New Lender Requirements on the Horizon

The Breakdown on Qualified Mortgages

As many of you know, the Consumer Financial Protection Bureau (CFPB) recently announced new rules for how mortgage professionals qualify buyers for home loans. These new rules take effect January 10, 2014, and require lenders to prove a borrower’s ability to repay a loan before extending credit.Here are the 8 factors a lender must review and verify with a 3^rdparty before making a loan:

1) Current or reasonably expected income or assets
2) Current employment status
3) Monthly payment on the mortgage
4) Monthly payment on any simultaneous loan (Another mortgage in 1st    position, 2nd Mortgage, or Home Equity Line of Credit)
5) Monthly payment for mortgage-related obligations (taxes & insurance)
6) Current debt obligations to include alimony and child support
7) Monthly debt-to-income ratios or residual income
8) Credit history

Qualified mortgages also cannot:

• Contain “risky” features such as terms that exceed 30 years, interest-only payments or negative amortization payments where principal increases
• Carry points and fees in excess of 3% of the loan
• Be issued to borrowers who, once getting the mortgage, will spend more than 43% of their income on debt payments

While most mortgages issued today already meet these criteria, the CFPB’s goal in releasing this new regulation on QM was to explicitly define what “ability-to-repay” means and create a “safe harbor” for lenders who extend credit to borrowers who meet these criteria and fail to meet their loan obligations.

If you’d like to read the official summary from the CFPB, read: Summary of the Ability-to-Repay and Qualified Mortgage Rule and the Concurrent Proposal

For full documentation on Qualified Mortgages from the CFPB, visit: Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z)

For more dialogue on QM, check out these articles:
USA Today: New mortgage rule aims to protect borrowers
Forbes: Beware the Escape Hatch in the New Mortgage Rules

Thank you Pacific Residential Mortgage for this information!