How current events impact your business and real estate holdings

Thursday, December 12, 2013

Mortgage Changes less than a Month Away – What to expect on January 10, 2014

A whole new world of getting a mortgage is coming in the beginning of 2014. You should get familiar now!!!

To remind you, in the years before 2008, financial institutions were subject to little regulation in the United States. Many lenders did not even bother to verify income or debt before handing over adjustable-rate mortgages (ARMs) to consumers who could not afford them. High risk lending was the norm and mortgage fraud was rampant. These practices caused the subprime mortgage crisis and the worst recession that the country has experienced since the 1930s. Thousands of homes were foreclosed on and over one hundred mortgage lenders went bankrupt as more and more people could no longer afford their monthly mortgage payments.

As a result, The Consumer Financial Protection Bureau is issuing a final rule that prohibits high risk lending and implements the Truth in Lending Act and sections 1411, 1412, and 1414 of the Dodd-Frank Act. This rule will take effect on January 10, 2014, and will require mortgage lenders to verify consumers’ income and debt. Prepayment penalties that punish borrowers if they sell or refinance their home within a certain time frame are now generally prohibited. Qualified mortgages, which are less likely to end up in default, are defined in great detail and cannot have terms longer than 30 years or fees exceeding 3% of the total loan amount.  Lender are also encouraged to refinance adjustable-rate mortgages (ARMs) and must maintain documentation of compliance for three years after the loan is given to the consumer.

To remain in the real estate game, you must understand these rules and what a qualified mortgage is as that will drive the industry. Please read the rule for yourself!