Mortgage Changes May Take 7 Years

New Mortgage Regulations 2014

New Mortgage Regulations 2014

Arizona Mortgage lenders everywhere will be cheering and celebrating as usual this New Years Eve however this year, there will be some nervousness lurking just beneath the surface.  You see, 10 short days later some monumental government regulations will be handed down that many feel will drastically change how mortgages are originated.  However, I suggest that anyone overly worried about the upcoming Dodd Frank mortgage regs “save their nerves.”  Not much is changing.

What is Coming 1/10/2014?

Dodd Frank regulations go into effect on Jan 10, 2014.  As a part of these new regs, mortgage lenders will be required to meet a new standard relative to how they underwrite loan applications.  Specifically, the “Ability to Repay” and “Qualified Mortgage” guidelines are what those inside and outside the mortgage industry are worried about.

Inside the Qualified Mortgage guidelines which are a part of the Dodd Frank/Ability to Repay Rule, there is a maximum 43% debt to income ratio guideline.  Given that this ratio is lower than today’s allowable debt to income ratio limits people are worried about this causing many to not be able to qualify for a new loan.  If the 43% debt to income ratio was the only rule than I too would be worried.  However, it is only one of two primary debt to income ratios allowed per the new Dodd Frank rules AND for now it does not appear the 43% rule will impact us for up to 7 years!

Temporary QM Saves the Day

While the “General QM” rule is the rule that calls for a maximum 43% debt to income ratio there is a 2nd version of the QM rule that offers significant flexibility for up to 7 years after Dodd Frank is effective in January 2014.   The Temporary QM Rules allow lenders to use the same debt to income ratios that they have been for years even AFTER Dodd Frank is in play.  You see, Temporary QM lets a mortgage lender use current FHA, VA, USDA and Conventional debt to income ratios as long as they receive an automated mortgage approval for up to 7 years after Dodd Frank is effective or:

1. When Fannie Mae and/or Freddie Mac are phased out (whichever comes first)
2. When FHA, USDA, VA implement their own Qualified Mortgage rules (whichever comes first)

The bottom line is that come January 10, 2014 the reality is that not much is going to change in the mortgage world.  Many of the guidelines and standards outlined in the Dodd Frank Act are in line with what mortgage lenders have been doing for years.

By Jeremy House

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