New federal mortgage rules impacting qualified homebuyers
Qualified homebuyers are finding it more difficult to finance a mortgage under new federal regulations that have made some banks reluctant to take a risk on them.
Proving they an afford a home loan is the most significant change, according to Mike Henry, senior vice president of residential lending at Dollar Bank in Pittsburgh.
鈥淭here was a time where we didn鈥檛 need more documentation, but now there鈥檚 more requirements,鈥� said Henry. 鈥淭o a certain degree it has slowed down some of the housing market.鈥�
The recent rules were mandated to banks in January by the Consumer Financial Protection Bureau (CFPB) as a means to hold lenders liable for bad loans and protect borrowers from loans they can鈥檛 afford.
The changes now require borrowers to provide additional documentation of income and assets while lenders must also document their review of the borrower鈥檚 credit history.
鈥淭he industry feels that (new rules) put another layer on top of an already regulated industry,鈥� said Henry. 鈥淭here鈥檚 more documentation required than before, but overall we haven鈥檛 seen it impact our business enough to slow it down.鈥�
Dollar Bank works with clients of SWC Properties of Uniontown where broker Scott Cavinee has found that the new rules have contributed to more of a reversal process for a lot of qualified homebuyers.
鈥淲e now see people that are qualified not able to get a mortgage because banks are being more cautious than they need to be,鈥� said Cavinee.
The CFPB estimates roughly 92 percent of mortgages in the current marketplace meet the Qualified Mortgage requirements.
The regulations put into law practices that most lenders had already adopted in response to the recent housing crisis when some lenders made loans without checking a borrower鈥檚 income, assets or debt.
鈥淭here was a period of time money was easy to get and borrowers didn鈥檛 have to provide documentation and we didn鈥檛 do business that way,鈥� said Henry.
Over the last year, the Obama administration has been pushing lenders to make mortgages more widely available to responsible people looking to buy homes, the Washington Post reported.
With the new rules, lenders must now make a 鈥済ood-faith, reasonable effort鈥� under the borrower鈥檚 ability-to-repay rule to determine if applicants are likely to be able to pay off the mortgage.
By doing so, lenders are protected from borrower lawsuits when issuing qualified mortgages that follow the guidelines with debt-to-income ratios capped at 43 percent.
A debt-to-income ratio is one way lenders measure the borrower鈥檚 ability to manage the payments made every month to repay the money borrowed.
The ratio is calculated by adding up your monthly debt payments and dividing them by your gross monthly income.
Generally, any loan eligible to be purchased by Fannie Mae, Feddie Mac, and the Federal Housing Authority is considered a qualified mortgage for the first few years.
Excluded are interest-only and 鈥渂alloon鈥� mortgages as well as ones that increase the amount you owe or exceed 30 years.
Mortgage lenders must also look in depth at a customers鈥� income, assets, savings and debt, and weigh those against the monthly payments over the long term.
In 2012, only 12.8 percent of new mortgages didn鈥檛 meet the 鈥渜ualified mortgage鈥� standard, according to CoreLogic, a real estate data provider.
Henry said Dollar Bank has continued to take an active approach as a lender by going the extra mile to approve certain mortgage loans if they determine an applicant is still qualified even if they don鈥檛 meet the new criteria.
鈥淲e look at the borrower鈥檚 credit history of loan to value and if the borrower can demonstrate at that level then they鈥檙e OK,鈥� said Henry.
As long as they have documentation to back up their assessment, the CFPB said that lenders can offer any mortgage they believe a consumer has the ability to repay.
However, not all loans will be Qualified Mortgages, the CFPB stated.
While the application process is more time consuming with the new rules, Henry said that borrowers are informed to be prepared additional documentation may be needed, but not in all cases.
鈥淭he requirements are very meticulous and they want everything done in consistent, orderly fashion,鈥� said Henry.