In January 2014 the new Qualified Mortgage rule was enacted by Congress. This rule affects home buyers, sellers, Realtors and most of the lending institutions. It comes out of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Simply put it is intended to protect consumers from the crazy tactics (i.e. no money down, interest free etc.) that lenders were using to sell mortgages that ultimately caused the housing collapse in early 2008.
Protecting consumers is a good thing. However, though the act is intended to assist consumers, it is definitely going to slow down the lending process, create more underwriting analysis and costs for the lenders.
All mortgage applications received on or after January 10th are now required to comply with the QM rule. Here are the major elements:
- Full documentation of income, assets and employment
- A maximum of 3% for points and fees
- cap of 43% on the back-end debt-to-income ratio
- Limitations on the type of mortgage products that qualify and prepayment penalties
If a borrower can not meet these new rules they may still be able to obtain a loan through Fannie Mae or Freddie Mac or other specialty lender. Please learn more about the Qualified Mortgage Rule and how it affects you.