The Real Deal New York

Qualified mortgage rules give niche borrowers a leg up

December 27, 2013 03:53PM

Mortgage lending rules slated to take effect on Jan. 10 were designed to protect borrowers and investors from the risks of bad home loans, but they could actually make it harder for first-time buyers to secure a mortgage.

The new, optional regulations require lenders to prove that borrowers are able to repay their mortgages, with stricter caps on debt-to-income ratios. If the loans conform to the federal guidelines — dubbed qualified mortgages, or QM — borrowers cannot sue lenders if the mortgages go belly up.

Now, some lenders, who initially fought the new rules, say they will simply offer loans that do not qualify, or non-QM loans. Since these mortgages will go to prime and super-prime borrowers, these buyers will have a leg up when it comes to obtaining financing for a home.

“It looks like a nice niche from a lender’s perspective because you’re not going to have as much competition,” Guy Cecala of Inside Mortgage Finance told CNBC. “The risk of operating outside the QM box is that a borrower can dispute, and basically win, if you try to foreclose if there’s a problem down the road.”

That said, some lenders may eventually be drawn to lending to the less credit-worthy, looking to charge them higher rates for the bigger risk, as was the case during the housing boom — but they will most likely be non-bank lenders that rely on private capital. [CNBC]Julie Strickland