Ability to Repay (ATR)

The Eight ATR Factors

Under Regulation Z, lenders must consider and verify at least eight specific factors when assessing a borrower's ability to repay:

1. Current or reasonably expected income or assets
2. Current employment status
3. Monthly mortgage payment (calculated at the fully indexed rate for adjustable-rate loans)
4. Monthly payments on simultaneous loans secured by the same property
5. Monthly property tax, insurance, and HOA obligations
6. Current debt obligations, alimony, and child support
7. Monthly debt-to-income ratio or residual income
8. Credit history

Lenders must use reasonably reliable third-party records to verify these factors rather than relying solely on borrower statements.

Why ATR Exists

The ATR rule was created as part of the Dodd-Frank Wall Street Reform Act of 2010 in response to the mortgage practices that contributed to the 2008 financial crisis. Before ATR, some lenders originated "no-doc" and "stated-income" loans without verifying whether borrowers could actually afford the payments. The rule took effect in January 2014 and fundamentally changed origination practices by requiring documented evidence of repayment capacity.

ATR and Qualified Mortgage Compliance

Lenders who originate Qualified Mortgage (QM) loans receive a legal presumption of ATR compliance, either as a safe harbor or a rebuttable presumption depending on the loan's pricing. Lenders who originate non-QM loans must still comply with ATR but do not receive this legal protection, making them more vulnerable to borrower lawsuits alleging the lender failed to assess repayment ability. Violations of the ATR rule can result in statutory damages, actual damages, and the borrower's ability to use the violation as a defense against foreclosure for up to three years after origination .