Thursday, January 10, 2013

Major changes in Mortgages just announced - Welcome Qualified Mortgages

The Consumer Financial Protection Bureau (CFPB) just announced major changes in mortgage lending.

This is MAJOR, read carefully.

The main components of these rules are as follows:

  1. Ability to Repay of borrowers burden is placed on lenders who must verify financial information supplied by borrowers and can no longer offer teaser rates to qualify a borrower & charge more in time. This will likely be the end of "no doc" & "interest only" loans.
  2. Qualified Mortgages (QM) have been defined & are presumed to be in compliance. These QMs limit upfront points and fees used to compensate loan originators; cannot exceed 30 years; cannot be interest-only; cannot offer negative-amortization payments; and must have debt-to-income ratios <=43%.

The CFPB issued its rules pursuant to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

To read a fact sheet explaining the new rule, click here.
To read the last summary of the proposal while it remained a proposal, click here.

All real estate professions, such as agents; attorneys; architects; title, etc. should become familiar with these rules as they will impact the ability to borrower and therefore your industry.

Mortgage brokers and bankers, start studying.

At Lieb School, our take is that this is what the public wanted following the great recession. Many borrowers  have blamed their lender time and time again for making a loan that the lender new could not be repaid. These rules will greatly limit this problem in the future. However, its always said to be careful what you wish for. Now, you actually need to be able to afford a house you think you deserve.