El Dorado Hills - Homes & News - DeeDee Riley Realtor: The Ability to Repay Rule

The Ability to Repay Rule

The Ability-to-Repay Rule  

It's hard to imagine lending requirements getting any stricter, but the Ability-to-Repay Rule adopted last January will take effect January 10, 2014. 

In the years leading up to the financial crisis,Ability to Repay most consumers were of the belief that the lenders would not make loans to them that they could not qualify for.  Obviously that was not true as many consumers ended up with loans they should have never gotten and eventually in delinquency and foreclosure. Our broken financial regulatory system allowed irresponsible lenders to take advantage of consumers. In an attempt to make sure this never happens again, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into federal law on July 21, 2010 by President Obama.

The Act established the Consumer Financial Protection Bureau which in turn adoped The Ability-to-Repay Rule requiring lenders to take more into consideration when making mortgage loans. The rule applies to most mortgage loans, with some exclusions like home equity lines of credit and reserve mortgages. 

Under the rule the lender will have to collect and verify financial information from consumers such as W-2s and pay stubs.  Following are eight types of information they will be required to consider.  

1. Your current income or assets
2. Your current employment status
3. Your credit history
4. The monthly payment for the mortgage
5. Your monthly payments on other mortgage loans you get at the same time
6. Your monthly payments for other mortgage-related expenses (such as property taxes)
7. Your other debts
8. Your monthly debt payments, including the mortgage, compared to your monthly income (“debt-to-income ratio”). The lender may also look at how much money you have left over each month after paying your debts.

Much of this seems to already be implemented as lending standards have been tightening up for quite some time.  Lenders have lost the ability to look at the big picture regarding the borrower and make a decision on whether to lend to them or not.  All the cards now lay with the underwriters.  

Gone are the days where a prequal is good enough to submit an offer.  Today a good lender is critical!  As Realtors, we depend on them to qualify our buyers before we even begin the buying process.  The last thing you want is to go through the offer process, have your offer accepted, and then find out that you don't qualify for the loan.  As a buyer you can be out $1000 by then (the cost of an appraisal, $450-$500, and home inspection costs, $400-500).

Find out more about the Ability-to-Repay Rule and what it means for consumers. Call or email me for a list of recommended lenders. 






I am a REALTOR® in El Dorado Hills with Lyon Real Estate. I love living in El Dorado Hills, where homes with views have become my passion. Working with both buyers and sellers, my concentration on homes for sale includes not only El Dorado Hills, but also Folsom and the Cameron Park vicinity. For more information on me or our wonderful area visit my website at www.DeeDeeRiley.com or email me at driley@golyon.com. When you're ready to sell or buy a home – I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.

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By DeeDee Riley 2013 *All Rights Reserved*The Ability to Repay Rule 





DeeDee Riley - El Dorado Hills Realtor - Lyon Real Estate - CABRE#01499004


When you're ready to sell or buy a home; I would love to help! To read what my clients have to say about me and my service, visit my Client Testimonial page.

If you like what you're seeing here please come back!!!

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Comment balloon 25 commentsDeeDee Riley • November 04 2013 03:58PM


This is overall making sense that the lenders would do this, Let hope for good or better things to come. :)

Posted by Laura Cerrano, Certified Feng Shui Expert, Speaker & Researcher (Feng Shui Manhattan Long Island) about 5 years ago

The tighter the rules are made the harder it becomes for many great people to get loans.  I am not sure that is in the best interest of the housing industry or the individuals.  I am seeing a lot of private money coming back in to the picture.

I am seeing many investors with deep pockets becoming the owner of properties and then doing owner carries. Not necessarily bad but not many checks and balances.

Posted by Mike McCann - Nebraska Farm Land Broker, Farm Land For Sale 308-627-3700 or 800-241-3940 (Mike McCann - Broker, Farmland Broker-Auctioneer Serving Rural Nebraska) about 5 years ago

Dee-Dee, though the additional checks may be a burden for today's buyers, overall, I think it's good for everybody. Thanks for sharing this recently passed law with us all.

Posted by Ralph Gorgoglione, Hawaii and California Real Estate (800) 591-6121 (Maui Life Homes / Metro Life Homes) about 5 years ago

I haven't heard about this rule even it was adopted last January. I'm very curious how it will change a lending process. Thanks for heads up.

Posted by Inna Ivchenko, Realtor® • Green • GRI • HAFA • PSC Calabasas CA (Barcode Properties) about 5 years ago

I am surprised that this rule is not already in effect.  It seems like good common sense.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 5 years ago

I was chatting about this very thing with my loan officer this morning over biscuits at my office kitchen table.  Like most things I think it has good intent, but can ultimately harm some buyers.  Frankly I would have never gotten a mortgage based on that debt ratio yet in 12 years I've never been a day late or a dollar short.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) about 5 years ago

Oh my Oh my Oh my! I think it is somewhat over kill, the checks and balances the government is putting on mortgage lenders that took days, weeks and months for them to figure out.  Too bad they didn't figure out the mortgage industry already put those same checks and balances on themselves...

Posted by Evelyn Johnston, The People You Know, Like and Trust! (Friends & Neighbors Real Estate) about 5 years ago

DeeDee, Lending guidelines continue to tighten. It's getting more difficult to get a loan. We might see different results with various underwriters. The goal is to achieve some sense of balance.  We will see. 

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) about 5 years ago
This is just for now but things will change and greed will be back. If they could repeal The Glass Stegal Act an allow Citibank to by Travelers Insurance than trust me the government is capable of anything What you are seeing is window dressing. The corruption is worse now than it was in 2010.
Posted by Jimmy Faulkner, The Best Of St. Augustine (Florida. Homes Realty & Mortgage) about 5 years ago

Laura,  I'm with you on that!

Mike, I hear what you are saying.  Thanks for the input from your end.

Ralph, I hope you are right!

Inna, I hadn't hear about it till recently either.  One of my local lenders said it shouldn't affect us too much as they are doing most of the items mentioned already.

Joan, It does seem like common sense though some of it seems a little extreme.

Tammy, It has become so mechanical and I'm worried like you that some good buyers will pay the price.

Evelyn, Indeed!

Kathleen, I agree and hope they can figure out a balance!

Jimmy, That's a scary thought but thanks for your insight.

Thank you all for your comments!!!! 

Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) about 5 years ago

DeeDee, true - it's not the time when one would get the loan just by fogging the mirror!

(BTW, November 5th is a Brother's Day as per Indian Calender - Happy Bhai Beej)

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) about 5 years ago

Hi Dee Dee,

It does seem that most lenders have started implementing this process already.  So much to get a loan.  The process requires lots of patience on the part of the buyer.  Best of GREAT success to you always!

Posted by Jordon Wheeler, J W Group Real Estate Sales and Service (The Jordon Wheeler Group) about 5 years ago

I find many buyers are surprised at how complicated and time consuming getting a loan can be. Sounds like it will jsut get worse. I thin, overall, the intent is good but wonder what impact this is going to have in general. It will certainly make it harder, potentially, for some borrowers to get a loan

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) about 5 years ago

DeeDee - I find that some buyers who haven't gotten loans in several years can be frustated with the new rules.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 5 years ago

Thank you for the reminder. Buyers should sit down with a lender before looking for homes .

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) about 5 years ago

DeeDee, I think this will limit and hurt the number of buyers who would otherwise qualify for a loan.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA about 5 years ago

These types of rules are what good underwriting and risk-taking are all about. Lenders got greedy and paid the price when they didn't look to determine ability to repay. In the short run, it hurts some potential home buyers, but in the long run I think it only strengthens the housing market and the lenders that support it.

Posted by Nina Hollander, Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor (Coldwell Banker Residential Brokerage | Charlotte, NC) about 5 years ago

In the end think this will help to stablize the RE industry.  If loans only got made to people who were well qualified, well, less homes would have to go back to the bank.

Posted by Anna Matsunaga, Seller specialist, Certified Negotiation Expert (Team Momentum Keller Williams Realty Tacoma) about 5 years ago

DeeDee  The "new" rule is goog old fashioned loan practice - should have never changed

Posted by Karen Kruschka, - "My Experience Isn't Expensive - It's PRICELESS" (RE/MAX Executives) about 5 years ago
DeeDee, If you've been in business long enough you remember that the lending criteria we have now is the same as it was in the 1970's. It's just common sense lending. Dodd-Frank is just a smoke screen to make it appear that it really wasn't anyone's fault that all this happened, when, in fact, a whole lot of high profile people on Wall Street should be in jail.
Posted by Bill and MaryAnn Wagner, Jersey Shore and South Jersey Real Estate (Wagner Real Estate Group) about 5 years ago

I hope Dodd-Frank eliminates the opt 4 payment plan for owner occupied. Those loan types were given out wildly by Countrywide and those homes were the first to default and go in to foreclosure. Opt 4 should be for investors only, or at least borrowers should be made aware what they are getting in to with that loan. Many just did not know. I agree with Bill #21 above, there are those on Wall Street who should be in jail.

Posted by Pamela Seley, Residential Real Estate Agent serving SW RivCo CA (West Coast Realty Division) about 5 years ago

I kind of think this is just smoke screen for now. Seems to me most of this was already happening.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) about 5 years ago

I solicited a buyer the other day and I knew when I got the go signal, the first stop was my lender

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) about 5 years ago


The list that you provided is basically what all Lenders should do in the first place.  That said, our Industry has seen over the last few years totally unsupervised new Regulations by certain Agencies which with " Good Intentions " are " Choking the Industry ".

All the new Regulations have seemed to do is add more layers of compliance, in addition to, more costs to originate, process, and close loans.

Part of this new rule means Debt Ratios can no longer exceed 43% of total income.......not necessarily bad, but no longer allowed with Automated Underwritng which allowed debt ratios up to 45 to 50 percent based upon other factors that were previously in place until this new change.

Additionally, with changes to Fannie Mae taking effect November 16th, minimum down payments will increase from 3 % to 5 %.

While I agree that changes were in order, Bill- # 21 hit the nail on the coffin.........Only I would add that a select Group of Politicians, a Former HUD Secretary, and other Agency Officials should also be in jail for the Corrupt manners in which they forced policies which led to the Financial Breakdown in the Country in the first place.

In the end, the Politicians Won as usual, and simply made the Mortgage Brokers and Mortgage Bankers the      " Scape Goat " of this mess.

I heard a very good analogy relative to my last statement.  It would be like prosecuting a car salesman for the Manufacturer's Defects in an automobile.

Let's hope common sense prevails at some point in the near future.  Sorry for the Rant, but as a 40 year Veteran in the business, this whole issue has gotten under my skin. I will just say again, Bill in # 21 has a good starting point.

Thanks for the post.

Posted by Wayne L. Brown (Franklin Advantage Inc.) about 5 years ago

Thank you all for the comments and support!


Praful,  You have that right.  And Happy Bhai Beej to you as well!

Jordan,  It does require a lot of patience on the Buyer's part and sometimes the Seller's as well!

Jeff,  I find the same with my buyers but always reassure them that they are not alone.  Not sure if that helps much but...  I hear you are going to NAR.  I'll be there on Saturday so will be looking for you!

Christine, Things have changed so much even for those you bought just a couple years ago too.  It is always changing and hard to keep up with.  That's why I let the lenders handle it and pray the buyer has a good one!

Gita, I use to not worry so much but it is truly a waste of time for everyone if they aren't qualified to buy!

Michael, My concern is also how it will effect refi's.  Going through a refi seems to be just as difficult and to me if you already have the house, are making the payment, having less of a payment should be a no brainer as long as there is not cash out!

Nina, I hope you are right.

Anna, I know what you are saying but it is a little overkill in my opinion.

Karen, It got way too easy and that was definitely the problem!

Bill Wagner, We didn't buy our first home till 1985 so don't have your hindsight but common sense is missing today in so many aspects.  Thanks so much for your insight!

Pam, Now that you mention Opt 4, that's in large part how student loans are set up. They have interest only, graduating payments, etc.   Kind of scary!  They'll be the next big issue!

Bill Reddington, A lender I use said the same thing.  Hope it really doesn't get much worse!

Richie, Smart move! 

Wayne, Great analogies and insight.  Don't worry about the rant as I appreciate your insight!




Posted by DeeDee Riley, Realtor - El Dorado Hills & the Surrounding Areas (Lyon Real Estate - El Dorado Hills CA) about 5 years ago