Consumer Financial Protection Bureau Qualified Mortgage Rules (QM)

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Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

A couple of other Consumer Financial Protection Bureau Qualified Mortgage Rules (QM) that have also been revealed other than the Ability-To-Repay are provision to limit points and fees on Mortgages, including points and fees to compensate Loan Originators.  The other feature of the Consumer Financial Protection Bureau Qualified Mortgage Rules (QM) will impose a 43% cap on the Debt-To-Income Ratio for all Mortgages.

As I mentioned in my previous blog on the new QM Rules titled Consumer Financial Protection Bureau Qualified Mortgage Rules, I stated that a major flaw of the QM Rules is that they were put together without, or with very little input from Industry Professionals that have a much better understanding of the impact that the QM Rules will truly have. These two QM Rules above will further demonstrate this flaw.

First the provision to limit points and fees on all Mortgages, including points and fees to compensate Loan Originators, is already in place.  So once again the lack of knowledge about the Industry, and what is in place already, continues creates more and more duplication.  Loan Originator working for a Direct Lender have to already be compensated the same percentage on all Loan Programs, the only exception that I am aware of is on additional compensation for volume.  A Lender or Bank can provide a volume incentive to their Loan Originators, but they cannot charge points on those loans to produce the extra compensation.  Furthermore, points associated with the loan cannot be passed on to Loan Originators in the form of extra compensation.  I am not a Mortgage Broker, so I do not know what the present rules are on compensation for Brokers, but I know that the compensation rules that were created about 2 years ago have also changed the way Brokers can be compensated.  Hopefully if a Mortgage Broker is reading this blog they can explain those change, and if this new QM Rule is a duplication of what is already in place for them.

The new QM Rule limiting the Debt-To-Income Ratios to 43% will have a MAJOR impact on Borrowers, especially on Lower Income Homebuyers.  Lowering the Debt-To-Income Ratios to 43% on all loans will disqualify many good Borrowers.  This QM Rule maybe more than any other that I have read about so far, is completely contrary to what the spirit of the QM Rules are suppose to be about.  This QM Rule is not protection, This QM Rule is about exclusion of low income Buyers from the market place. I will further explain this in my blog tomorrow. 

The Qualified Mortgage (QM) Rules were crafted by the Consumer Financial Protection Bureau (CFPB) with one intent, but so far it appears that the Consumer Financial Protection Bureau Qualified Mortgage Rules (QM) will produce the opposite.  As I stated at the close of my previous blog Consumer Financial Protection Bureau Qualified Mortgage Rules, "no matter what my opinion, or anybody else's opinion is about the Consumer Financial Protection Bureau Qualified Mortgage Rules, the proof will be in their implementation overtime."

 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

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Rainmaker
1,569,787
David Saks
Memphis, TN

I would have thought that the d to i ratio would have been frozen at 36 to make things even tougher. I wonder if the yield spread premium was eliminated, and cash back from the mortgage broker after the ysp settlement. Even with the tough restrictions in place they're better than a mandatory 20% downpayment, which, of course, would have eliminated the pmi.

Jan 19, 2013 05:58 PM #1
Rainmaker
2,170,340
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

The point you have made a couple of different times, the folks that have made these along with other proposals, don't have a clue about the mortgage business. More is being done to harm the consumer, who they keep saying the want to protect.

For the next 12 months we'll address the various topics from every possible direction.

Jan 19, 2013 07:36 PM #2
Rainmaker
315,878
Frank Laisch
1492 P&C AGENCY, LLC - Orlando, FL
"The Insurance Guy"

George, I don't think the rule makers actually know how this works. They will make it very hard for people to purchase homes

Jan 19, 2013 07:55 PM #3
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

WE'RE DOOMED!!

Many present day tenants to whom I sell homes are already paying up to 50% of their income for RENT.  Yet, they would not qualify for a mortgage payment of more than 43% of their income, even with no additional debt. 

The problem with politically designed government agencies or departments is that they are designed by political hacks who have no comprehension of financial or actuarial realities. 

Jan 19, 2013 07:56 PM #4
Rainmaker
119,960
Randy Hilman, Associate Broker
Randy Hilman Homes - Moultonborough, NH
What Matters to You, Means Everything to Me!

Hi George:

I am not actively engaged in the mortgage lending business, but I still read your post with great interest.  I was surprised to read that the debt-to-income limit was lowered to 43%.  What ever happened to the 28/36 qualifying rule for conventional Fannie Maes?  Does your reference to 43% have to do with LTV ratios greater than 80%?  I just responded to another post that suggested as real estate agents we should always be learning, so, okay, please help me get this.  

Jan 19, 2013 08:22 PM #5
Rainmaker
1,341,817
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, if this is helping the consumer, they don't need any more help. They really don't have a clue.

Jan 19, 2013 10:36 PM #6
Rainmaker
3,740,838
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, already my buyers are stating their take home pay was decreased severely after the 1st of the year, this just added more pressure.

Jan 19, 2013 10:56 PM #7
Rainmaker
482,220
Rob Spinosa
Guaranteed Rate, Marin County, CA - San Anselmo, CA
Vice President of Mortgage Lending, Marin County

The moral of the story is always the same.  When you create a system that removes discretion and judgment on the part of people who know best, you assure that you'll serve fewer people with less.

A 43% debt ratio may be entirely manageable in the hands of one borrower while a 38% ratio could be doomsday for another.  Locking in the number for the industry does very little to protect the individual OR the many, it just, as I say above, limits the options for those who would otherwise make that call using the knowledge gained via years of hands-on experience.

We will find a way to work with these handcuffs too, however.  We always do.

Jan 19, 2013 11:14 PM #8
Rainer
249,112
Shay Campbell
Universal American Mortgage Company - Raleigh, NC
Raleigh, NC

George will this apply to government loans such as FHA, VA and USDA?

Jan 19, 2013 11:21 PM #9
Rainmaker
206,295
Chuck Mixon
The Keyes Company - Cutler Bay, FL
Cutler Bay Specialist, GRI, CDPE, BPOR

I posted two years ago that the government involvement would be our doom. so far it appears that we are on track to prove me right. Great post George, always enjoy reading them.

Jan 20, 2013 01:22 AM #10
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

David, 36% Total Debt-To-Income has not been the standard for a long time now, in fact in 2009 FHA,Fannie Mae, and Freddie Mac was up to 65%+ which was WAY to high.  Requiring 20% would have been another mistake, and you are right would have taken even more buyers out of the market.  As far as the YSP question I will let Brokers answer that one.

Joe I have two more blogs on this and then I will give it a rest for a little bit, but just like you I intend to right a lot more about their proposal throughout 2013

Frank my next two blogs will make that point even more.

Lenn, I don't think we are doomed, but only because we are a country made up of survivors, and you and I will make things work with our Buyers & Borrowers in spite of all the obstacles they through at us.  Having said that, DOOMED is the direction that they are trying to take us.

Randy as I commented to David (comment #1) 36% has not been the standard for a long time now, especially after Automated Underwriting came into existence.  I will try to explain in my next two blogs how actually 43% Debt-To-Income Ratio maybe more restrictive than the 36% back in the 60's, 70's, & 80's.

Michael, yes they need to stop helping us :)

Joan you are absolutely right, take home pay is being reduced more and more with higher Federal and State Taxes, and with the implementation of Obama Care it will be reduce even more.

Rob EXCELLENT comment.  You nailed it.

Shay it is across the board, ALL programs, which does not make any sense because not all programs calculate the same debt into the Debt-To-Income Ratios as I will point out in the my next two blogs, especially the second one of the two.

Jan 20, 2013 01:30 AM #11
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Chuck I am sure that you hoped you would be wrong on that, but unfortunately what you stated is coming true.

Jan 20, 2013 01:31 AM #12
Rainmaker
171,037
Greg Miller
Ruoff Home Mortgage - Sarasota, FL
Florida Home Loans - Conventional,FHA,USDA,VA

Excellent post George. When I was reading the CFPB's proposal on this , my first two thoughts were.

1.) There are considering exemptions to this for the community developments & non-profit lenders. What does the lender type have to do with whether a borrower can afford a pymt. or not??? INSANE!!

2.) Bubba,  now really has to go his Mortgage loan before he goes and gets that $800  a month Truck pymt!!

Jan 20, 2013 10:49 AM #13
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Greg that is an excellent point, I have not hit on that so I am glad that you are bring it up.

Jan 20, 2013 11:13 AM #14
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - This is something I was discussing the other day as it just isn't going to help in the ways I believe they expect it will.

Jan 20, 2013 11:34 AM #15
Rainmaker
269,888
Steve Warrene
Your Town Realty - Lower Burrell, PA
Pittsburgh Real Estate Investment Specialists

We just heard about this last night.  It's going to disqualify alot of people looking to become first time home buyers. 

Jan 20, 2013 06:44 PM #16
Rainer
295,171
Paddy Deighan JD PhD
TimeshareLawyers.pro - Vail, CO
Paddy Deighan J.D. Ph.D

more government solutions to problems in which the solution is worse than the problem they seek to resolve

Jan 21, 2013 01:53 PM #17
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