XP - New mortgage rules

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2014 will begin new mortgage standards/rules for borrowers and lenders

New mortgage rules: A checklist for consumers
Text Size Print E-mail Reprints By Danielle Douglas,
Jan 11, 2013 02:13 AM EST

The Washington Post

Checklist for potential home buyers


 If you are considering buying a home next year, there are a few things you might want to consider now that the government has issued new mortgage-lending rules.

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New mortgage rules could benefit small banks
New rules: A checklist for consumers
 The rules, introduced by the Consumer Financial Protection Bureau on Thursday, essentially protect borrowers from many of the abusive lending practices that were rampant before the housing crisis, such as high upfront fees and interest-only payments.

 Some elements of the rules are still under discussion, but here is a basic outline of what to expect when the rules take effect Jan. 10, 2014:

œPaying up: Banks and other lenders now have to make sure you have the ability to repay your mortgage before signing the papers. That seems like a common-sense approach to lending, but until now there has not been a law on the books.

 Regulators say lenders must consider at least eight criteria, including a borrowerfs credit history, debt obligations, employment status, income and assets. You have to supply documents detailing this information, and banks have to verify it all. The consumer bureau, however, has not told lenders exactly how to evaluate whether a borrower has the ability to pay.

œBait and switch: In the go-go days of the housing market, many home buyers were sucked into loans they couldnft afford because of low initial teaser rates. No more. Lenders can no longer base borrowersf repayment ability on teaser rates.

œMoney in the bank: The rules create a new category of loans called gqualified mortgages,h which offer lenders certain legal protections as long as they adhere to the criteria laid out by regulators. There is no minimum down payment or credit-score requirement attached to these new loans, which are more a function of ensuring that lenders are steering clear of risky mortgage features.

œToxic features: To get the qualified-mortgage stamp of approval, a lender cannot make loans with features that fueled the housing meltdown: balloon payments, terms longer than 30 years, or structures where the principal balance increases, commonly known as negative-amortizing loans.


œSky-high fees: Most qualified mortgages will have a 3 percent cap on the amount of fees and origination expenses that lenders can charge.

œDebt burden: Under the new loan category, a borrowerfs total debt burden can not exceed 43 percent of his or her income. Debt in this instance includes student loans, auto loans, revolving debt, alimony, child support and existing mortgages.