loans: Payments for any other loans secured by the same dwelling.
5. Monthly Payment for Mortgage-Related Obligations: Payments for property taxes, insurance (homeowner's, flood, mortgage), and homeowner's association (HOA) fees.
6. Current Debt Obligations, Alimony, and Child Support: All existing debts and financial support obligations.
7. Debt-to-Income (DTI) Ratio or Residual Income: An assessment of the consumer's total monthly debt payments relative to their gross monthly income, or the income remaining after all debts and housing expenses.
8. Consumer's Credit History: An evaluation of the consumer's creditworthiness.

Exemptions from the ATR Rule

Certain transactions and loan types are exempt from the ATR requirements [12 CFR § 1026.43(a)(3)]:

• Reverse mortgages.
• Bridge loans with a term of 12 months or less.
• Construction loans.
• Loans made by certain designated creditors or pursuant to specific programs.
• Loans made by certain nonprofit creditors.
• Mortgage loans made in connection with certain Federal emergency economic stabilization programs.
• Business, commercial, or agricultural purpose credit.
• Credit extended to entities other than a natural person (e.g., government agencies).
• Certain refinance loans where homeowners are refinancing out of a risky mortgage (e.g., non-standard loans with interest-only payments or negative amortization) into a more stable loan, under specific conditions.

Penalties for Violating the ATR Rule

Lenders can face significant penalties for failing to comply with the ATR Rule, including standard damages provisions under TILA. This can include civil liability for actual damages (e.g., if a borrower loses their home to foreclosure due to an unaffordable loan), statutory damages, and, if the consumer is successful, attorney's fees and court costs [15 U.S.C. § 1640].