The qualified mortgage rule was issued by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It officially applies beginning Jan. 10, 2014 and specifies the way lenders must qualify and verify information from customers. An introduction to the qualified mortgage rule for MA home loans can be found below.
Introduction To The Qualified Mortgage Rule For MA Home Loans
The qualified mortgage rule requires mortgage companies to review financial facts from home buyers and to assess their ability to repay a loan. First, the earnings and assets must be sufficient to repay the mortgage. Secondly, that ability to pay must be analyzed over the life of the mortgage and not merely for a preliminary period of time. This is an especially important factor for mortgages with adjusting rates.
Components of the Qualified Mortgage Rule
The qualified mortgage rule details guidelines for identifying the ability to repay, debt-to-income percentage ceilings, and a limitation on points and other fees. Mortgage companies must consider a minimum of 8 specific underwriting factors to evaluate the ability to repay a mortgage. These include:
- Assets and Income
- Employment Status
- Credit History
- Recurring Mortgage Payments
- Recurring Payments on Second Mortgages
- Other Real Estate Ownership Costs (Municipal Taxes, Condo Fees, etc.)
- Other Debts
- Debt-to-Income Ratios
Debt-to-income ratios will be maxed at 43 percent. This is actually higher than the current forty-one percent limit. Finally, points and fees must not be greater than 3 percent of the loan amount. All of these rules are effective Jan 10., 2014.
Loans Being Eliminated
As a result of these new rules, some loans will be phased out. Examples are loans requiring no documentation, interest-only mortgages, balloon loans, negative amortization, and those with terms longer than thirty years. Even though these types of loans represent a minimal portion of all mortgages, it will impact specific groups of buyers such as those wanting jumbo products.
Intention of the Qualified Mortgage Rule
The housing and financial crisis was credited to specific mortgage practices such as offering mortgages with risky conditions or buyers receiving loans that were obviously not within their ability to repay. The new qualified mortgage rule specifically targets toxic loan terms. It also seeks to control charges by lenders. This is all intended not only to protect borrowers but also to minimize the likelihood of a future crisis. This introduction to the qualified mortgage rule for MA home loans is provided only as a summary. To view additional details on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website