The Consumer Financial Protection Bureau (CFPB), has new rules with implementation by mortgage lenders to begin January 21, 2013 - Martin Luther King Day. In the spirit of that day, "I have a dream" that Dodd-Frank will someday be repealed, but for now we have to wake up and get to work trying to comply with it.
Among other rules in the 800 page legislation set for the January 21st deadline there is the Definition of a Qualified Mortgage. The largest focus so far seems to be on income documentation and the allowed debt ratio. No stone can go unturned when it comes to income.
After we figure out the solid monthly income, we will have to cut back an extra 2% on the qualifying debt ratio allowed on conventional loans. That will be reduced to 43% - most lenders currently use 45% as the max debt ratio on conventional loans. (FHA loans can still get by on a 50% debt ratio....for the time being...)
On an annual income of $75,000, that 2% reduction means $125 per month less for allowable debt. That may not seem like much, but that translates to about $28,000 less on the qualifying loan amount and, therefore, in buying power.
Not necessarily a good direction to assist the housing market recovery efforts the government seems to be so concerned about. But onward and upward we go!