Tighter mortgage lending standards set to hit in January 2014
Luxury home buyers are hoping to close their deals before more rigorous lending rules hit early next year. The changes, issued by the Consumer Financial Protection Bureau and set to go into effect Jan. 10, will push lenders to underwrite only “qualified mortgages” that meet tougher standards. Lenders that underwrite mortgages that don’t meet the new standards could be sued by borrowers if they happen to default down the road.
Starting in 2014, borrowers will be subject to greater scrutiny in terms of their debt to income ratio and how they document their income when applying for a loan, said Tom Wind, executive vice president of residential and commercial lending at national lender EverBank.
“Most lenders are going to say, ‘If I’m going to take on additional risk, I need to be even more careful who I lend to,’ ” Wind told the Wall Street Journal.
The changes will even impact high-net-worth borrowers, Guy Cecala, publisher of Inside Mortgage Finance, told the Journal.
The rules state that borrowers can’t have a debt-to-income ratio above 43 percent, which would make it harder for individuals such as entrepreneurs – whose incomes vary widely year-over-year – to qualify for a mortgage.
The tighter standards are appealing to one group, however, the Journal said: investors in mortgage-backed securities. Such investments will be markedly lower risk after the change, according to the newspaper. [WSJ] – Hiten Samtani