The qualified mortgage rule was released by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It actually applies starting January 2014 and determines the way lenders must qualify and confirm facts for customers. An overview of the qualified mortgage rule for MA loans is included in this article.
Overview Of The Qualified Mortgage Rule For MA Loans
The qualified mortgage rule requires mortgage companies to confirm financial facts from borrowers and to assess their ability to make payments. First, the earnings and assets must be enough to repay the loan. Secondly, that ability to repay must be applicable over the life of the mortgage and not strictly for an initial time frame. This is a particularly important factor for loans with changing terms.
Elements of the Qualified Mortgage Rule
The qualified mortgage rule includes guidelines for assessing the ability to repay, debt-to-income percentage limits, and a limitation on points and fees. Lenders must analyze at least 8 specific underwriting factors to assess the ability to repay a mortgage. They are:
- Salary and Assets
- Employment Status
- Credit Reports
- Mortgage Payments
- Recurring Payments on Second Mortgages
- Additional Real Estate Ownership Costs (Municipal Taxes, Condo Fees, etc.)
- Other Liabilities
- Debt-to-Income Percentages
The maximum debt-to-income ratio allowed will be forty-three percent. This is actually more than the existing forty-one percent maximum ratio. Lastly, points and other charges must not be greater than three percent of the loan amount. All of these rules go into effect January 2014.
Mortgage Programs Eliminated in 2014
Due to these new rules, certain mortgages will no longer be valid. These include ones requiring no documentation, interest-only mortgages, balloon payments, negative amortization, and those for lengths longer than thirty years. Although these categories of loans represent a minimal portion of all mortgages, it will affect specific groups of borrowers such as those looking for jumbo products.
Necessity of the Qualified Mortgage Rule
The real estate and financial crisis was blamed on negative financial practices such as issuing home loans with risky terms or buyers getting approved for loans that were clearly not within their means to repay. The new qualified mortgage rule specifically targets toxic loan features. It also caps charges by mortgage companies. This is all intended not only to protect home buyers but also to minimize the potential occurrence another crisis. This overview of the qualified mortgage rule for MA loans is intended only as an overview. To view additional information on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website