The qualified mortgage rule was released by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It actually takes effect January 2014 and determines the way companies must qualify and verify information for borrowers. Details on the qualified mortgage rule for Eastern MA mortgages can be found in this blog.
Details On The Qualified Mortgage Rule For Eastern MA Mortgages
The qualified mortgage rule requires mortgage companies to review financial information of home buyers and to evaluate their ability to make payments. First and foremost, the earnings and assets must be sufficient to repay the loan. Secondly, the ability to repay must be analyzed over the life of the loan and not merely for a preliminary length of time. This is a particularly critical factor for loans with introductory rates.
Specifics of the Qualified Mortgage Rule
The qualified mortgage rule details guidelines for evaluating the ability to repay, debt-to-income ratio ceilings, and a cap on points and other fees. Mortgage companies will be required to consider at least eight specific underwriting factors to evaluate the ability to repay a mortgage. These include:
- Salary and Assets
- Employment Status
- Credit Reports
- Monthly Mortgage Payments
- Monthly Payments on Additional Mortgages
- Additional Home Ownership Expenses (Property Taxes, Association Fees, etc.)
- Other Liabilities
- Debt-to-Income Percentages
Debt-to-income ratios are maxed at forty-three percent. This is actually more than the current forty-one percent limit. Lastly, points and other fees must not exceed 3 percent of the loan amount. All of these rules go into effect January 2014.
Programs Eliminated in 2014
As a result of the components of the new qualified mortgage rule, certain mortgages will be phased out. Examples are ones requiring no documentation, interest-only loans, balloon mortgages, negative amortization, and those with payment terms greater than 30 years. Although these types of loans account for a small portion of all loans, it will impact certain groups of buyers such as those wanting jumbo products.
Impact the Qualified Mortgage Rule
The housing and financial crisis is credited to common financial practices such as offering loans with risky features or borrowers receiving home loans that were obviously not within their ability to repay. The new qualified mortgage rule specifically eliminates toxic loan features. It also minimizes fees charged by mortgage companies. This is all intended not only to protect consumers but also to lower the chances of another crisis. The above details on the qualified mortgage rule for Eastern MA mortgages is provided only as an overview. To view additional details on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website