Starting TODAY, it will be a little bit harder to get a home mortgage. Or more precisely, banks and lenders will have to work a little bit harder to make sure borrowers can afford to buy a house!!!
Jan. 10, 2014, is the day that the new Consumer Financial Protection Bureau (CFPB) steps in to oversee the mortgage industry.
Sounds scary, like the CFPB is WATCHING you!!
To understand the new CFPB rules you need to know these two terms:
Ablity-To-Repay (ATR)
Qualified Mortgage (QM)
Ability-to-repay: This is a blanket rule requiring most lenders to make a concerted effort to ensure the borrower will be able to repay the mortgage. It means banks and other mortgage originators will have to look at more documents proving a borrower's income, assets, credit history, monthly expenses, and employment situation. My buyers already are complaining they might as well give them a blood sample too! Also, if a mortgage defaults to a higher interest rate down the line, the lender has to consider the borrower's ability to repay at the higher rate. The idea is to keep banks honest and homebuyers out of mortgages they can't afford. Okay I can understand that!
Qualified Mortgages: A QM is a new standard the CFPB has created for loans considered relatively safe for borrowers. Generally, any loan eligible to be purchased by Fannie Mae, Freddie Mac, and the Federal Housing Authority will be considered a QM, at least for the first few years. Other requirements are that the mortgage doesn't push the buyer's total debt load above 43 percent of their income, and originating costs can't exceed 3 percent of loans above $100,000.
So all in all, this tells me a few things:
1. Buyers will have to submit even more documents to the lenders and have even more PATIENCE, while waiting for approval from the lender.
2. Agents will have to push closing dates out to 35-45 days instead of the usual 30 days.
3. Lenders will have to have a crystal ball to determine if the buyer can repay if their rate goes up! Serously I don't know how they will do this, but they must have a standard to go by?
Basically, these are good things I guess. I think in the long run keeping higher standards in the lending industry will help keep foreclosures at a minimum and neighborhoods values rising. I just hope buyers are willing to succumb to providing the documents lenders will require!!
I always tell my buyers that buying a home is like having a baby! After all the labor pains are gone, look at your beautiful baby!!!
Click HERE to read more information on the new standards for a obtaining a home mortgage!
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