The Consumer Financial Protection Bureau plans to unveil new mortgage rules today that will change how lenders will guarantee that borrowers can repay their home loans.
The new rules, which will go into effect in January 2014, were designed to improve consumer safety without tightening credit requirements any further. According to an article in the Wall Street Journal, the rules will put into place changes from the 2010 Dodd-Frank financial-regulation overhaul to make banks legally responsible for determining that a borrower is able to repay their mortgage. The result is that lending institutions will most likely narrow their product offerings and rely more heavily on the more traditional 30-year, fixed-rate traditional.
The new rules don’t identify a minimum down payment for those seeking a home loan, but instead focus on ensuring that banks document borrowers’ capability of making their monthly payments.
There will be two ways for lenders to meet the new standards. The first is that loans must receive approval after being run through the automated underwriting engines maintained by the Federal Housing Administration, Freddie Mac or Fannie Mae, even though they don’t ultimately buy or guarantee the mortgage. The second states that a borrower’s total debt payments can’t exceed 43 percent of their pretax income.
These new rules will certainly bring new changes and new challenges for those seeking to purchase Atlanta real estate, and we will continue to report on how local lenders respond.
Updated at 11:00 a.m. on January 10, 2013:
National Association of Home Builders Chairman Barry Rutenberg released his statement regarding the new definition of a qualified mortgage (QM):
“We appreciate the hard work the Consumer Financial Protection Bureau has put into this effort to create a qualified mortgage standard that ensures home buyers have access to affordable mortgages, contains strong consumer protections and provides lenders proper incentives to make home loans to creditworthy borrowers.
“The qualified mortgage rule stipulates that borrowers must be able to repay home loans issued to them and will set the parameters for all mortgage financing going forward. So it is essential that it strikes the proper balance that encourages lenders to provide creditworthy borrowers access to affordable home loans, and also gives assurances to financial institutions that they will be protected from lawsuits if they meet the criteria set forth in the rules.
“Our initial review of the QM rule indicates that this balanced approach can be achieved. NAHB is encouraged that regulators heeded concerns from the housing industry to craft a broad standard that includes many of today’s sound mortgage products, including fixed-rate and adjustable-rate mortgages, under the QM standard.
“The rule will take effect next January. To spur the revival of the home lending market, it is essential that regulators act prudently and thoughtfully in the coming year to implement this rule in a sensible manner to avoid disruptions to the housing finance system and ensure qualified borrowers can obtain affordable credit.”
Updated at 5 p.m. on January 10:
Click here for a full detailed report on the documents officially released by the Consumer Financial Protection Bureau on Ability to Repay and Qualified Mortgages.