Home Loans, FHA Loan, Home Equity Loan are Impacted by Dodd Frank
The Financial Reform Act (also known as Dodd Frank) was passed in July of 2010. Many elements of the law recently went into effect, impacting a broad range of banking and lending activities. These new regulations are intended to protect consumers and prevent the abuses that contributed to the mortgage/financial crisis.
These new regulations apply to purchase home loans, FHA loan, VA, home equity loan, and refinance.
Let's review a few of the rules that are believed to have the greatest impact on today's buyer.
Ability to Repay
These rules create uniform minimum underwriting standards that lenders must use in confirming a borrowers ability to repay their loan within the loan terms. When applying for a loan, buyers may have to provide more information to lenders than they have in the past. These new rules will hold all lenders to the same standard.
All lenders are now required to;
a) Make a reasonable and good faith determination that the borrower has the ability to repay according to the terms of the loan.
b) Document and verify, with third-party independent records, the information used to make the credit determination.
Borrowers will need to provide documentation about income sources, assets and financial obligations in a timely manner to keep the loan process moving forward.
Qualified Mortgages (QM) meet defined underwriting standards that are outlined in the Dodd Frank Financial Reform, which provides some certainty to lenders and the market. But lenders are not required to make only Qualified Mortgages. There are lenders who offer portfolio lending to extend credit to worthy borrowers who may not fit the QM requirements but do meet the Ability-to-Repay requirements as wells as the lender's own credit policies.
Appraisal Delivery Requirement
Dodd Frank established new delivery requirements for appraisals and valuations. Consumers will now receive a copy of all appraisals/valuations related to their application for credit secured by a first loan. Previously, appraisals were provided four calendar days prior to closing. Now, you will receive these no later than four business days prior to closing. And the rule expands the requirement to included all valuations used to render an estimate of value.
New escrow requirements took effect for Higher-Priced Mortgage Loans (HPMLs) last year. HPML loans are defined as those with an Annual Percentage Rate that exceeds the Average Prime offer Rate by 1.5% for first liens, 2.5% for first jumbo loans, or 3.5% on subordinate liens.
With HPMLs, an escrow account account is set up by the mortgage loan servicer to pay real estate taxes and homeowners insurance premiums on behalf of the borrower. Approximately one-twelfth of the estimated annual tax and insurance costs is added to the monthly premium payment and held in the escrow account to pay these bills as they come due.
Any escrow account required in connection with an HPML must now remain available for five years, instead of the previous one year requirement.
The CFPB continues to review the home financing process. Additional rules that may impact the home financing process are still to be determined and released. While the process and rules may change, the lenders I recommend retain their commitment to helping people acheive their goals while delivering a positive experience.
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