Homeowners and lenders need to be aware of the new Qualified Mortgage regulations that are set to take effect in January of 2014. These new rules are designed to ensure that homeowners can afford their mortgage payment and are indeed qualified borrowers. It will impact the lending landscape and could make some borrowers ineligible.
The Purpose of New Qualified Mortgage Rules
The intent of the Qualified Mortgage rule is to make sure homeowners obtain a home and mortgage that they can afford to stay in. This is a result of the financial crisis, following mortgage meltdown, and Congress then passing the Dodd-Frank Act. As part of that act the Consumer Financial Protection Bureau (CFPB) was formed and they have been tasked with establishing rules that will protect consumers and avert a crisis in the future.
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What is a Qualified Mortgage?
A new category of mortgage was created called a Qualified Mortgage. It does not directly affect a borrower. For example as a borrower you can ask your mortgage lender for an FHA home loan, a VA mortgage, or a HARP refinance. You cannot ask your mortgage banker for a qualified mortgage. The term actually applies to underwriting criteria and will streamline things between banks to ensure that mortgage lenders are following the same set of criteria.
Impact on Mortgage Lenders
Mortgage lenders that issue Qualified Mortgages will conduct business as usual. Those that do not will be required to retain partial ownership of the mortgage loan when selling it on the secondary market. This will directly impact borrowers because when a bank has to maintain ownership of a loan they cannot lend that money again. That is why banks issue loans then sell them to someone like Fannie Mae or Freddie Mac. It enables them to lend the same money over and over again, which in turn is good for homeowners because it makes it easier to access capital.
By requiring banks to maintain partial ownership of loans that are not considered “qualified” it will make it more difficult for banks to issue loans that are outside of standard underwriting parameters. The Mortgage Bankers Association and others have been speaking with leaders and politicians about these concerns to make sure that these new rules do not hurt lower income families.
Impact on Home Buyers and Homeowners
For people that are refinancing or purchasing a home, the Qualified Mortgage rules could be beneficial, as long as you meet the down payment and income requirements. The rules are supposed to regulate the fees that mortgage lenders charge. Every loan has to meet a fees and points test to ensure that the amount charged is not too high for the amount of the mortgage loan. This could save borrowers money in the long run.
As with any new legislation there is bound to be some challenges along the way and time will tell whether it hurts or helps borrowers. Homeowners that are buying homes with a low down payment or borderline on being able to qualify should consider applying for a mortgage now, before the new rules take effect. Contact your mortgage banker today to learn more about how the Qualified Mortgage rules will affect you.
