8.2 Rescission Timing and Ability-to-Repay Standards

B. The 3-Day Rescission Clock & Specific Business Day Rules

The rescission period expires at midnight of the third business day following the latest of:

1. Consummation of the transaction;
2. Delivery of the required notice of right to rescind; or
3. Delivery of all material disclosures.

The Rescission "Specific" Business Day Definition (§1026.2(a)(6))

For rescission purposes, a business day includes all calendar days except Sundays and the 11 legal federal public holidays (New Year's Day, Martin Luther King Jr. Day, Washington's Birthday, Memorial Day, Juneteenth, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day). Saturdays are counted as business days regardless of whether the bank's branches are open.

Calendar Example: A loan consummates on Thursday. Friday is Day 1. Saturday is Day 2. Sunday is excluded. Monday is Day 3. The rescission window closes at midnight Monday. Funds may be disbursed on Tuesday (Day 4).

C. Notice Delivery & Two-Copy Rule

The creditor must deliver two copies of the notice of right to rescind (or one copy if delivered electronically under E-SIGN) to each consumer who has an ownership interest in the dwelling, even if that owner is not an obligor on the promissory note (e.g., a non-borrowing titled spouse).

D. Extended 3-Year Rescission Trigger

If the creditor fails to deliver the required rescission notices (with accurate dates) or fails to deliver accurate material disclosures, the consumer's right to rescind does not expire after 3 days. Instead, it extends to three years after consummation, the transfer of all the consumer's interest in the property, or the sale of the property, whichever occurs first.

E. Legal Effects of Rescission (§1026.23(d))

When a consumer exercises rescission:

1. The creditor's security interest becomes automatically void.
2. The consumer is not liable for any amount, including any finance charge or third-party fee (application fees, appraisal fees, closing costs must be refunded).
3. Within 20 calendar days after receiving notice of rescission, the creditor must return any money or property given to anyone and take necessary action to record the termination of the lien.
4. Once the creditor has fulfilled its obligations, the consumer must tender back any loan proceeds received.

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5. Ability-to-Repay (ATR) & Qualified Mortgage (QM) Standards (§1026.43)

Implemented under the Dodd-Frank Act, the Ability-to-Repay (ATR) rule requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any covered residential mortgage loan before consummation.

The Eight Mandatory ATR Underwriting Factors

Creditors must consider and verify using reasonably reliable third-party records:

1. Current or reasonably expected income or assets (verified via W-2s, tax returns, bank statements);
2. Current employment status, if the creditor relies on employment income;
3. Monthly payment on the covered mortgage loan (calculated using the applicable § 1026.43(c)(5) standard, usually the greater of the fully indexed or introductory rate for adjustable-rate loans);
4. Monthly payment on any simultaneous loan (e.g., piggyback second lien);
5. Monthly payment for mortgage-related obligations (property taxes, insurance, HOA dues);
6. Current debt obligations, alimony, and child support;
7. Monthly debt-to-income (DTI) ratio or residual income; and
8. Credit history.

Qualified Mortgages (QM): Safe Harbor vs. Rebuttable Presumption

Originating a Qualified Mortgage provides legal protection against ATR compliance challenges.

General QM Core Requirements

• No Prohibited Features: No negative amortization, no interest-only terms, no balloon payments (except certain rural small creditor programs).
• Term Restriction: Loan term cannot exceed 30 years.
• Points and Fees Cap: Points and fees payable by the consumer cannot exceed 3% of the total loan amount for loans at or above the annually indexed threshold; other tiers apply to smaller loans.

Pricing Thresholds for Legal Protection

Under the revised General QM rule, legal protection is determined by comparing the APR to the Average Prime Offer Rate (APOR) for a comparable transaction on the date the rate is set:

• Safe Harbor QM (Conclusive Presumption): First-lien loans where the APR exceeds APOR by less than 1.5 percentage points (less than 3.5 for subordinate liens). The creditor is deemed conclusively to have satisfied ATR requirements.
• Rebuttable Presumption QM (Higher-Priced Mortgage Loans - HPML): First-lien loans where the APR exceeds APOR by 1.5 percentage points or more. The consumer can rebut the legal presumption of ATR compliance by demonstrating that the creditor failed to adequately evaluate residual income to meet living expenses.

General QM eligibility comes before its legal protection

Product features and fees alone do not establish General QM status. The creditor must also satisfy the income/debt consideration and verification requirements and the APR-to-APOR eligibility test. For a first-lien General QM loan of $250,000, APR must be less than APOR plus 2.25 percentage points. The separate 1.5-point higher-priced threshold determines safe harbor versus rebuttable presumption after eligibility is established. Smaller loans, manufactured-home loans and subordinate liens have different indexed bands. There is no universal 43% debt-to-income cap for the current price-based General QM definition. A creditor must not confuse the QM eligibility test with HPML escrow, appraisal or higher-priced-QM protection tests.