New Mortgage Rules And How Their Effect On You!

mortgage rulesHave you heard about the mortgage regulations mandated by the Consumer Financial Protection Bureau?  They went into effect January 10th 2014 and are part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  This act was adopted after the mortgage market collapsed and millions of Americans lost their homes to short sale or foreclosure.  The new mortgage rules are put in place to protect consumers against harmful mortgage practices and give them more rights.

Qualified Mortgages

The Consumer Financial Protection Bureau (CFPB) set up rules for Qualified Mortgages or “QMs.” These are mortgages for which borrowers who qualify are presumed to be able to repay for many years not just the initial period when the introductory interest rate is low.  Lenders determine a buyers ability to pay by considering their income, assets, debts and credit history.  We always thought this was happening when you applied for a mortgage but back in 2005 and 2006 many disreputable mortgage companies were lending to anyone who basically told the company they had the ability to pay.  They were not checking the veracity of the information they received from the borrower.  This lead to issuing mortgages to people who had no hope of paying their monthly payments when the rate increased as stated in the mortgage documents leading in 2009-2012 to may short sales and foreclosures.

The rules for qualifying for a mortgage are:

  • current or reasonably expected income and assets
  • current employment status
  • the monthly payment on the covered transaction
  • the monthly payment on any simultaneous loan (meaning a second mortgage or line of credit)
  • the monthly payment for mortgage-related obligations (mortgage insurance, flood insurance, homeowners insurance)
  • current debt obligations, alimony or child support
  • the monthly debt-to-income ratio or residual income

Sounds pretty basic doesn’t it?  But this was not being done during the heyday of the housing boom by many companies who mortgage rulesare thankfully out of business now.  Although they left behind many disillusioned and frustrated borrowers.

Debt Ratio

The debt ratio is the percentage of your monthly income that you can use for mortgage payments and all your other debt obligations.  43% is the maximum this new law allows to be used for all your debt obligations.  This includes your student or car loans, credit cards, alimony or child support and your mortgage payment.  A loan to a borrower with a higher than 43% debt ratio is considered high risk and may not get approved by many lenders.

Struggling Borrowers

Even if you qualified a couple of years ago for your mortgage with a less than 43% debt ratio things can change.  You can lose your job, relocate for the benefit of a spouse’s career, get divorced, be injured or get sick and therefore you lose your ability to make your mortgage payments.  Mortgage companies now have an obligation to meet with their borrowers who are not paying their mortgage.  They are now required to call or contact their borrowers by the time they are 36 days late on their payments and a foreclosure cannot be initiated before 120 days of default.  During the 120 days the lenders must work with the borrowers on loan modifications or refinances to keep them in their home.

This rule would definitely have helped many poor sellers I worked with who tried to call their mortgage companies and were not able to talk to anyone or were told they had to stop paying their mortgage to get help.  Or worse, were offered loan modification programs and then foreclosed on because they weren’t paying the correct mortgage payment each month after the company agreed to the lower payment!

If you would like to read a full report on these rules visit the Consumer Finance Website.  They have some very interesting information on the site.

What this means to all of us is that when you find your perfect home and qualify for the mortgage you have much more protection and rights than you did before this act.  Be sure to contact me so that I can help you find a reputable mortgage broker who knows the rules and will find you the best mortgage for your needs.

Remember, it is always toasty in Naples and you deserve your piece of sunshine and protection from mortgage fraud!


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