Thursday, January 10, 2013

New Rules from the Consumer Financial Protection Bureau (CFPB)

The Consumer Financial Protection Bureau has issued new rules that will take effect Jan 21st.  Mortgage Lenders will have 1 year to implement the changes.  CNN Money had quick breakdown in an article they wrote.  Below are important questions and answers they put forth.

Which lenders do the rules cover? All companies that give out mortgages will be governed by the new rules -- big national banks, savings and loans, community banks and credit unions.
How is a "qualified mortgage" defined? The rules spell out what is called a qualified mortgage. To judge whether a loan is qualified, lenders must consider these factors:
  • Income and assets must be sufficient to repay the loan;
  • Borrowers must document their jobs;
  • Credit scores must meet minimum standards;
  • Monthly payments must be affordable;
  • Borrowers must be able to afford other debts associated with the property such as home equity loans;
  • Borrowers must be able to afford all home-related expenses such as property taxes; and
  • Lenders must consider a borrower's other obligations like student loans, car loans and credit cards.

What if a borrower doesn't meet all those guidelines? A homebuyer could still get a mortgage, but only if the mortgage payments don't exceed 43% of the borrower's pre-tax income.
What other requirements are there? When judging ability to repay, lenders can't use payments based on interest-only loans or so-called negative-amortization rates, in which mortgage balances grow over time.
They also can't use teaser rates, which adjust higher after a set term. Loan terms cannot exceed 30 years, and up-front fees, such as points paid to reduce interest rates, must not be excessive.
To be clear: The rules don't prohibit those unconventional types of loans. But lenders, in deciding whether to give out such a loan, must judge a borrower's ability to repay as if the loan were a conventional loan.
When will the rules go into effect? The rules start to kick in by January 21, but lenders will have 12 months to fully implement them.
What about jumbo loans? The ability -to-repay rule covers even the large, so-called jumbo loans, which are not backed by any government agencies such as Fannie Mae or Freddie Mac.
Are there any exceptions? People with subprime adjustable-rate mortgages or other risky loans who are refinancing can do so without going through the full underwriting process required by the new rules.
**The CFPB is also proposing that mortgages issued by certain non-profits for low-income homebuyers be exempt from the rules. The agency also wants to make exceptions for some refinacings made through the Home Affordable Modification Program and for some loans issued by small community lenders. These proposals, if approved, will be finalized this spring.
Today's Tidbit:  Hard to believe we are at the end of the 2nd week of Jan.  The year had just started and already we're rolling along.  For the most part everyone is in a great mood, of course that could be the afterglow of Alabama's dominating victory over formerly #1 Notre Dame in the BCS National Championship Orange Bowl down in Miami.  There's not many things that bring a community together more than a collectively joyful experience.  Sociologists call this a great collective mood enhancer for those affected by several weeks and at times several months depending on the situation, environment, and memories.  Back to Back championships are a rare thing in sports, 3 in four years becomes even more rare.  If you're listening to the national media, they talk about dynasties.  A true dynasty is the SEC winning 7 national titles in a row.  Alabama is on the right track and hopefully all the good will and great emotions will continue to flow to the rest us here in the state.

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