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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 22 onthetown onthetowntexas.com 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. OTT Texas JanFeb Issue.indd 22 1/28/2014 1:23:57 PM
“We are here to help.” MAKING YOUR OPTIONS in HOME FINANCING CRYSTAL CLEAR Our goal at Crystal Clear Mortgage is to make the loan process as simple and worry-free as possible. We pride ourselves in offering the highest level of customer service, and appreciate the opportunity to earn your business. Whether you want to purchase a new home or refinance an existing mortgage, Crystal Clear Mortgage is here to help every step of the way. Whether you live in The Woodlands, Lake Conroe, or anywhere in Texas, by putting you first, we assure you a pleasurable transaction. “Why choose Crystal Clear Mortgage?” 1 We have and always will be PURCHASE LOAN specialists. 80% of our business over the last 5 years has been dedicated towards financing home buyers. This is extremely important as rising rates are pushing refinance specialists into the purchase loan arena. Not doing business with a proven purchase loan specialist could result in delayed closings. 2 You get to do business with the owners. That means we truly have a vested interest in seeing your loan close on time and the terms exactly as promised. We specialize in: Conventional loans (did you know you can do a conventional loan with a 3% down payment?) 100% USDA loans 100% VA loans FHA/Home Path/Foreclosures & Short Sales 3 AMAZING RATES! Doing business directly with the owners means you get the best rates available. Unlike most companies, we do not have commissions for loan officers, branch managers, or processors built into our rates to drive them higher. The rate you get is the rate you get! 4 We are both broker and a banker. This means we have twice the number of loan products and solutions as other lenders. If you are already working with a lender you were referred to, let us keep them honest. We don’t even need to see their Good Faith Estimate. We will just send you ours. You will be impressed! 15320 Hwy 105 West, Suite 206 • Montgomery, TX 77356 Office: 936.447.5626 • Fax: 936.588.5002 Toll Free: 888-634-6911 www.CrystalClearMortgage.com Be seen. Be heard. onthetown 23 OTT Texas JanFeb Issue.indd 23 1/28/2014 1:23:58 PM
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