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New Mortgage Rules and it’s impact…

Consumer Financial Protection Bureau(CFPB) announced that the New mortgage rules will take effect from Jan 10, which is as of last Friday. New mortgage-lending rules take hold Friday that federal regulators say will guard against the risky lending practices that fed the housing bubble, which led to the greatest collapse in U.S. home prices since the Great Depression. One of the biggest changes is that borrowers will likely need to show more proof that they can actually afford the mortgage they’re applying for.

Here are two main terms to know from the new rules:

“Ability-to-repay” rule: Mortgage lenders must ensure borrowers can actually afford their loans over the long term. Applicants’ income, assets, savings, and debt against their monthly house payments will be more closely scrutinized. Borrowers likely will need to produce “even more tax records, pay stubs, and bank and investment account information,” USA Today reports.

Qualified Mortgage: Borrowers who meet the ability-to-repay requirements will likely be eligible for a QM. QM loans must meet at least some of the following guidelines: They cannot contain risky features, such as terms that exceed 30 years or interest-only payments; carry more than 3 percent in upfront points and fees for loans above $100,000; or push a borrowers’ total debt above 43 percent of their monthly income unless the loan qualifies to be backed by Fannie Mae, Freddie Mac, the FHA, or a small lender.

Lenders can still issue loans outside of the QM guidelines, but lenders will have to do so realizing they’ll have less protections against future lawsuits. The Consumer Financial Protection Bureau estimates that about 92 percent of mortgages currently meet QM requirements.

Impact Analysis
For most home loan borrowers, the change will have little or no impact on whether they can actually get a mortgage, experts say, but they may have to show even more proof that they can afford one.

Many analyst are saying that these rules makes it more harder to consumer to get loan which is already tough right now. The real estate and mortgage industry, the CFPB, and others will watch implementation of the new rules closely to determine whether they make it more difficult for borrowers to qualify for mortgages.

These new rules makes it even more difficult for borrowers who have fluctuating incomes or self-employed individuals to validate their incomes like myself. It was more difficult and now it got to the point of near impossible. I am sure they need tons of papers to qualify for self employed. The 43 percent debt standard also may prove a hurdle for some borrowers who find they can’t qualify for the loan they need to buy the house they want, and some borrowers may find they need larger down payments to keep within that 43 percent rule.

NAR has expressed concern over the 3 percent cap, fearing that it “unfairly discriminates against affiliated lenders who have to count many more items toward fees and points than large retail financial institutions, such as title insurance charges and escrow for homeowner’s insurance,” according to an NAR release.

“The problem is that under this rule, affiliated and nonaffiliated firms are treated differently,” says Chris Polychron, NAR president-elect. “It’s NAR’s view that this would be a disadvantage to many real estate affiliated lenders and reduce the choices available to consumers of where they can get a mortgage, and because the unaffiliated lender must still use a title company, the consumer pays the same amount either way.”

In conclusion, changes are inevitable and they are always difficult but if the change is made to make certain thing better and safer, than there should be no harm following it. CFBU was created for the main purpose to help and protect consumers and if these rules are set out to protect consumer from getting caught in bad debt, it is a good thing. It surely make different for consumers to go thorough more hurdles to get their loan but if they are really serious and legitimate they will persist and go for it. That’s surely the motive to avoid bad loans to bad consumers which will eventually avoid big crisis.

If you are home buyer, better work with educated mortgage broker or lender to get the processing started ahead of time and avoid any last minute surprises and give more time than usual to get your loan processed.

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