There has been much talk about the impact that the Dodd Frank rules will have on our industry after January 10, 2014.
There has been a lot of assumptions, misguided statements and flat out inaccurate information being disseminated
throughout our industry.
Some portions of the rules are simply not going to affect any of us; no 40 year terms, no stated income, no interest only;
those are about 6 years too late!
More important are the items which could affect new applications after January 2014, the biggest of which is ATR –
Ability To Repay. Within the ATR rule, the item that stood out most was the cap on DTI at 43%. Now had it not been for
the 7 year reprieve that was built into the rule, we may have been in trouble. The rule basically states that as long as
Fannie/Freddie, FHA/VA and USDA don’t come out with their own restrictions on DTI AND an AUS approval is obtained,
then the 43% DTI restriction won’t apply for the next 7 years.
If we have a manually underwrite file due to a DU Refer, the DTI cannot exceed 43% under any circumstance.
Here are some of the other items that are required to ensure we have documented the borrower’s ability to repay:
• Income should be verified through a third party. Movement already orders 4506T on all files
• All debts will be considered as part of the DTI ratio.
• Assets will be verified for a minimum of 2 months.
Here are a couple of other items that fall under the new rules that take effect in January:
• Copy of the Appraisal must be given to the borrower 3 business days prior to closing. This rule has been in place for
some time now and we still have the ability to waive the 3 day period.
• Maximum cap on fees charged to the borrower as follows:
• 3% of the total loan amount for a loan greater than or equal to $100,000
• $3,000 for a loan greater than or equal to $60,000 but less than $100,000
• 5% for the total loan amount greater than or equal to $20,000 but less than $60,000
• $1,000 for a loan greater than or equal to $12,500 but less than $20,000
So as you can see, for the majority of our loans, it’s going to be business as usual after January 10th