There is one constant in the mortgage industry these days. It is not easy getting a mortgage. Well, folks, coming to you in 2014 – even tougher mortgage standards.
The Consumer Financial Protection Bureau (CFPB) has announced new rules for a new class of “qualified mortgages” unveiled on Jan. 10.
Banks that underwrite mortgages that meet the criteria as “qualified mortgages” will be protected from homeowner lawsuits which is a big win for the banking industry. This comes on the heals of the multi-billion dollar settlements the nation’s largest banks just paid to Fannie Mae and Freddie Mac.
Some of the basic changes in the new rules include;
•Lowering the maximum loan to value ratio to 43%
•Eliminating interest only mortgages
•Limiting up front fees charged on a mortgage
•Eliminating most low documentation loans
•Raising the amount of down payment required on mortgages
Reactions by various industry leaders where mixed. Debra Still, chairman of the Mortgage Bankers Association, said that the MBA agrees that the goal of the regulations, ensuring that borrowers receive loans they can repay, is in everyone’s best interests. The MBA did express some reservations about some aspects of the new rules that could curb competition and perhaps increase some costs.
Fred Becker, the president and CEO of the National Association of Federal Credit Unions, embraced the inclusion of credit unions in the new umbrella. Becker said, “NAFCU strongly believes that the safe harbor approach is preferable for all parties involved in a mortgage loan transaction as it provides parties clarity and certainty, and consequently discourages frivolous lawsuits, claims or defenses.”
It appears that industry leaders see the protection against lawsuits as a good tradeoff for the tightening of constraints of underwriting standards.
The National Association of Home Builders was cautious in its reaction, stating that the new rules should strike a “proper balance” that encourages lenders to appropriately provide credit to qualified borrowers while assuring financial institutions they will be protected from lawsuits if they follow the rule’s criteria.
The industry has gone from very lax underwriting standards which helps lead to the housing crisis of 2008. Many have commented that standards had swung to the other extreme. Now, the rules are getting tighter. We hope he new, stricter rules will not constrain the market further.
Bill Starrels lives in Georgetown and is a mortgage loan officer. He can be reached at 703- 625-7355 or firstname.lastname@example.org.