sundays

qualified mortgages start in 2014!
The Dodd-Frank Wall Street Reform and Consumer
Protection Act was signed in to law on July 21, 2010. Part
of the Dodd-Frank Act is called the Ability-to-Repay (ATR)
requirements for Qualified Mortgage (QM) loans. These
requirements go in to effect on January 10, 2014. Lenders
will now have to make sure the loans they lend adhere to the
QM rules as well as the ATP requirements of the Dodd-Frank
Act. Lenders are motivated to lend “qualified mortgages” to
consumers to gain safe harbor from potential future lawsuits
when a borrower’s ability to repay their loan may change
So, what does this mean for real estate professionals
and current/future homeowners? The bottom-line is that
underwriting standards and loan structures will get a little
more restrictive.
Lenders must make a reasonable, good-faith
determination before a consumer closes on a new mortgage
that the consumer has a reasonable ability to repay the
loan. In total, there are 8 underwriting factors that must be
considered when determining a consumer’s ability to repay
their loan. A few examples of these underwriting factors are
the following: 1) Current or reasonably expected income
or assets that the consumer will have to repay the loan 2)
Current employment status 3) Fully amortized mortgage
payment for the consumer’s potential mortgage including
taxes, insurance, HOA dues, etc. 4) Credit history and 5) All
other monthly debts, alimony, child-support, etc. (It is my
opinion that our industry has been analyzing these factors
for years so it doesn’t change the “normal” underwriting
process in most cases).
An example of a situation that might limit a consumer’s
ability to get qualified is when the consumer wants to take
advantage of an adjustable rate mortgage (ARM). The new
ATR rule will require that the lender qualify the consumer
on the highest possible rate within the first 5 years of the
mortgage. In some cases this could potentially be 4-6%
higher than the initial start rate and the consumer would not
qualify for their desired loan amount.
One of the most concerning requirements of QM loans
to most is a total debt-ratio limit of 43% for the consumer.
This includes all of their debts, including the new housing
obligation. It is important to note that this is for private QM
loans. If the loan the consumer is getting qualified for is an
agency loan (Fannie Mae or Freddie Mac), VA, FHA or USDA
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that debt ratio limit can be exceeded with an automated
approval from the agency’s automated underwriting system.
This leaves MANY of the “normal” loan solutions open to the
same pool of consumers that were available before this rule
went in to affect.
For a loan to be a qualified mortgage, it cannot typically
contain any features that are considered risky in nature. This
means that loans with interest-only payments or negative
amortization will not be readily available after this rule goes
in to affect. If a lender were to extend one of these types
of loans to a consumer, they would have no safe harbor
protection. QM loans may also not be considered “high
priced” to have safe harbor and comply with the ATP rule.
For example, for a first-lien mortgage, the consumer’s annual
percentage rate (APR) cannot be more than 1.5% over the
Average Prime Offer Rate (APOR) on the day their loan was
locked.
One final aspect of the Ability-To-Repay rule and
qualified mortgages are the lender fee caps that have
been put in place. These fee caps were designed to limit
the amount of fees that a consumer can pay for their new
mortgage. For loan amounts above $100,000, the total loan
fees are capped at 3% of the loan amount. For loan amounts
below $100,000 the fee caps are on a sliding scale relative
to the loan amount.
In 2014 it will continue to be important for realtors
and consumers to work with a residential mortgage loan
originator they can trust. It will also be interesting to see
what loan products evolve later in the year for the “non-
QM” mortgages. Many in the industry feel this may prompt a
new beginning for private, alternative lending solutions. We
at Crystal Clear Mortgage are personally going to remain
optimistic and adjust to the ever-changing regulations in
our industry as everyone has had to do over the last decade.
We will continue to offer the best mortgage solutions and
customer service to our customers within the new regulations!
Brian Ward
Crystal Clear Mortgage
ABOUT THE AUTHOR
Bryan has been in the mortgage industry since
2002. He co-founded Crystal Clear Mortgage, LLC
with Adam Simmons in 2008. Crystal Clear Mortgage
is a mortgage brokerage company offering
Conventional / FHA / VA / USDA loan solutions
throughout the State of Texas. Bryan currently lives
in Montgomery, TX with his wife of 9 years and his
two children.
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1/28/2014 1:23:57 PM