Qualified Mortgage Rule Effective Friday; HFA Loans Exempt

You may know new mortgage regulations are on the horizon, but what will the impact be on homebuyers, Realtors® and lenders?

Lenders have been preparing for the January 10, 2014 effective date of the Ability to Repay and Qualified Mortgage Rule. This rule is under the Truth in Lending Act and prohibits a lender from making a higher-priced mortgage loan without regard to the consumer's ability to repay the loan. The debt-to-income ratio (DTI) must be 43 percent or less and the rule includes a 3% cap on fees and points. It also establishes certain protections from liability for loans that meet the requirements of a "qualified mortgage."

As our team has attended events and discussed with housing experts, we've seen a few key themes emerge:

• The majority of today's mortgage market is processed through the GSE online approval engines. If the loan makes it through Fannie, Freddie, USDA or VA, then it will be considered a QM loan, regardless of DTI. However, the agencies are already very close to the 43 percent DTI limit.

• On December 11, HUD released a final rule that sets the standards that FHA-insured loans will have to meet to be considered QM. Loans that do not meet these standards (FHA underwriting standards and 3% cap on all upfront points and fees) will no longer be eligible for FHA-insurance as of January 10, 2014.

• This final rule also included an exemption from the rule's requirements for Housing Finance Agency (HFA) loans, meaning HFA loans will not have to comply with the 3% on upfront points and fees. The Consumer Financial Protection Bureau (CFPB) made this exemption due to HFAs' strong track record of responsible lending to low- and moderate-income borrowers and forcing them to comply with requirements of the Ability-to-Repay rule would provide little benefit to consumers and might limit lower-income borrowers' access to affordable home lending.

• HFAs will be increasingly relevant because of these exemptions and the fact that they also offer down payment and homebuyer assistance programs.

• Typically about 68% of FHA loans are made to first-time homebuyers. Now, many of these homebuyers will find their best options through HFAs.

• Realtors® will need to build relationships with lenders who offer diverse products, including HFAs and community seconds.

• As consumers are used to comparing lenders based on rates, it will be important to keep an eye on products and pricing strategies.

• Lenders are currently managing a host of issues related to the operational and legal impact of the QM rule. Realtors®, find lenders who can explain QM to you and ask how they will be handling changes as well as the expected homebuyer impact.

To view the original article, visit the Down Payment Resource blog.