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FINANCE
NEW
QUALIFIED
MORTGAGE
(QM) RULE
[ BY JIM LOSELL, AFFILIATE MEMBER ]
The Consumer Financial Protection Bureau
recently released the final rule to establish
new standards for all mortgages including
loans called “Qualified Mortgages.” These
loans are deemed ultra-safe. The final
regulation gives lenders legal protection
for Qualified Mortgage Loans, but only for prime loans.
A prime loan has an interest rate that must be close to
the national average prime mortgage rate.
The basic premise of the rule will require lenders to ensure
that borrowers have the ability to repay the loan. Lenders
are required to verify specific underwriting standards
including: current income or assets, employment status,
credit history, monthly payments on the mortgage
and any other mortgage related obligations and loans
associated with the property, other debt obligations, and
the monthly debt-to-income ratio.
This new rule eliminates no-doc or low-doc loans and
prevents lenders from basing their decisions on teaser
rates. The rule also bans pre-payment penalties on
certain fixed-rate products.
The ability-to-repay rule is expected to take effect 1/10/14.
The regulation defines a new category of loans called
Qualified Mortgages. These loans are guaranteed to
comply with the ability-to-repay requirements. When
applying for a Qualified Mortgage, the borrowers debt-toincome
ratio cannot exceed 3% of the total loan amount
(some fees on prime loans are excluded). Lenders are
required to verify a borrowers income. The loan cannot
have characteristics of nontraditional mortgages.
Of these, the one causing the most buzz is the 43%
debt-to-income ratio. In general, the standard today on
a conventional loan is 45%. Both are a jump from the
rigid 36% debt-to-income ratio when I started in this
business.
The Consumer Financial Protection Bureau acknowledges
that one of the industry’s biggest fears about the Qualified
Mortgage rule is no one is going to make loans outside
the criteria so they are going to allow temporary flexibility
for debt-to-income requirements, most likely for seven
years. The rule allows lenders to refinance existing risky
mortgages like interest-only and adjustable rate loans to
more stable standard loans without having to meet the
full underwriting process under the new rule.
According to CFPB Director Richard Cordray, “Our goal
here is not only to stop reckless lending, but to enable
consumers to access affordable credit.” He went on to
say “We can draw up the greatest consumer protections
ever devised, but if consumers cannot get credit, then
there is nothing to protect.”
A lender’s goal should have always been to get the
borrower into a sustainable mortgage loan. We did it for
years and now we are back to basics. As a seasoned
mortgage professional, with 28 years of experience,
I don’t see this new rule changing the way most
responsible lenders are closing business in the industry
today. There are still programs like FHA and VA to help
borrowers who may need more flexibility. n
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SOUTHERN NEVADA REALTOR ® MARCH 2013 www.LasVegasRealtor.com