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New Mortgage Rules Protect Against Risky Loans
By Jason Alderman
Guest Column
Good news for people shopping for a mortgage – and for
current homeowners facing foreclosure because they can no
longer afford their home loan: New mortgage regulations
drafted by the Consumer Financial Protection Bureau recently
took effect and they provide a slew of new rights and
protections for consumers.
One of the cornerstones of the new mortgage rules is that
lenders now are required to evaluate whether borrowers can
afford to repay a mortgage over the long term – that is,
after the initial teaser rate has expired. Otherwise, the
loan won't be considered what's now referred to as a
"qualified mortgage."
Qualified mortgages are designed to help protect consumers
from the kinds of risky loans that brought the housing
market to its knees back in 2008. But obtaining that
designation is also important to lenders because it will
help protect them from lawsuits by borrowers who later prove
unable to pay off their loans.
Under the new ability-to-pay rules, lenders now must assess
– and document – multiple components of the borrower's
financial state before offering a mortgage, including the
borrower's income, savings and other assets, debt,
employment status and credit history, as well as other
anticipated mortgage-related costs.
Qualified mortgages must meet the following guidelines:
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The term can't be longer than 30 years.
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Interest-only, negative amortization and balloon-payment
loans aren't allowed.
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Loans over $100,000 can't have upfront points and fees
that exceed 3 percent of the total loan amount.
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If the loan has an adjustable interest rate, the lender
must ensure that the borrower qualifies at the fully
indexed rate (the highest rate to which it might climb),
versus the initial teaser rate.
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Generally, borrowers must have a total monthly
debt-to-income ratio of 43 percent or less.
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Loans that are eligible to be bought, guaranteed or
insured by government agencies like Fannie Mae, Freddie
Mac and the Federal Housing Administration are
considered qualified mortgages until at least 2021, even
if they don't meet all QM requirements.
Lenders may still issue mortgages that aren't qualified,
provided they reasonably believe borrowers can repay – and
have documentation to back up that assessment.
New, tougher regulations also apply to mortgage servicers –
the companies responsible for collecting payments and
managing customer service for the loan owners. For example,
they now must:
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Send borrowers clear monthly statements that show how
payments are being credited, including a breakdown of
payments by principal, interest, fees and escrow.
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Fix mistakes and respond to borrower inquiries promptly.
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Credit payments on the date received.
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Provide early notice to borrowers with adjustable-rate
mortgages when their rate is about to change.
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Contact most borrowers by the time they are 36 days late
with their payment.
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Inform borrowers who fall behind on mortgage payments of
all available alternatives to foreclosure (e.g., payment
deferment or loan modification).
With limited exceptions, mortgage servicers now cannot:
initiate foreclosures until borrowers are more than 120 days
delinquent (allowing time to apply for a loan modification
or other alternative); start foreclosure proceedings while
also working with a homeowner who has already submitted a
complete application for help; or hold a foreclosure sale
until all other alternatives have been considered.
For more details on the new mortgage rules, visit
www.consumerfinance.gov/mortgage.
Bottom line: You should never enter into a mortgage (or
other loan) you can't understand or afford. But it's nice to
know that stronger regulations are now in place to help
prevent another housing meltdown.
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