I am not clear on the Ability to Repay and Qualified Mortgage, since we qualify as a small lender, do we have the option of either using the ATR rules or the QM options? So does this mean that we can use the ATR rules and continue to make balloon notes (we will change the term to 7 years).
You can use the ATR rules or any of the QM rules for which you qualify. And you can use a different option for each loan if you choose – you aren’t required to choose the same option for all of your loans.
The options that allow you to make balloon loans are the general ability to repay rules – 1-26.43(c)(2), the temporary balloon QM – 1026.43(e)(6) or the balloon QM – 1026.43(f). Remember, that under the general ability to repay rules that a higher priced covered transaction (HPCT) requires you include the highest payment in the payment schedule (the balloon payment) in the payment calculation which will likely significantly increase the debt-to-income ratio and make it difficult for you to qualify borrowers under the ATR for higher priced covered transactions (HPCT).