New Mortgage Regulation Changes
& Their Impact on You
By Allen Greenman, Realtor, Sept. 15. 2015
Here is a relatively concise summary related to the financial impacts of the 2013 CFPB Legislation (Consumer Finance Protection Bureau’s) that is now upon us. These new rules known as Qualified Mortgages (QM), prohibit interest-only loans, negative-amortization loans and the limits points which are essentially origination fees or funds used to buy a lower rate to 3% of a loan’s value.
Some more key points:
- Borrowers seeking larger mortgages (in particular Jumbo loans, now capped at DTI 43%)
- Self-employed borrowers (be prepared for a veritable underwriting-colonoscopy)
- Those with student loans (deferred or not, they count against your DTI now)
- Any “stated income” product is now gone (see bullet #2)
The goal of the legislation is to protect those who may be in, or experience financial constraints due to said scenarios that would then damage their ability to repay a loan. It is a stop-gap safety measure to ensure no repeat of the dire financial crisis we experienced all too recently.
These loans that may meet challenges account for about 13% to 17% of projected lending based upon the lending history of the past couple years.
One important reminder for this new legislation impacting FHA financed buyers is student loans. Going forward, deferred student loan debt based on income repayment (IBR Payments) may be calculated by FHA and VA as 2% of the Balance owed. If an IBR payment can be established, even if it’s in deferment, or no payments are owed at this time – the requirement will be to count the ACTUAL payment on ALL deferred Student Loans in qualifying a borrower for a mortgage. If an IBR payment cannot be established, once it goes out of deferment, then requirement will be to count a payment of 2% of the balance owed.
Diligence on behalf of you the buyer is very important in that if you have a government-backed student loan that is in default, you will not at all easily get another government backed loan (USDA, FHA, VA) and many younger first-time buyers rely on FHA – so really be careful. In funding FHA Loans, the lender is now counting 2% of the balance on Deferred Student Loans that have a monthly payment of even $0.00 against your debt-to-income DTI.
This obviously will hinder the home-buying process for some, and protect many more from entering into what many consider the most serious of contractual obligations that could ultimately prove too great a struggle for the buyer and cost them dearly.
For further clarification please consider any of the qualified Lender’s on Allen’s List with your questions.