Written By: Daniel Garcia
The long-awaited "qualified mortgage" rules were released last week by the Consumer Financial Protection Bureau. The new QM rules have set forth guidelines to protect borrowers from predatory lending while shielding lenders who follow the rules from litigation.
Many types of high-risk loans that were implicated in the collapse of the housing bubble, such as interest-only mortgages, stated income loans, mortgages with balloon payments, negative amortization loans, etc., are now effectively banned. I have outlined below some of the significant changes that we should be aware of.
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Maximum DTI of 43%
The most significant rule to the new guidelines is the "ability to repay". A borrower's total debt obligations, including the mortgage and assorted costs, would be limited to 43 % of the borrower’s monthly income. Lenders must now follow certain standard when qualifying a borrower for a mortgage and will be required to look at a borrower's ability to repay over the long term. They will also be required to take into account a borrower's income, assets, debt load and credit history, in addition to the monthly loan payment.
No Down Payment Restrictions
Early proposals for a down payment requirement as high as 20 percent for a mortgage were absent from the new guidelines. This was an issue that had generated a great deal of concern from our industry.
Cap on Fees Charged
The QM also includes a cap on "points and fees" of 3% which will include LO compensation and affiliated fees.
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The new rules take effect Jan. 10, 2014, with a seven-year phase in for certain provisions. Lenders will be exempted from certain restrictions if they can show that they are refinancing a borrower from a high-risk mortgage to a more affordable product. Lenders who follow the rules in making a loan will be exempt from any liability if the borrower later defaults on the mortgage. Lenders will still be able to originate mortgages that do not follow the guidelines after the rules take effect, but those loans will not be qualified mortgages, and would therefore not be shielded from liability protection.
Our industry is ever changing. We can definitely see the importance of keeping our ears open of these changes and ensure that we are all remaining compliant.
That’s all for now but stay tuned! Make it a great week!
About The Author
Daniel Garcia - As an NAMP® staff writer, Daniel Garcia is a loan processing instructor for Loan Processor University (www.LoanProcessorTraining.org). Daniel also currently works for a non-profit housing and community development corporation where he serves as a senior loan officer and heads up the organization’s homebuyer education program. Daniel provides consultation services to other non-profit housing organizations nationwide, training in the areas of mortgage qualification and processing, state and federal laws, adult education training methods, and credit/foreclosure intervention counseling and program setup. He has gained a variety of experience, from mortgage processing and loan originating to loan servicing and loss mitigation. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
