The qualified mortgage rule was released by the Consumer Financial Protection Bureau in January 2013 as part of the Dodd-Frank Reform Act. It takes effect Jan. 10, 2014 and specifies the way companies must assess and verify information from borrowers. Details on the qualified mortgage rule for MA home loans can be found in this blog.
Details On The Qualified Mortgage Rule For MA Home Loans
The qualified mortgage rule requires mortgage companies to verify financial facts of borrowers and to analyze their ability to repay a loan. First, the income and assets must be sufficient to repay the loan. Secondly, that ability to repay must be applicable over the life of the loan and not merely for an introductory period of time. This is a particularly important rule for loans with variable rates.
Components of the Qualified Mortgage Rule
The qualified mortgage rule includes instructions for identifying the ability to repay, debt-to-income ratio limits, and a cap on points and fees charged. Mortgage companies must analyze a minimum of eight specific underwriting factors to determine the ability to repay a mortgage. These include:
- Assets and Salary
- Employment Status
- Credit Reports
- Recurring Mortgage Payments
- Recurring Payments for Additional Mortgages
- Other Home Ownership Expenses (Municipal Taxes, Association Fees, etc.)
- Other Debts
- Debt-to-Income Ratios
The highest debt-to-income ratio will be 43 percent. This is actually more than the existing 41 percent limit. Finally, points and other charges must not be greater than 3 percent of the loan amount. All of these rules go into effect Jan 10., 2014.
Mortgage Programs Being Eliminated
As a result of the components of the new qualified mortgage rule, some mortgages will not be allowed. These include ones requiring no documentation, interest-only mortgages, balloon mortgages, negative amortization, and those for lengths greater than 30 years. Even though these types of loans represent a minimal portion of all mortgages, it will affect certain types of buyers such as those wanting jumbo products.
Impact the Qualified Mortgage Rule
The real estate and financial crisis is credited to certain mortgage practices such as granting home loans with risky terms or borrowers getting approved for home loans that were obviously not within their ability to repay. The new qualified mortgage rule specifically targets harmful loan features. It also seeks to control charges by lenders. This is all intended not only to protect home buyers but also to lower the chances of a future crisis. This details on the qualified mortgage rule for MA home loans is intended only as an overview. To view more details on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website