Written By: Glenn Michaels, Op-Ed Writer
The Dodd – Frank rules and regulations added various Real Estate Settlement Procedures to prevent borrowers from unknowingly obtaining a high cost loan and or predatory type loan.
In addition numerous states implemented similar rules on the state level.
These rules worked exceedingly well while mortgage rates were stable or declining however with rates increasing or increasing significantly herein causes a problem for lenders.
Need Mortgage Training? CLICK HERE to Download Brochure >>
The Annual Percentage Rate (APR) is capped after issuance of the initial Good Faith Estimate (GFE) and Federal Truth in Lending Statement (TIL). Recently rates increased as much as one and half percent (1 ½%) for many borrowers who did not lock in their interest rate.
The anti – predatory rules will allow a borrower to close with a higher rate as long as the Debt to income (DTI) does not exceed 50%. Obviously some borrowers that previously qualified with the lower rates no longer qualify.
In New York State for a fixed rate “the annual percentage rate on the loan disregarding any introductory rate or rates and any interest rate caps that limit how quickly the contractual interest rate may be reached calculated at the time the lender issues its commitment.”
An adjustable rate mortgage loan “the annual percentage rate calculated using the index rate on the loan on the date the lender provides the “good faith estimate” plus the margin to be added to it after the explanation of any introductory period or periods”.
Need Mortgage Training? CLICK HERE to Download Brochure >>
This was a recent interpretation by the New York State Department of Financial Services formerly known as The New York State Banking Department.
The Department believes that the proper application of the definition for determining the full indexed rate for a loan should alleviate, if not eliminate the stresses that some lenders may have been experiencing in recent weeks.
In a rising interest rate market using the above terminology and guidelines should allow most lenders to close mortgage loan applications as long as the DTI is not in excess of 50%.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
