18 December 2103
The New Year is almost here, and with it comes a bevy of legal and regulatory changes, especially for the mortgage industry. To help potential homebuyers understand how the changes will affect their mortgage processes, Don Frommeyer, CRMS, President of NAMB (The Association of Mortgage Professionals), outlines some of the regulations set to start in January 2014.
“Since 2009, the housing market has been working to create standards and regulations that minimize the risk of another mortgage industry fiasco,” says Frommeyer. “The ability-to-repay mandate is a perfect example of this and it exemplifies how mortgage professionals are taking extra caution with every customer.”
Upcoming mortgage industry changes include:
– Ability-to-Repay Mandate: The CFPB designed this regulation to set a gold-standard for lending to ensure each and every borrower is a qualified borrower. Lenders will follow a set of guidelines to establish a consumer’s income, assets and obligations before deeming them eligible. The CFPB rules establish a standard for what the government considers a “qualified mortgage.”
– Decrease in FHA Loan Limit: The Federal Housing Administration (FHA) announced that beginning January 1, 2014, mortgages will be limited to $625,000, down from $729,750. Homebuyers looking to obtain a larger loan will have to apply for a jumbo loan, which will most likely come with a higher down payment. “For many areas of the country this change won’t be a huge issue as average home prices fall below the established limit. However, borrowers in metropolitan areas with higher average housing prices may face challenges when applying for mortgages as the 20 percent down payment associated with jumbo loans will be an enormous increase from a traditional loan’s 3.5 percent down payment,” notes Frommeyer.
– Caps on Loan Origination Fees: January 10, 2014 brings a rule for the Qualified Mortgage that points and fees on mortgages cannot exceed 3%.
– Tighter Regulations for Self-Employed: As the rules to create a QM (qualified-mortgage) take effect, people without a W-2 will face difficulty when they apply for loans. It’s more of a task for individuals to prove their debt-to-income ratio without the proper documentation, even if they have a high net-worth and perfect credit. The income is calculated bringing into play the customer write offs to reduce taxable income.
The Federal Housing Finance Agency (FHFA) on Monday detailed a plan to reduce the size of home mortgages that Fannie Mae and Freddie Mac could purchase.
Under the proposal issued for public comment, the FHFA in most markets would cut the loan purchase limit for conforming loans by 4 percent, to $400,000 from $417,000. In high-cost areas, the current loan limit of $625,000 would be trimmed to $600,000.
It was just last month that the FHFA said it was keeping the current loan limits in place. But any change by the agency, the conservator of Fannie Mae and Freddie Mac, would follow in the footsteps already by the Federal Housing Administration.
In reducing the government’s exposure in the mortgage markets, the federal government is hoping that private investors will step in, particularly as housing markets improve.
The FHA last month announced new, lower single-family loan limits for 650 counties nationally, beginning Jan. 1.
If the lower limits on Fannie Mae and Freddie Mac mortgages were in place in 2012, the effect on the market would be “modest,” according to the agency’s analysis. Nationally, about 170,000 mortgages backed by Fannie Mae or Freddie Mac, or 2.9 percent of the mortgages acquired in 2012, had original loan balances above $400,000 limit proposed, the analysis found.
The research also showed that many of the borrowers potentially affected by such a change would be in Illinois, California, Texas, Florida and Colorado.
The FHFA said any changes it makes would not take effect before Oct. 1.
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