By Tim McLaughlin, Sr. Vice President, Weichert Financial
The Consumer Federal Protection Bureau announced Thursday what their definition of a “qualified mortgage” is. Here are some of the high points from the ruling Thursday:
- What is a qualified mortgage? The new “law”, part of the Dodd-Frank financial-regulation overhaul, said if a lender made a qualified mortgage (one that meets certain easy to identify criteria), regulators and courts would presume that lenders had reason to assume a borrower could repay.
- When do the new rules take effect? January 2014 What is the Consumer Financial Protection Bureau’s role? Congress left it to the agency to spell out the definition of a qualified mortgage.
- What kind of loans won’t be qualified mortgages? Certain product types are excluded, including interest-only loans that don’t require principal payments and loans where the principal balance rises over time. Beyond that, lenders must verify a borrower’s income, credit, and employment.
- Will lenders make loans that aren’t qualified mortgages? Lenders can make loans not considered qualified mortgages, but most say they won’t, given the legal liability. Fannie and Freddie and many private investors are also unlikely to bundle such loans into securities.
- Do qualified mortgages have a minimum down payment or credit score requirement? No. those guidelines are deferred to Fannie Mae, Freddie Mac, and Ginnie Mae. Instead, the rules focus primarily on documenting a borrower’s ability to make monthly payments.
- Will certain loans become harder to get? Many exotic mortgages that were popular during the subprime heyday have disappeared; they are now extremely less likely to come back. Lenders also may be more reluctant to make other loans that have been popular in more expensive housing markets and among affluent borrowers, such as interest-only mortgages. Borrowers can also expect lenders to scrutinize their incomes, as well as tax and bank statements.
What does this mean for us? Short term, nothing really, as the laws are 12 months away from going into effect. Long term, again, for Weichert Financial customers, nothing really, as we have prided ourselves in doing loans that are “qualified” long before this ruling. Solid mortgage programs and fair, pristine lending is the cornerstone of our organization. So with the spring market just around the corner, as always, we are here to help…ask us how!