Many people are asking what will happen when QM aka: DF14 (Dodd Frank 2014 rules)
hits the street in January 2014 and it will be business as usual for us…
What you may have heard:
Word on the street is that many borrowers who otherwise would have qualified will not qualify after QM is in place. A misnomer is if the government doesn’t want to be involved in mortgages, they are going to make it really difficult to get a mortgage that they have to insure.
First of all let me start by easing your minds… Most of this rule has been followed by most lenders for quite a while now, you just didn’t know it.
What to expect:
Some portions of the rule are simply not going to affect any of us; no more 40 year terms, no more stated income loans, no more interest only loans; those are about 6 years too late!
More important are the items which could affect new home loan applications after January 2014, the biggest of which is ATR – Ability To Repay. Within the ATR rule, the item that stood out most was the cap on DTI (debt to income) ratios at a max of 43%. Now, had it not been for the 7 year reprieve that was built into the rule we may have been in trouble. The rule basically states that as long as Fannie/Freddie, FHA/VA and USDA don’t come out with their own restrictions on DTI AND you receive an automated underwritten approval then the 43% DTI restriction won’t apply for the next 7 years. Again, business as usual for us…
Where this will come into play is if you have a manually underwritten file or a file that received a DU/LP Refer, the DTI cannot exceed 43% under any circumstance.
Here are some of the other items that are required to ensure we have documented the borrower’s ability to repay:
•Income should be verified through a third party.
Most lenders already order 4506T on all files
•All debts will be considered as part of the DTI ratio.
•Assets will be verified for a minimum of 2 months.
Here are a couple of additional items that fall under the new rules that take effect January 10, 2014:
•Copy of the Appraisal must be given to the borrower 3 business days prior to closing. This rule has been in place for some time now and we still have the ability to waive the 3 day wait period.
•Maximum cap on fees charged to the borrower as follows:
3% of the total loan amount for a loan greater than or equal to $100,000
$3,000 for a loan greater than or equal to $60,000 but less than $100,000
5% for the total loan amount greater than or equal to $20,000 but less than $60,000
$1,000 for a loan greater than or equal to $12,500 but less than $20,000
2 important points here – this does not apply to investment properties and we do not lend less than $50,000.
So as you can see, it’s going to be business as usual…
If you or someone you know is a victim of QM, contact me. We are licensed in 28 states and we will help you. The new QM rules shouldn’t hinder you or someone you know from obtaining a mortgage.
The Beach-Greco Team
Mortgage Advisor, CMP, CMPS