Here today to tell us what's going on and how these changes are going to impact homebuyers is Hale Walker, the co-founder and senior vice president of Port Huron-based Michigan Mutual, Inc.
1. What are the looming changes that could impact the mortgage environment?
The Consumer Financial Protection Bureau (CFPB), the regulatory agency that was established in 2010 by the Dodd-Frank Act after the housing crisis, is implementing new rules on January 10, 2014 that are designed to protect homebuyers from risky mortgages and ensure they are getting the best, most fair mortgage loans.
While these changes overall are a huge step in the right direction, there will be some shifts on the horizon for both lenders and homebuyers.
2. The new rules:
The major new regulation is the Qualified Mortgage rule.
In order for Freddie Mac or Fannie Mae to purchase the mortgage from a bank or lender, it must be a Qualified Mortgage.
In order to be deemed a Qualified Mortgage, the loan has to meet a rigorous set of standards set forth by the Bureau, and must not include risky or harmful features that have been built into loans in years past.
There will be no excessive upfront points and fees during the processing and closing time periods.
For most loans, the points and fees charged will not be allowed to exceed 3% of the total loan amount.
There will also be no toxic loan features, such as interest-only payments, no balloon loans and no terms greater than 30 years.
This is all designed to protect the homebuyer and ensure they are getting safe, responsible and transparent mortgage loans.
3. Lenders will also need to take a close look at a homebuyer's ability to repay the mortgage loan.
Under homebuyer to determine whether the loan they are applying for is the right fit for them. These include:
Income and assets
Debt obligations, including things like alimony or child support if applicable.
These are all standard items that lenders have already been closely examining, but there is a new part of this rule that will change the process and impact what loans homebuyers qualify for.
Debt-to-income ratio, the amount of money you make each month in relation to the amount of debts you must pay off each month, will pay a large role in the process.
Under the new rule, a homebuyer's total debt cannot exceed 43% of their total income.
This is designed to prevent homebuyers from taking on mortgage loans they cannot afford.
4. What does this all mean for consumers?
It's going to have a major impact on homebuyers.
For some income brackets, or for those with unstable employment history, qualifying for a mortgage may become a little trickier in 2014.
This is why homebuyers should seek out a certified, trusted mortgage partner to help navigate them through the process. It will be something that individuals will need to be educated about to ensure they are making the right decision for their goals.
Lenders have been preparing for these new rules for nearly a year, and are well-versed in all of the complexities, and what it takes to help homebuyers qualify for the loan they want and get them into their dream home.
A great mortgage partner will work with you to get your records in order and get you the best loan possible.