In order to provide consumers with a safer mortgage market the Consumer Financial Protection Bureau (CFPB) has laid out some new rules for 2014. The new rules ensure responsible lending, covering both underwriting and servicing of home loans.
The new regulations include the Ability-to-Repay (ATR) and the Qualified Mortgage (QM) rules, which went into effect on January 10, 2014. The first rule, ATR, enforces lenders to ensure consumers can truly afford a mortgage based on verified and documented information such as income and assets, employment status, debt-to-income ratio, credit history, etc.
The QM rule prohibits risky loan features such as negative amortization, interest only payments, balloon payments, and loan terms over 30 years. The QM rule also puts limits on points and fees as well as requires a debt-to-income ratio of 43% or less. This new type of mortgage helps promote ethical lending practices by making lenders accountable for providing responsible financing to consumers as well as giving consumers more legal rights.
Over 90% of the loans approved today would be considered a qualified mortgage therefore the new mortgage rules shouldn’t have a significant impact on housing. Some buyers may have a tougher time qualifying such as first time homebuyers, but working with a knowledgeable loan officer and realtor is the key to a smooth home buying process.