abilitytorepay

Ability to repay, often abbreviated ATR, is a principle in consumer lending that requires lenders to determine and verify that a borrower has the financial means to repay a loan according to its terms. The concept is most closely associated with residential mortgage lending in the United States, where it became central to post-crisis reform.

In the United States, ATR was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implemented by the Consumer Financial Protection Bureau. The rule requires lenders to make a reasonable, good-faith determination of a borrower's ability to repay a loan before or at the time of closing. Lenders must verify information about the borrower's income, assets, and employment, and assess the borrower's payment obligations on the loan in light of other debts and monthly expenses.

Lenders are expected to consider several underwriting factors, including current income or assets, employment status, the monthly payment on the loan, the borrower's debt obligations, the borrower’s monthly debt-to-income ratio, and the borrower's credit history, along with other information about the borrower’s finances. The rule also creates a distinction between Qualified Mortgages (QM), which meet certain standards and are afforded a safe harbor or presumption of compliance with ATR, and non-QM loans, which carry greater liability risk for the lender if the borrower defaults.

Scope-wise, ATR principally applies to residential mortgage loans, though different jurisdictions and product types may have separate underwriting requirements. The policy aims to curb risky lending practices while balancing access to credit, and it has been the subject of ongoing guidance, refinement, and debate regarding compliance costs and effectiveness.