The qualified mortgage rule was issued by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It applies starting Jan. 10, 2014 and affects the way lenders must qualify and verify information from borrowers. A summary of the qualified mortgage rule for MA mortgages can be found in this article.
Summary Of The Qualified Mortgage Rule For MA Mortgages
The qualified mortgage rule requires mortgage companies to review financial paperwork of borrowers and to determine their capacity to make payments. First and foremost, the income and assets must be sufficient to repay the loan. Secondly, the ability to pay must be analyzed for the entire life of the loan and not strictly for a shorter length of time. This is a particularly critical rule for loans with lower initial interest rates.
Elements of the Qualified Mortgage Rule
The qualified mortgage rule provides guidelines for assessing the ability to repay, debt-to-income ratio meximums, and a cap on points and fees charged. Lenders will be required to analyze at least eight specific underwriting factors to assess the ability to repay a mortgage. They are:
- Salary and Assets
- Current Employment
- Credit Reports
- Mortgage Payments
- Monthly Payments on Additional Mortgages
- Additional Home Ownership Expenses (Real Estate Taxes, Condo Fees, etc.)
- Other Liabilities
- Debt-to-Income Ratios
Debt-to-income ratios are maxed at forty-three percent. This is actually more than the existing forty-one percent limit. Lastly, points and other charges must not be greater than 3 percent of the mortgage amount. All of these rules go into effect Jan 10., 2014.
Mortgages Being Eliminated
Due to the components of the new qualified mortgage rule, some loan programs will no longer be legal. Examples are ones requiring no documentation, interest-only loans, balloon loans, negative amortization, and those for payment terms longer than 30 years. Even though these categories of loans account for a small percentage of all loans, it will impact specific types of buyers such as those wanting jumbo products.
Intention of the Qualified Mortgage Rule
The real estate and financial crisis is blamed on specific financial practices such as offering home loans with risky terms or buyers receiving home loans that were obviously not within their ability to repay. The new qualified mortgage rule specifically targets toxic loan features. It also seeks to reduce fees charged by lenders. All of this is intended not only to protect borrowers but also to decrease the chances of a future crisis. The above summary of the qualified mortgage rule for MA mortgages is provided only as an introduction. To view full information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website