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!
