New Lending Rules Released

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Mortgage and Lending with Veterans United Home Loans NMLS #1907 NMLS# 261072

 

New lending rules went into effect that aim to put an end to the worst home loan lending abuses of the past. The new rules are designed to take a “back to basics” approach to residential lending and lower the risk of defaults and foreclosures among borrowers, according to the Consumer Financial Protection Bureau, which issued the new rules.”No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today,” said CFPB director Richard Cordray in remarks prepared for a hearing. Lenders are being asked to comply with two new requirements: The Ability to Repay rule and Qualified Mortgages.

 

Here’s how they will impact borrowers:

 

·         Ability to Repay. Lenders must determine that a borrower has the income and assets to afford to make payments throughout the life of the loan. To do so, the lender may look at your debt-to-income ratio, which is how much you owe divided by how much you earn per month, including the highest housing payments you would be required to make under the terms of the loan. To calculate your debt-to-income ratio, add up all your monthly obligations — including student loan, credit card and car payments, housing costs, utilities and other recurring expenses — and divide it by your monthly gross income.  In an effort to put an end to no- or low-doc loans, where lenders issue risky loans without the necessary financial information, lenders will be required to document and verify an applicant’s income, assets, credit history and debt. Underwriters must also approve loans based on the maximum monthly charges you face, not just low “teaser rates” that last only a matter of months, or a year or two, before resetting higher.

 

·         Qualified Mortgages. To make sure you aren’t taking on more house than you can afford, your debt-to-income ratio generally must be below 43%. This rule is not absolute. Banks can still make loans to people with debt-to-income ratios that are greater than that if other factors, such as a high level of assets, justify the risk. Qualified mortgages cannot include risky features, such as terms longer than 30 years, interest-only payments or minimum payments that don’t keep up with interest so your mortgage balance grows. Upfront fees and charges cannot add up to more than 3% of the balance. That includes title insurance, origination fees and points paid to lower interest rates

 

Lenders don’t seem to be too worried about the new rules, according to Keith Gumbinger of HSH.com, a mortgage information provider. “It’s no surprise; everybody has been preparing for the change for months,” he said. “Because there will be additional underwriting scrutiny, it could gum up t he works initially and slow loan processing, but it’s really just the codification of things that are already in place.” A significant factor is what’s not in the rules. There’s no minimum down payment or credit score requirement. The lack of a credit score requirement will enable lenders to loosen currently tight underwriting standards in the future should conditions warrant, according to Gumbinger.

 Source: CNN/Money

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