Special offer

QM or the Qualified Mortgage has arrived!

By
Industry Observer with Responsive Pest Control

Hi all: I hope you're enjoying your Tuesday afternoon!

QM or the Qualified Mortgage has arrived! For those of you not in the know, new mortgage rules were implemented on January 10, 2014. The Qualified Mortgage relates to what can be guaranteed by the big entities, Fannie Mae and Freddie Mac.

Per the new guidelines, the new qualified mortgage will have a maximum debt to income ratio of 43%. Before, the debt to income ratio was 45%. The good news so far has been that as long as there is a loan approval from the desktop underwriting systems of Fannie Mae and Freddie Mac your loan will still probably be approved. Since FHA and VA, for example, often approve their borrowers at higher debt to income ratios (probably because they require an upfront insurance premium), it is good news that debt to income ratios above 43% may still get approved.

I answered a Facebook inquiry about if loan applications are getting approved easier these days. My comment was it's still tough to get approved but I felt that the borrowers these days were better prepared and more cooperative with the laundry list of documents needed for their loan.

Regarding QM, I would say that most lenders don't know what turn this will take. The Dodd-Frank Act of 2010 has started implementing a lot of rules. The Qualified Mortgage is just one of them. Other criteria include capping loan officer compensation at 3% (I don't disagree with this. I've never made 3 points on a loan. Anyone who has is taking advantage of the customer in my humble opinion) and making sure there are enough reserves to cover potential loan buybacks.

My prediction is this. In fact, it's already happening. There will be a wave of mergers and business failures in the lending world this year and next. Most mortgage bankers are not well capitalized enough should they have to start buying back loans. Call it survival of the fittest and, in some cases, largest. The other thing we'll probably see are new mortage products that address the new rules. In other words, you may be able to get approved for a debt to income ratio above 43% but chances are the rate and terms of your loan will be higher and different.

So that's my take on QM or the Qualified Mortgage for now. Stay tuned. It will be an interesting year in the lending world. Of course it always is! Have a great day!

 

Posted by

Paul McFadden

Comments (2)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Paul, we have heard this was coming, and believe Wells Fargo has had this in place for months.

Jan 18, 2014 10:37 PM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Joan: Probably. The big banks will probably be frustrating to work with. They're generally not as nimble.

Jan 20, 2014 11:46 AM