Qualified Mortgages and the ability to repay

Peter Buchsbaum Gateway Funding Weekly Real Estate Newsletter

Peter Buchsbaum Mortgage Banker Horsham PA

For a little more than a week I have seen multiple posts about the new mortgage rules that went into effect on Friday the 10th. Most have been designed to either further confuse the issue or scare everyone. Interestingly not much has really changed so why all the hoopla? An analysis of the loans I closed over the past two years revealed that less than 1% of those loans would have been affected by the new rules.  A Qualified Mortgage is: Generally prohibit loans with negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years from being qualified mortgages. So-called “no-doc” loans, where the creditor does not verify income or assets, also cannot be qualified mortgages. Finally, a loan generally cannot be a qualified mortgage if the points and fees paid by the consumer exceed 3% of the total loan amount (although certain “bona fide discount points” are excluded for prime loans). And the Ability to Repay is: The final rule also establishes general underwriting criteria for qualified mortgages. Most importantly, the general rule requires that monthly payments be calculated based on the highest payment that will apply in the first five years of the loan, and that the consumer have a total (or “back-end”) debt-to-income ratio that is less than or equal to 43%.

At a minimum, lenders must generally consider eight underwriting factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. We use reasonably reliable third-party records to verify the information they use to evaluate the factors. You will receive further direction from the SVP, Operations/Underwriting, under separate cover, regarding additional requirements that need to be met for this process.

All of the new rules make sense to me. Teaser rates are not used to qualify borrowers. Borrowers need to be qualified to repay the loan based on all factors such as other obligations. Loan officers are not incented to sell bad loans.

If you have any questions please feel free to ask how these new rules will affect either your loan or for realtors how it will affect your business.

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