The long awaited QM (Qualified Mortgage) rule was announced by Richard Cordray, Director of the Consumer Financial Protection Bureau, yesterday afternoon. Gone are the days of NINJA loans (no income, no job, no assets but gee, they are wonderful people…) and negatively amortizing Option Arms, or as I dubbed them, Neutron Bomb loans (they killed the people inside but left the house standing). A bright line has been drawn in the sand that provides consumers with some pretty easy to understand criteria about the qualifications for and type of mortgage for which they are applying .
The rules draw a line between what are considered to be reasonable and unreasonable lending standards as they pertain to a borrower’s ability to repay a loan. They do not address things like minimum down payments. Some of the highlights of the new rules are:
· A borrower’s total debt payments cannot exceed 43% of their pretax income
· Loan origination charges cannot exceed 3% of the loan amount for loans over $100000
· Lenders must absolutely verify a borrower’s income, credit, employment, and assets (which for those of you who are accepted LO's who are not doing this already when issuing pre-approval letter, please fire them)
· QM Loans cannot have negative amortization or interest only payment features
The CFPB made the new rules effective one year from now. As compliance officers get the chance to digest and implement these changes, I’ll issue updates as to how this might affect you or your clients.
For now, I would expect continued tight documentation standards. First glance tells me that those who are attempting to qualify with the payment from their current underwater, rented out primary residence, may find that they will have a little harder time qualifying for exactly what they want in their move up home. Otherwise, expect documentation standards to remain tight. Things will not be loosening up in that department in the foreseeable future.
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