Kurgan-Bergen Realtors in Rutherford provides the following information.
You may have heard about recent changes to mortgage lending rules that could make obtaining financing more difficult. Well, breathe easier potential homeowners, because these changes really shouldn't affect you much.
The new rules aren't really new. Lenders have known of and prepared for them for some time now. Most have already adjusted their policies accordingly so that you won't see much change at all going into the new year. In fact, Richard Cordray, the director of the Consumer Financial Protection Bureau who is making the rule changes, said approximately 95 percent of the loans currently being made would fit the new criteria.
The change that would have had the most direct impact on a borrowers ability to qualify is the imposition of a maximum 43 percent "debt to income" ratio.
This limits the percentage of a borrowers monthly gross income that can be used towards the payment of mortgage principal and interest, real estate taxes, homeowners insurance, mortgage insurance and consumer debt to 43 percent.
Existing policy varies from lender to lender but is generally capped at 45 percent on a "conventional" loan and can go as high as 50 percent on an FHA/HUD insured loan. However, this particular rule change isn't scheduled to go into effect until 2021.
The company reported Thursday that 9.3 million properties, or 19% of all homes with mortgages, were "deeply underwater" in December, meaning borrowers owed at least 25% more on their mortgage than the home was worth. That's down significantly from 26% of all homes with mortgages, or 10.9 million properties, last January, RealtyTrac reported.
A recovery in home prices has certainly helped to turn around the fortunes of many homeowners. The average U.S. home price jumped nearly 14% year-over-year through October (the latest data available), according to the S&P/Case-Shiller home price index. That has added thousands of dollars to the average home's value.
An increase in home equity typically means fewer foreclosures, said Daren Blomquist, a spokesman for RealtyTrac. "Negative equity is the foundation that foreclosures are built on, but you need another event -- a job loss or illness, for example -- to trigger a foreclosure," said Blomquist.
Related: Was my home a good investment?
The more deeply underwater borrowers are, the more likely they are to conclude that it makes little sense to continue to pay off their loans when money is tight. "It takes away their motivation to save their properties," said Blomquist.
They also have one less financial asset to tap into should they hit a financial rough patch.
And it makes it harder to sell the home. Borrowers typically have to do a "short sale," which is subject to the approval of their lender. If they can't get a short sale approved, they could end up in foreclosure.
Even though far fewer people are underwater on their homes than last year, it doesn't mean the foreclosure crisis is completely over.
read more: http://money.cnn.com/2014/01/09/real_estate/underwater-mortgages/
WASHINGTON, D.C. — On Tuesday, Jan. 7, 2014, the Consumer Financial Protection Bureau (CFPB) released additional resources for consumers as part of its campaign to educate the public about the new protections provided by the Bureau’s mortgage rules. These new materials include sample letters that consumers can send to their mortgage servicers. The Bureau is publishing these educational materials in anticipation of the January 10, 2014 effective dates for its mortgage rules.
“Taking out a mortgage to buy a home is one of the biggest decisions a consumer can make,” said CFPB Director Richard Cordray. “We want to make sure that people are aware of their new protections so they have the knowledge to make sound decisions about their financial futures.”
The CFPB’s mortgage rules protect consumers by requiring that mortgage lenders evaluate whether borrowers can afford to pay back the mortgage before signing them up. The rules also establish new, strong protections for struggling homeowners, including those facing foreclosure. Under the rules, mortgage borrowers will be protected from costly surprises and runarounds by their servicers.
The Bureau is working with industry, housing counselors, and consumer groups to promote a smooth implementation of these rules. The Bureau has released many different educational materials to improve the public’s understanding of the new rules and their protections. These materials include:
Read more: http://www.huntingtonnews.net/79688
In response to the Dodd Frank Wall Street Reform and Consumer Protection Act, new mortgage laws will take effect on January 10, 2014.
If you’re in the market for a new home, or planning to refinance in 2014, here’s what you need to know.
The Qualified Mortgage Rule
The Qualified Mortgage rule places new limitations on loan terms and lender fees, and it requires more thorough income and debt verification. The rule will eliminate the potential for unfair lender practices like balloon payments and reverse amortisation. Under most qualified mortgages, lenders will be limited to charging fees no greater than three percent of the total loan amount.
These provisions prevent lenders from taking advantage of consumers, but there’s something in it for them, as well. Most lenders will be eager to comply with the Qualified Mortgage rule, because it’ll provide them with legal protection. As long as their practices comply with QM rules, they’ll be much less vulnerable to losing money on lawsuits, which are a major expense for mortgage lenders.
Even though the act will encourage more sound and fair practices among mainstream mortgage companies, it doesn’t necessarily mean that mortgages will be easier to get.
Here are two factors that will play a big role:
Your “ability to repay”
Qualified Mortgages will also require solid verification of the consumer’s income, assets, and current level of debt. Although this is included in Qualified Mortgages, it’s listed as a separate rule.
This practice should be standard already, but many lenders abandoned the verification process in favour of acquiring more mortgages, which contributed to the market’s downfall. Now lenders will be required to examine eight specific criteria to determine a person’s eligibility for a loan.
This will involve documentation — and not simply word-of-mouth verification. One part of this verification process involves the consumer’s debt-to-income ratio.
Your new debt-to-income (DTI) ratio
Debt-to-Income Ratio is the percentage used to determine whether a potential homeowner will be able to handle the new financial obligation of a mortgage payment. The number is reached by dividing your total debt (anything you’re currently making payments on) by your gross monthly income.
According to the Qualified Mortgage rule, the new limit for DTI is 43 percent. If you’ve never owned a home before, this number probably doesn’t mean anything to you. But those who know the mortgage industry will realise this is at least 2% lower than the average DTI requirement of major lenders like Freddie Mac.
What this means for the first-time buyer
The new 43 percent DTI requirement means that people who would’ve qualified for a mortgage in the past may exceed the new DTI and be forced to delay their purchase of a home. While this isn’t going to provide an immediate boost for the housing market, it’ll hopefully create fewer defaulted mortgages.
If you’re turned down for a mortgage because your debt-to-income ratio is too high, you need to decrease your debt or increase your income.
The easier of these two is to decrease your debt. Concentrate on paying off large short-term loans, such as car loans and credit cards. The smaller your debt, the lower your DTI ratio and the more likely you are to qualify. Of course, you can also opt to save more cash for your down payment, which will decrease the loan amount and your projected monthly payments.
What this means for the refinancer
Those looking to refinance may also have a problem with their DTI under the new rules. The best options for those refinancing are to pay down more debt before refinancing, or consolidate.
If your finances can’t handle a higher payment, you should never try to manipulate your DTI just to get approved .Whether you’re buying or refinancing, be prepared for the new mortgage laws by checking and adjusting your own DTI ratio and paying off as much debt as possible.
30 and 15 year mortgage interest rates rise up; Freddie Mac data and pending home sales review today
New rules for consumers seeking home loans are arriving in the new year. And if you already have a mortgage, new borrower protections take effect for you, too.
The rules, issued by the federal Consumer Financial Protection Bureau, were issued in early 2013 but begin next week.
Beginning Jan. 10, lenders must take steps to make sure you, as a borrower, can afford to repay the loan you are seeking, based on your income, debts and credit history. That may sound like common sense, but during the housing crisis many borrowers ended up with loans — sometimes called “no-documentation” loans — that they couldn’t afford. Often, borrowers took out adjustable rate loans with payments that were affordable to them at an initially low “teaser” interest rate, but that became unaffordable once the interest rate increased.
read more: http://www.nytimes.com/2014/01/04/your-money/with-the-new-year-new-consumer-protections-on-mortgages.html?_r=0