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DTI ratio limits after January 2014

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Revelate
Moderator Emeritus

Re: DTI ratio limits after January 2014

Perhaps a stupid question but is this new rule only for loans which are either going to be sold or insured by the government or a GSE?

 

i.e. is the jumbo lending space where lenders are either 1) portfolioing them, or 2) seasoning them for X number of months and then selling on secondary private market, included under the same 43% mandate?

 




        
Message 11 of 15
ShanetheMortgageMan
Super Contributor

Re: DTI ratio limits after January 2014


@Revelate wrote:

Perhaps a stupid question but is this new rule only for loans which are either going to be sold or insured by the government or a GSE?

 

i.e. is the jumbo lending space where lenders are either 1) portfolioing them, or 2) seasoning them for X number of months and then selling on secondary private market, included under the same 43% mandate?

 


Are you referring to the new "Qualified Mortgage" (QM) definition?  Some background & info on this QM thing...

 

So lenders were getting sued left & right by consumers, and in many situations losing, because they put them in "risky" mortgages that they apparently shouldn't have ever handed out in the first place.  The government didn't want this to happen again, so they offered some protection to lenders by laying out rules for making mortgages that will be "proven" to not be risky to consumers and that is what a QM is.  Lenders do not need to make QM's unless they want to have that extra protection from litigation.  All loans that are under Fannie, Freddie, FHA, VA or USDA financing which get automated underwriting approvals automatically fit the QM definition regardless of what the loan characteristics are.  Loans still made under those entity's guidelines who are manually undewritten supposedly also meet them, however lenders & the CFPB haven't been too clear on that as of yet (it's been asked but no direct answer has been provided, so lenders are treading carefully).  There are still lenders out there making mortgages that aren't QM's, either by offering interest only loans, terms longer than 30 years, or even just allowing DTI's over 43% even if it's not made under the aforementioned 5 entity's guidelines - and those are almost all being portfolio'd.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 12 of 15
Revelate
Moderator Emeritus

Re: DTI ratio limits after January 2014


@ShanetheMortgageMan wrote:

@Revelate wrote:

Perhaps a stupid question but is this new rule only for loans which are either going to be sold or insured by the government or a GSE?

 

i.e. is the jumbo lending space where lenders are either 1) portfolioing them, or 2) seasoning them for X number of months and then selling on secondary private market, included under the same 43% mandate?

 


Are you referring to the new "Qualified Mortgage" (QM) definition?  Some background & info on this QM thing...

 

So lenders were getting sued left & right by consumers, and in many situations losing, because they put them in "risky" mortgages that they apparently shouldn't have ever handed out in the first place.  The government didn't want this to happen again, so they offered some protection to lenders by laying out rules for making mortgages that will be "proven" to not be risky to consumers and that is what a QM is.  Lenders do not need to make QM's unless they want to have that extra protection from litigation.  All loans that are under Fannie, Freddie, FHA, VA or USDA financing which get automated underwriting approvals automatically fit the QM definition regardless of what the loan characteristics are.  Loans still made under those entity's guidelines who are manually undewritten supposedly also meet them, however lenders & the CFPB haven't been too clear on that as of yet (it's been asked but no direct answer has been provided, so lenders are treading carefully).  There are still lenders out there making mortgages that aren't QM's, either by offering interest only loans, terms longer than 30 years, or even just allowing DTI's over 43% even if it's not made under the aforementioned 5 entity's guidelines - and those are almost all being portfolio'd.


Yeah I was asking about the QM definition in a roundabout way apparently Smiley Happy.   Your explanation as always is greatly appreciated!




        
Message 13 of 15
giosan32
Valued Member

Re: DTI ratio limits after January 2014

Are the DTI limits for a VA loan more laxed Shane.

Message 14 of 15
ShanetheMortgageMan
Super Contributor

Re: DTI ratio limits after January 2014

Technically VA doesn't have a debt ratio limit.  All that needs to be done is a residual income limit, however over the past few years VA automated underwriting has tightened up (they never say specifically by how much) so getting debt ratios approved at 60-70% used to be possible, but now it seems like it's in the 50's.  If a VA loan doesn't get automated underwriting approval, most underwriters usually cap the DTI at 41%, allowing it to go higher when there are compensating factors.

Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
Located in Southern California and lending in all 50 states
Message 15 of 15
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