On January 10, 2014, the Dodd-Frank Wall Street Reform and Consumer Protection Act's Qualified Mortgage Rule went into effect making it more difficult for consumers to obtain a home loan.
Lenders now have to follow stringent procedures to verify that borrowers can repay their loans. While many home loan lenders are already verifying and documenting borrower incomes, assets and debts, they will have to create additional paperwork to prove that they did their jobs.
For a loan to be considered a qualifying mortgage, the borrower's debt-to-income ratio can be no more than 43 percent. This means that if a borrower has $4,500 in gross monthly income, his total debt payments including his new mortgage cannot exceed $1,935 per month.
Previously, some lenders had been willing to go up to 45 percent.
Fee And Term Caps
Lenders will be less able to make creative loans, as well. Loans that meet the QM rule can be no longer than 30 years in length. They also cannot have closing costs and fees that exceed a cap of 3 percent of the loan's balance.
Who Gets Impacted?
The good news is that the normal borrower taking out the normal loan might not notice the new QM rule. Borrowers that get squeezed are those that need to take out a loan that doesn't fit the box laid out by the provisions. These include:
*People in high-cost cities that need 40-year or interest-only mortgages to lower their payments.
*Self-employed people and contractors that need to be able to borrow money on "stated" income without detailed verification.
*Borrowers that can afford a loan but have other debts, like student loans.
*Those that need non-traditional loans with high fees.
While the law still allows a lender to make a loan that isn't a qualifying mortgage, given that the loan won't have the same legal protections, its costs remain to be seen. This could end up pricing people with special needs out of the home loan market.
Financial institutions such as mortgage lenders are required, by law, to be registered by the Tennessee Department of Financial Institutions (TDFI). Consumers are encouraged to verify licensing for mortgage lenders by contacting TDFI at:
The John Sevier Building, Fourth Floor
500 Charlotte Avenue
Nashville, Tennessee 37243-0705
Phone: (615) 741-2236 Fax: (615) 741-2883