Lenders are preparing for more stringent federal rules defining a “qualified mortgage,” or one that is underwritten to certain standards, intended to protect consumers. The new rules will be implemented at the beginning of next year, but its impact will mostly be felt by the highest and the lowest income earners.
Qualified mortgages are one aspect of the Dodd-Frank financial reform, and the tightened lending restrictions are designed to lower the incidence of default, the New York Times reported. A QM loan must be fully amortized with a maximum term of 30 years, the Times said, and fees are set a maximum of three percent.
Lenders are also required to document the borrower’s ability to repay the loan, according to the Times, and must confirm that the debt-to-income ratio does not exceed 43 percent.
About 95 percent of loans made today would fall under the QM standards, Richard Cordray, the director of the Consumer Financial Protection Bureau, told the paper. The standards would impact jumbo loans if the borrower’s debt-to-income ratio was higher than 43 percent, and would also impact low-income borrowers whose fees often exceed the three percent cap. Such borrowers would have to turn to unqualified mortgages, which are more expensive, according to the Times. [NYT] – Hiten Samtani