The qualified mortgage rule was released by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It officially takes effect January 2014 and impacts the way companies must analyze and confirm information for customers. A summary of the qualified mortgage rule for Treasure Coast FL mortgages can be found below.
Summary Of The Qualified Mortgage Rule For Treasure Coast FL Mortgages
The qualified mortgage rule requires mortgage companies to confirm financial paperwork from home buyers and to determine their ability to make payments. First and foremost, the income and assets must be sufficient to make payments. Secondly, the ability to repay must be considered for the entire term of the loan and not just for an introductory period of time. This is an especially critical distinction for loans with adjusting interest rates.
Components of the Qualified Mortgage Rule
The qualified mortgage rule details instructions for determining the ability to repay, debt-to-income percentage ceilings, and a limitation on points and fees. Lenders must apply a minimum of eight specific underwriting factors to determine the ability to repay a mortgage. These include:
- Assets and Earnings
- Employment Status
- Credit History
- Monthly Mortgage Payments
- Monthly Payments on Additional Mortgages
- Additional Home Ownership Costs (Municipal Taxes, Association Fees, etc.)
- Other Liabilities
- Debt-to-Income Ratios
Debt-to-income ratios will be limited to 43 percent. This is actually higher than the current 41 percent maximum. Lastly, points and other fees must not be greater than three percent of the mortgage amount. All of these rules take effect Jan 10., 2014.
Programs Being Eliminated
As a result of the components of the new qualified mortgage rule, certain loans will no longer be valid. Examples are those with no documentation, interest-only payments, balloon payments, negative amortization, and those for terms longer than 30 years. Even though these types of mortgages represent a minimal percentage of all mortgages, it will affect specific types of borrowers such as those wanting jumbo products.
Necessity of the Qualified Mortgage Rule
The real estate and financial crisis is blamed on negative financial practices such as providing loans with risky features or borrowers getting approved for home loans that were obviously not within their means to repay. The new qualified mortgage rule specifically eliminates toxic loan terms. It also minimizes charges by mortgage companies. This is all intended not only to protect borrowers but also to minimize the likelihood of another crisis. This summary of the qualified mortgage rule for Treasure Coast FL mortgages is offered only as a summary. To view additional information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website
