How Will the 2014 Mortgage Rules Affect Your Ability to Buy Catskills Real Estate in New York?
"No debt traps. No surprises. No runarounds. These are bedrock concepts backed by our new common-sense rules, which take effect today," - Consumer Financial Protection Bureau Director Richard Cordray, January 10, 2014
Last week the Coldwell Banker Village Green Realty "fam" met with a professional at Ulster Savings Bank to discuss how the the Mortgage Rules instituted by the Consumer Financial Protection Bureau this January might affect our buyers.
In the past 7 years I've bought 3 different homes. They were all for my family to actually LIVE in. So, I know exactly how nerve wracking fretting about whether you'll qualify for a mortgage can be. I've done it a bunch. That form of Real Estate nerves is trumped only by fretting over if you'll be able to afford the mortgage you've qualified for for the life of the loan.
About 5 years ago I qualified for a mortgage on a house that I knew very well I would never be able to pay. I couldn't believe that a bank would lend me that much money! Were they nuts? I didn't go through with it because despite the great location, 6 working fireplaces and awesome vibe of the house, it gave me agita to think of scrambling to make that monthly payment. My point is that the mortgage rules were lax enough that people with less anxiety than me got themselves into some really tough positions. My advice to friends has always been "Don't take on a mortgage that you qualify for, take on a mortgage that you can afford - they might not be the same thing". The new mortgage rules are meant to change that. My friends will be so psyched that now they can be protected by mortgage regulations instead of my rarely solicited advice.
Here's the good news about the 2014 Mortgage Rules - they're built to protect you from over-optimistic lending practices.
The new Consumer Finanacial Protection Bureau rules protect both consumers and the economy from another mortgage crisis. If your goal is to buy a home that is within your means, then these rules are going to contribute to your desired lifestyle. You'll be able to sit on your living room couch and enjoy your home instead of fretting about your upcoming mortgage payments. Now that's domestic bliss.
Here's the short version of what you need to know about the new rules to purchase Catskills Real Estate. Mortgage lenders need to comply with 2 new rules in 2014.
1. The Ability to Pay -
- Lenders must verify that mortgage applicants have the income and assets to pay mortgage payments over the life of the loan (not just during a short-term teaser rate). They verify this, in part, by calculating your debt to income ratio. To figure out your debt to income ratio, add up all your monthly expenses including student loans, utilities, credit card payments, car payments and any other regular monthly costs you have. Then divide by your monthly gross income (I know, some of you may feel that your income is really disgusting, but for these purposes "gross income" means the amount of money you make before taxes are taken out). Generally your debt to income ratio needs to be below 43% to qualify for a mortgage, but there are exceptions made for applicants with significant non-cash assets. They also check your credit score.
I've read some articles that claim that these practices will result in more paperwork and longer processing times for applicants. Honestly, every time I've applied for a mortgage in the past 10 years I had to submit all of the above documentation - perhaps it was the type of mortgage I was applying for, or the scrupulous lenders I chose to work with - but from my perspective this doesn't seem like a giant change. In fact, with the technological advances in the last two years in on-line document processing I'd hazard a guess that if I were to apply for another mortgage right now my processing time would be less than it was the last go-around. Here's my point, if you've applied for a mortgage in the last 10 years for which you had to provide ducumentation of income and expenses you shouldn't really be nervous about the new rules causing you loads of additional paperwork - it will probably be equally painful, or less so, than last time. Filling out paperwork is a reality of getting a mortgage you can feel comfortable with. Put on some good music and get some of that sticky stuff you put on your fingers to help you flip through papers easily (I love that stuff) and go to town.
2. Qualified Mortgages - Under the new 2014 Mortgage Rules mortgages have to be "qualified". Here's what that means.
- Borrowers need a debt to income ratio lower than 43%, if they have a higher debt to income ratio they need additional assets to secure the loan.
- The mortgage can't include high risk features like terms longer than 30 years, interest only payments that never pay off any of the principal on the loan (ugh), or minimum payments that don't keep up with the interest on the loan causing the principal balance to actually grow (double ugh)!
- Upfront costs like title insurance, origination fees, and points paid to lower the long-term interest rate can't add up to over 3% of the loan balance.
All of this seems good for the consumer right? Here's the other good part about the new rules: they're not meant to prevent first-time home buyers from obtaining a mortgage. Mortgages with less than 20% down (even with 5% down) are still going to be available for those with a good credit score and debt to income ratio. Phew. Also there's no must-have credit score built in to the rules.
For most people getting into a house isn't going to be much harder than it was a few years ago, but it might just be a little safer. Below is a full re-print of a flyer published by the Consumer Financial Protection Bureau that goes into much greater detail than I have here. But, if you have further questions you should feel free to get in touch with Ulster Savings Bank. I worked with Ulster Sainvgs Bang to get two out of my three mortgages, they're great.
What the new CFPB mortgage rules mean for families and homeowners. Mortgage rules Beginning in January 2014, some new CFPB rules will provide homeowners and consumers shopping for a home mortgage with new rights and greater protection from harmful practices. These rules should eliminate or sharply reduce the runarounds and painful surprises that hurt so many homeowners during and after the financial crisis.
Safer mortgages with fewer surprises. Virtually every mortgage a lender makes must now be evaluated based on the borrower's ability to repay that loan. That means the borrower should be able to repay the loan for many years, not just during the first few months when an initial "teaser" interest rate may keep the monthly payment low. Lenders can determine a borrower's ability to repay a loan by considering factors like the borrower's income, assets, debts, and credit history. The CFPB rules also define a new class of mortgages for which borrowers who qualify are presumed to be able to repay. These mortgages are called "Qualified Mortgages" or "QMs." QMs are designed to be safer and easier to understand than many of the loans consumers got in the lead-up to the financial crisis. Any lender who wants to make a Qualified Mortgage will have to follow common sense rules:
A Qualified Mortgage is a loan a borrower should be able to repay. Beginning on January 10, 2014, lenders making virtually any residential mortgage loan will have to assess a borrower's ability to repay the loan. A Qualified Mortgage is presumed to meet this requirement. A Qualified Mortgage is a loan that avoids risky features and meets other requirements (you can read about those requirements below.) In general, the borrower also must have a total monthly debt-to-income ratio including mortgage payments of 43% or less.
A Qualified Mortgage is safer and easier to understand. QMs can't have risky features like negative amortization or interest-only payments.
A Qualified Mortgage should be a fairer deal. The new rules limit the points and fees lenders can charge when they want to make a qualified mortgage. This requirement responds to the the extremely high points and fees some borrowers paid during the mortgage crisis. A loan over $100,000 can't be a QM if it has points and fees that are more than 3% of the loan amount.
Improved protections against steering. Anyone who is paid to offer, arrange or assist you in finding a loan can't be paid more to steer you into a higher-cost mortgage. If you pay someone directly in connection with a mortgage loan, that person generally can't also be paid by someone else for the same transaction. A flexible market for mortgages.
A Qualified Mortgage is easy to find. QMs can be issued by nearly any type of lender. Additionally, for as long as the next seven years, loans eligible to be purchased, guaranteed, or insured by the VA and USDA or which are eligible to be purchased or guaranteed by Fannie Mae and Freddie Mac (socalled "conforming loans") are automatically QMs if they meet certain product requirements. Under HUD rules, loans insured or guaranteed by the FHA or HUD are also QMs.
The Qualified Mortgage provides one way to meet the ability-to-repay requirement. But, with the exception of no-documentation and lowdocumentation loans, the new CFPB rules do not ban certain kinds of mortgages. The rules do say that lenders have to make a reasonable, good-faith effort to determine that a consumer can repay a loan basedon their documented income, assets, debts, and some other common factors.
New rights put an end to the old runarounds. We are now requiring mortgage servicers to send you a clear monthly statement so you can see how they are crediting your payments. § We require mortgage servicers to fix mistakes promptly.
We require mortgage servicers to credit payments as of the day they get them.
We require servicers to give you early notice if you have an Adjustable Rate Mortgage and your interest rate is about to change. This should give you more time to shop for a new mortgage or get help if you have trouble with the new payment. Borrowers who fall behind now have more options to take control.
Mortgage servicers will now have to call or contact most borrowers by the time they are 36 days late on their mortgage.
Under the new CFPB rules, servicers, with limited exceptions, cannot initiate a foreclosure until a borrower is more than 120 days delinquent. This should give borrowers time to submit an application for a loan modification or other alternative to foreclosure.
Mortgage servicers can no longer start a foreclosure while they are also working with a homeowner who has submitted a complete application for help. The new CFPB rules limit the harm to consumers of "dual tracking."
Mortgage servicers now have to make sure the people who take calls from borrowers are able to answer questions and have access to critical documents.
Servicers will have to give homeowners who ask timely, accurate information
The new CFPB rules require mortgage servicers to help borrowers who fall behind on their mortgages to know all the options available to them. If a borrower submits a complete application for assistance early enough — usually this is called a "loss mitigation application"— the mortgage servicer must evaluate the borrower for all the options that may be available to the borrower. These new rules should eliminate the need for multiple applications to be considered for different foreclosure alternatives.
If the mortgage servicer denies a complete loss mitigation application sent in soon enough before foreclosure, the servicer must explain why the borrower was rejected. A borrower who filed a complete application soon enough before foreclosure is entitled to appeal mistakes the servicer may have made in evaluating the borrower for a loan modification.
We will stand with borrowers and homeowners to ensure financial institutions treat them properly. Congress created the CFPB to make sure financial markets work for consumers and one way we do this is by writing rules for mortgages and other consumer financial products. Congress charged the CFPB with supervising financial institutions with respect to the new rules and with enforcing the new rules. The CFPB also accepts complaints about mortgages, so if you have a problem, you can submit a complaint to the CFPB. We'll forward your complaint to the company and work to get a response from them. You can contact the CFPB at (855) 411-2372 or consumerfinance.gov/complaint. However, the CFPB does not directly work with borrowers who need help with a new or existing loan. If you need assistance buying a home or understanding alternatives to foreclosure, you can reach an expert HUD-approved housing counseling agency by calling 888-995-HOPE (4673).
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