Say hello to 2013 and the new world of mortgages. It will not be magical or fun. In accordance to the Dodd-Frank Act, the Qualified Mortgages final rule was released last Thursday by the Consumer Financial Protection Bureau (CFPB)…all 805 pages. Lenders have until January 10, 2014 to implement the rules. Expect to see the changes sooner rather than later.
The Qualified Mortgage rule comes with great responsibility. If a bank goes rogue and makes loans outside the new Qualified Mortgage requirements, the lender could be subjected to civil liability as well as provide the borrower with a get-out-of having-to-make-their-house-payment card. The bank could forfeit their legal right to foreclose.
Anyone in lending knows changes have been creeping up on us for the past twelve months. Asset documentation is brutal. Any client who deposits undocumented cash into their bank accounts and tries to buy a house would have a better chance of quarterbacking for the Cardinals. Do you have a million dollars in retirement funds and use withdrawals for income? Check with your lender, you may not qualify for a mortgage. (Really)
“Have it your way” lending left the planet last year. Mortgages demand the disclosure of every detail of income, debts and assets. The magic number for debt- to-income ratios will be 43%. Ouch! Today, many approved FHA’s and VA’s are well over the 50% threshold. Conventional and Jumbo loans are originated over 43%. Under the QM rules any loan over the 43% will require a manual underwrite, even with a million dollars in an account. With the new draconian mandates, it is doubtful the banks will want to take the responsibility of loans becoming unqualified mortgages.
Back in 2005 underwriters were paid on volume. Underwriting six to eight loans a day was common. With today’s compliance environment, underwriters can only underwrite two to three. And what about the additional documentation required after the initial underwrite? In the ancient days, a junior underwriter could sign off on minor conditions. Because of the brutal after-closing audits, most conditions go back to the underwriter to scrutinize, therefore adding hours if not days to the underwriting process.
What does the Qualified Mortgage, Ability-to-Repay mean to the real estate world? The new rules will demand the lenders document heavily ALL borrowers’ ability to repay a loan. Educating the involved parties to the mortgage transaction process will be crucial. The QM is not going away. We are going to subject our clients to financial colonoscopies. And without the help of legal drugs.