Ability-to-Repay (ATR) Rule

Updated 2026-05-18

The Ability-to-Repay (ATR) Rule, under the Truth in Lending Act and Regulation Z and established by the Dodd-Frank Act, requires creditors to make a reasonable and good-faith determination, based on verified and documented information, that a consumer can repay a mortgage according to its terms, including mortgage-related obligations such as property taxes and mortgage insurance (12 CFR § 1026.43(c)). Its purpose is to protect consumers from unaffordable loans and promote responsible mortgage lending.

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].

What MLOs must know for the SAFE exam

• Creditors must determine ATR in good faith using verified, documented information before originating covered mortgages.
• At minimum, underwriting must consider and verify the eight factors: income/assets, employment, monthly payment on the loan, simultaneous loans, mortgage-related obligations, current debts/alimony/child support, DTI or residual income, and credit history.
• Exemptions include reverse mortgages, certain bridge and construction loans, specified nonprofit or emergency programs, business-purpose credit, and certain refinances out of non-standard products under stated conditions.
• Violations can trigger TILA civil liability for actual and statutory damages, plus attorney's fees and costs (15 U.S.C. § 1640).
• Qualified Mortgage status can provide safe-harbor or rebuttable-presumption protection related to ATR compliance.