Impact Of QM Mortgage Changes

Dated: 12/06/2013

Views: 5126

In early January the Consumer Financial Protection Bureau (CFPB) will implement new Qualified Mortgage (QM) rules with the goal of providing additional protections to consumers and ensuring that buyers have the ability to repay.  Although these changes have received a great deal of attention from the media, in reality the real world implications will be minor for most consumers.  As stated by Mark Greene of Forbes magazine: “So after hundreds of pages of proposed rules, comments, debate, amendments to proposals, industry lobbying, endless volleying, requisite fear mongering and judgmental assumptions, guess what?  We have an industry standard that already exists.”  So, what are the new rules?  

The most noteworthy change is a proposed cap to debt-to-income (DTI) ratios of 43%.  However, Fannie Mae and Freddie Mac, who insure the vast majority of mortgage in the current market, have long capped DTI at 45%.  So, this is a very slight change for most mortgages.  Veterans Administration (VA) and Federal Housing Administration (FHA) loans do allow higher DTI ratios, often up to 55%.  However, the CFPB has stated that exceptions to the 43% rule are allowed and will most likely be implemented for FHA and VA loans.  

In addition there have been rules put in place to prevent excessive up front fees and points paid by the consumer.  Generally speaking, the points and fees paid by the borrower must not exceed 3% of the total amount borrowed, if the loan is to be considered a qualified mortgage.  However, I know of almost no one charging anywhere near 3% in the current market.  The only real impact this will have is on extremely small loan sizes where set lender fees may exceed 3% of the loan amount.
All in all it is estimated that approximately 12% of the loans closed in 2013 would not qualify under the new QM rules.  It is my personal belief that many of those 12% could be guided into an approved loan status by working with an experienced mortgage professional such as your SC Mortgage Pro.  Call or email if you have any questions or concerns.  
Ikon Financial Group
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Hunter Reynolds

Hunter Reynolds is a full-time Realtor with Keller Williams Realty in Charleston, South Carolina and is Foreclosure and Short Sale Certified. He specializes in residential properties in Charleston, SC....

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