As of January 10, there are new mortgage rules being enforced by the Consumer Financial Protection Bureau (CFPB). This is a new government bureau created in 2011 as a result of the Great Recession and real estate mortgage crisis that resulted in millions of foreclosures and short sales. The jurisdiction of the bureau includes banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors and other financial companies. Its most pressing concerns are mortgages, credit cards, and student loans.
The CFPB states this is a change to Regulation Z, which implements the Truth in Lending Act (TILA). The intention is prohibiting creditors from making higher priced mortgage loans without regard to the consumer’s ability to repay the loan.
The new rules now in affect include:
For the average consumer the rules should do little to change their ability to qualify for a loan. What it will mean is that they will need to provide more documentation regarding their income and monthly expenses. The CFPB estimates that 92% of mortgages in the current marketplace meet the QM requirements.
What a qualified mortgage requires that lenders verify:
Nonqualified loans can still be made but the lender will be required to keep the loan on their books and not sell it to a third party. Several lenders say they plan to continue making nonqualified loans as long as they meet their internal high standards. It will take some time before it's known how this will affect the overall real estate market.
As the CFPB website puts it: "The ability-to-repay rule is intended to prevent consumers from getting trapped in mortgages that they cannot afford, and to prevent lenders from making loans that consumers do not have the ability to repay. It's that simple."
However, the real estate lobbyists in Washington D.C. see it differently. They claim self-employed individuals, small business owners, and many others will have a harder time qualifying for loans. They also say that interest rates are likely to rise to cover the added costs for lenders.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.