As Rates Increase, Lenders Will Be Affected

Wilkie says any big changes that happened to loans already happened in January, and she is sure there will be changes due to Dodd-Frank and  Consumer Financial Protection Bureau (CFPB), although she hasn’t heard of any more changes happening in 2014. As far as for some of the changes in loan products Realtors can expect, Wilkie says they will begin to hear a lot about effects to qualified mortgage, better known as QM.

USA Today reported in January that the QM loan protects lenders from borrowers who are presumed to meet the ability-to-repay requirements. Guidelines for the QM loan cannot contain risky features, such as terms that exceed 30 years, interest-only payments, or payments that are less than the full amount of interest so that the home loan debt grows every month. QM loans also cannot carry more than 3 percent in upfront points and fees for loans above $100,000.
.
Marascia says although QM is the biggest and most recent change, it is something his company is taking in stride, and the changes haven’t really affected them.

“99.4 of the loans at Guranteed Rate did in the last 18 months were QM compliant,” Marascia says. “The QM that came out this year is less risky.”

Wilkie says one of the biggest questions she has been asked is about the 43 percent debt-to-income ratio, and that there is a rumor going around that loans cannot exceed that. As reported in USA Today, a QM loan cannot push a borrower’s total debt load above 43 percent of their monthly income, unless the loan is eligible to be backed by Fannie Mae or Freddie Mac, or the FHA, or is made by a small lender.

“The majority of the changes Realtors will see with the QM loans will be longer underwriting times,” Wilkie says. “Realtors will have to turn in more paperwork than before with some of these underwriting changes.”

The CFPB estimates that 92 percent of mortgages will meet the new QM requirement.

Terry Alderman, loan officer with Hometrust Mortgage Company in Spring, TX, says the changes in QM will affect mostly the lenders, and the changes in FHA loans will affect the buyers mostly because the borrower is now required to pay for mortgage insurance throughout the life of the loan.

“They had so many loans go bad, they are trying to recoup,” Alderman says.

FHA loans require low down payments and less strict underwriting standards than conventional loans, although mortgage insurance premiums are likely to continue to rise in 2014, reports Fox Business.