Which category of loans typically qualifies for easier compliance under the ability-to-repay rule?

The category of loans that typically qualifies for easier compliance under the ability-to-repay rule is qualified mortgages (QMs). Qualified mortgages are designed to ensure that lenders provide loans that borrowers can afford, thereby minimizing the risk of default. QMs adhere to specific guidelines set forth by the Consumer Financial Protection Bureau (CFPB), including limits on high-risk features, straightforward underwriting criteria, and a cap on points and fees.

These standards help to protect consumers by ensuring that they do not take on debt beyond their financial capacity. Since QMs automatically meet the ability-to-repay requirements, lenders benefit from a form of legal protection against borrower claims that they were not able to repay the loan.

In contrast, subprime loans often do not have the same level of borrower protections, as they are designed for individuals with lower credit scores and come with higher risks for both the lender and borrower. Adjustable-rate loans can introduce volatility in repayment amounts, complicating compliance with the ability-to-repay rule. Business loans, while essential, typically fall outside the consumer protection guidelines established for residential mortgages, so they do not benefit from the same compliance simplifications afforded to qualified mortgages.