While conumers have confidence that getting a mortgage loan will be easier in the year 2014, mortgage brokers forsee problems noting the new Qualified Mortgages (QM) standards that take effect on Friday. (http://www.mpamag.com/mortgage-originator/qm-problems-already-starting-claims-mortgage-pro-16771.aspx Mortgage Professional America) The QM Standards are a apart of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.”
With a new head, Mel Watt, of the national Finance Agency have been sworn in on Monday many are hoping he might lossen the current credit standards. Watt stated before taking office that he would delay a series of Fannie and Freddie loan-fee hikes. Watt has authority over the two companies which back about 60% of U.S. home loans. The two serve as a major source of funding for hunderds of banks. "Today's housing finance system is one of the keys to our economic recovery," Watt said in a statement after being sworn in.
Although Watt may be an ally for mortgage brokers they are still faced with the new QM standards which have many concerned the standards will slow the housing recovery. Here is a an outline of what a Qualified Mortgage Mortgage (QM) is to help in understanding what all the buzz is about.
Limits on Loan Features
- No negative amoritization or interest only periods
- No balloon payments
- The loan's term may not exceed 30 years
Points and Fees Cap
- Generally 3% of the toal loan amount
- Up to two additional bona-fide discount points allwed depending in the rate
- Higher caps allowed for loans less that $100,000
Relevant Underwriting Requirments
- Use maximum ratein first five years after first payment with full amoritization
- Consider and verify income and assets
- Consider and verify current debt obligations, including alimony and child support if applicable.
- Monthly debt-to-income ratio (DTI) cannot exceed 43%.
A temporary (after January 2014) exception will be granted for loans that are eligible to be sold or insured by Freddie Mac, Fannie Mae, FHA or the VA.
Types of QM loans:
Safe Harbor: These are lower-priced loans with interest rates closer to the prime rate. They are typically granted to consumers with good credit histories (less risk).
Rebuttable Presumption: These are higher-priced loans that are typically granted to borrowers with lower credit scores. In this context, ‘higher-priced’ refers to a loan with an interest rate that is more than 1.5% higher than the current prime rate.
This is the basic definition of a qualified mortgage, as defined by the Consumer Financial Protection Bureau (CFPB). http://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/
The CFPB released a three page Fact vs Fiction guide which you can download or read online here.
The CFPB estimates that of the mortgages in the current marketplace 92% will meet the QM standards.