Mortgage rules 2014: Tighter mortgage rules take effect Jan. 10, 2014

[adymax]

The new lending rules will limit people from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43 percent of their income. That new debt cap also includes a wide swath of common forms of debt that count toward the total, including student loans, most fees and points related a home purchase, and property taxes. It also tightens rules on documentation, and lenders who improvise to give customers easier terms will be open to consumer lawsuits if the loans go bad.

Read more here:

http://homes.yahoo.com/news/tighter-mortgage-rules-will-soon-squeeze-these-groups-even-more-00553876...

[boober]

Does anyone know for certain if HARP refi's will be a part of this?

I had planned on doing a HARP refi this January, I'm having to push it out that far till I pay off some debt.

But if the DTI limit will be 43%, I might be outta luck because my DTI will probably be around 45% at that time from it's current 60%.

Unbelievable...

[jadeite788]

---

@adymax wrote:

The new lending rules will limit people from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43 percent of their income. That new debt cap also includes a wide swath of common forms of debt that count toward the total, including student loans, most fees and points related a home purchase, and property taxes. It also tightens rules on documentation, and lenders who improvise to give customers easier terms will be open to consumer lawsuits if the loans go bad.

Read more here:

http://homes.yahoo.com/news/tighter-mortgage-rules-will-soon-squeeze-these-groups-even-more-00553876...

I posted this already.  My LO even gave me heads up on collections regardless if the person is a borrower or non-borrower

---

[Peter1142]

This is some kind of new law, as of Jan 10th I won't be able to get a loan from anyone period if DTI is over 43%?

It says household income, does that include income of spouses who aren't on the loan?

Also, can anyone confirm if they will include a minimum payment for a credit card that is reporting a zero balance?

[StartingOver10]

No, Peter, the way the actual rule that is going into effect Jan 10, 2014 is slightly different than portrayed by the link above. There are exceptions for low income and community based programs and for small lenders. Also, Fannie Mae and Freddie Mac have a 45% max back end ratio anyway for a conventional loan, so the reduction to 43% is not a huge as it sounds. FHA has always had higher back end ratios allowed (one of the reasons people use FHA beside down payment requirements).

Here is a link directly from the CFPB that gives more detail: http://www.consumerfinance.gov/pressreleases/cfpb-finalizes-amendments-to-ability-to-repay-rule/ 

Below is a small portion quoted from the press release provided by the CFPB about these amendments. Go to the link above to see more detail:

The CFPB finalized its Ability-to-Repay rule on January 10, 2013. The Ability-to-Repay rule established that most new mortgages must comply with basic requirements that protect consumers from taking on loans they do not have the financial means to pay back. Lenders are presumed to have complied with the Ability-to-Repay rule if they issue “Qualified Mortgages” (QMs). These loans must meet certain requirements including prohibitions or limitations on the risky features that harmed consumers in the recent mortgage crisis. If a lender makes a Qualified Mortgage, consumers have greater assurance that they can pay back the loan.

The CFPB proposed the amendments finalized today in conjunction with the adoption of the Ability-to-Repay rule. The CFPB solicited public input on the proposal before releasing today’s final rules.

Today’s amendments:

• Exempt certain nonprofit creditors: The final rule exempts from Ability-to-Repay rules certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. Among other conditions, the exemptions generally apply to designated categories of community development lenders and to nonprofits that make no more than 200 loans per year and lend only to low- and moderate-income consumers. Similarly, mortgage loans made by or through a housing finance agency or through certain homeownership stabilization and foreclosure prevention programs are exempted from the Ability-to-Repay rules.
• Facilitate lending by certain small creditors: This amendment makes several adjustments to the Ability-to-Repay rule in order to facilitate lending by small creditors, including community banks and credit unions that have less than $2 billion in assets and each year make 500 or fewer first-lien mortgages, as defined in the rule. First, the rule generally extends Qualified Mortgage status to certain loans that these creditors hold in their own portfolios even if the consumers’ debt-to-income ratio exceeds 43 percent. Second, the final rule provides a two-year transition period during which small lenders can make balloon loans under certain conditions and those loans will meet the definition of Qualified Mortgages. The Bureau expects to continue to study issues concerning access to credit and balloon lending by small creditors. Third, the final rule allows small creditors to charge a higher annual percentage rate for certain first-lien Qualified Mortgages while maintaining a safe harbor for the Ability-to-Repay requirements.
• Establish how to calculate loan origination compensation: The Dodd-Frank Act mandates that Qualified Mortgages have limited points and fees, and that compensation paid to loan originators, such as loan officers and brokers, is included in points and fees.  This cap ensures that lenders offering Qualified Mortgages do not charge excessive points and fees. Today’s amendment provides certain exceptions to this Dodd-Frank requirement that loan originator compensation be included in the total permissible points and fees for both Qualified Mortgages and high-cost loans. Under the revised rule, the compensation paid by a mortgage broker to a loan originator employee or paid by a lender to a loan originator employee does not count towards the points and fees threshold. This amendment does not change the January 2013 final rule under which compensation paid by a creditor to a mortgage broker must be included in points and fees, in addition to any origination charges paid by a consumer to a creditor.

The amendments will take effect with the Ability-to-Repay rule on January 10, 2014.

[Peter1142]

Thanks.

Does anyone know if the 43% can include income of a spouse not on the loan?

[frugalQ]

SO,

The 45% DTI will stay in place?

It appears the govt is making it less and less attractive to go FHA and pushing people more towards conventional loans. Although its unfortunate for those of us who are on the fence, I think it's actually a good thing.

I also think all these changes will put the brakes on the meteoric rise in house prices and interest rates because less people will be willing to buy....making the real estate industry more stable.

I know that I'm more and more worried whether we will qualify for what we want. :-(

[StartingOver10]

---

@frugalQ wrote:
SO,

The 45% DTI will stay in place?  No, from what I see in the articles it will go to 43%, but that is not that much lower than the current 45%. There are exceptions as explained by the CFPB press release in the link I posted above (exceptions for higher back end ratios that exceed 43%)

It appears the govt is making it less and less attractive to go FHA and pushing people more towards conventional loans. Although its unfortunate for those of us who are on the fence, I think it's actually a good thing. I agree that it appears the recent rule changes appear to push the borrowers toward conventional loans and away from FHA at this time.  Remember, the guidelines are always changing anyway. It's just the changes seem more magnified now because you are in the market for a home loan. These new guidelines are actually closer to what the lending requirements were 20+ years ago. They were loosened up over the years and now are going back to what they were ...its a continual process.

I also think all these changes will put the brakes on the meteoric rise in house prices and interest rates because less people will be willing to buy....making the real estate industry more stable.

I know that I'm more and more worried whether we will qualify for what we want. :-(  Remember this, check the underwriting guidelines for smaller lenders/regional lenders too. You may surprise yourself and find one that can handle it that is not a big or well known name. I find lenders that do "exceptions" for various guidelines regularly. Remember too, it is easier to get an exception if you have a compensating factor.

---

You might have to look a little longer and harder to find the right lender. There are some excellent loan officers right on this board that have extensive knowledge and have a good system in place. They also know what can and can not be done with a given file. Sometimes the best lender is not in your back yard but somewhere else in the USA. (contrary to my post about the regional lenders). It just means as consumers we have to prepare ourselves well financially but not perfectly and most likely there will be a program that fits your needs...don't get discouraged.

[frugalQ]

Thank. You SO!!!

We plan to start building next month. I will probably get the ball rolling at the end of this month once the final cc payment from our vacation posts to the CBs next week.

Hopefully, we will be 'grandfathered' in and none of these changes impact us. My worry is that we will be impacted because we don't plan to close until sometime in March 2014.

Always something!!!

[frugalQ]

The frustrating thing for me is that there are already so many hurdles to jump through.

We have to keep our house because we are underwater. So, I've refinanced to get mortgage payment down.

Because we have to keep our house, we have to have 6 months of reserves. So, we've worked to get that together.

Because we don't have rental income to subsidize our current mortgage, I've had to work hard to get our DTI under where it needs to be...we are finally good there.

I had it planned where we would pay 3% down and then pay at least some PMI upfront. Well, now that option is going away.

Trying to make sure our mid scores are at least 700 so we would seem a little less risky.

I feel like we're doing everything right, but our dream home dreams are being threatened. Yet, those who went the foreclosure/SS route because they were underwater are getting cut a break.

Sorry, that's my vent for this morning. :-)