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January
30
30
Q&A - Changes in The Mortgage Environment
Here is just some Q and A answers about the current changes in the mortgage environment. Please take a few moments as this may give you a better understanding of how the lending environment is changing. Also understand that PNC is moving full steam ahead to portfolio NON QM loans that others may not have the ability to do so.
- Q: What are the new rules, and where did they come from?
- A: There are several terms to know. The first is the "ability-to-repay" rule. It was required by the 2010 Dodd-Frank financial overhaul legislation as a response to the financial crisis. The rule was crafted by the Consumer Financial Protection Bureau, which will oversee its enforcement.
- Q: What does it do?
- A: It requires mortgage lenders to make sure borrowers can actually afford their loans, over the long term, by weighing their income, assets, savings and debt against their monthly house payments.
- A: Another term you need to learn is "Qualified Mortgage" or QM. A QM meets new guidelines, and borrowers who get them are presumed to meet the ability-to-repay requirements. If lenders make QM loans, they have more protections against future lawsuits should the loans later go sour.
- Q: What are the QM guidelines?
- A:
- Contain risky features, such as terms that exceed 30 years, interest-only payments or payments that are less than the full amount of interest so that the home loan debt grows each month.
- Carry more than 3% in upfront points and fees for loans above $100,000.
- Push a borrower's total debt load above 43% of his or her monthly income, unless the loan is eligible to be backed by Fannie Mae or Freddie Mac, or a federal housing agency such as the FHA, or is made by a small lender that keeps the loan on its books.
- Q: Can lenders still make loans outside those guidelines?
- A: Yes, but they'll still have to make sure borrowers can afford the loans, and they'll have less protection against future legal challenges if the borrower fails - even if they resell the loan after they first make it.
- Q: How many mortgages are likely to fall under the QM definition?
- A:The CFPB estimates that 92% of mortgages in the current marketplace meet the QM requirements.
- Q: Why is this needed at all?
- A: Lenders weren't always so careful. Goldman Sachs estimates that 50% of recent home loan defaults could have been prevented had the QM rule been in place when the loans were made, largely before the housing bust.
- Q: Will the rules make it harder for some people to get home loans?
- A: It may be tougher for borrowers to qualify if they have difficult-to-validate incomes, including those for whom tips, bonuses, commissions, rents or investments constitute a big part of their total income. One in nine Americans are also self-employed, and that income is harder to substantiate than is wage income. Borrowers above the 43% debt-to-income level will also face more hurdles, Borrowers should expect to have to produce even more tax records, pay stubs and bank and investment account information. The 43% standard may also prevent some borrowers from qualifying for the loan needed to buy the house they want,. Others may need bigger down payments to stay within the 43% standard
- Q: What's going to be the required minimum down payment?
- A: The rules don't set any down-payment requirements.
- Q: Will the rules mean it'll take longer to get home loans approved?
- A: Not at this time at all