What a Qualified Mortgage Is and How New Mortgage Rules Will Affect You

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On January 10, 2014, new mortgage rules went into effect. The Qualified Mortgage rules that have now been implemented were designed to prevent another housing crisis. The new regulations will require banks to assure that the borrowers can repay loans.

The goal of these new regulations is to prevent another housing bubble and to provide safer loans.

What is a Qualified Mortgage?

A Qualified Mortgage is a type of mortgage that meets a new set of standards set by the federal government.

Borrowers who qualify for this type of mortgage have been deemed to have the ability to pay for their mortgage. By issuing these types of loans, the lender is protected against lawsuits if the mortgage goes bad.

Qualified Mortgage Features

The following are features of Qualified Mortgages.

  • Points and fees charged to the borrower during the mortgage process and the closing will not exceed 3% of the total loan amount.
  • Prohibits interest-only loans. An interest-only loan is when the borrower only pays on the interest and in turn defers the principal payment.
  • Eliminates negative-amortization loans. Negative-amortization loans are loans where the principle of the loan increases over time, even if the borrower is faithfully making the monthly payments.
  • 30-Years or Less. The length of these loans must be 30 years or less.
  • Debt-to-Income ratios are now limited to 43%.

Affects of the New Mortgage Rules

According to Forbes.com,

 “The new rules could affect people particularly in the middle class and Midwestern region, where home prices (and thus loan amounts) tend to be lower. The reason: the new rules effectively limit the fee a mortgage broker can charge, which in turn makes loans under a certain cap not profitable for mortgage brokers.”

Forbes goes on to report that the loans between $110,000 and $160,000 are those most likely to be affected. Don Frommeyer, president of the Association of Mortgage Professionals, confirms that this is the core of where the problem is.

Banks Continue to Issue Non-QM Loans

Some banks are reporting that they will still be issuing non-QM loans. Banks who choose to do this will not sell the loans to Fannie Mae or Freddie Mac. Instead the bank will be responsible if the loan goes bad.

What do you think?

How will these new features affect the housing market? Do you think that they will have a negative or positive effect?