New Lending Changes Coming in 2014

1. If you don't know what "QM" and "ATR" stand for yet, now is a good time to learn because you are sure to hear a lot about them in the months ahead. QM stands for "Qualified Mortgage" and ATR stands for "Ability-to-Repay." They need to be on your radar screen because they are the center-piece of a new set of mortgage rules set to roll out on January 10, 2014 that are a requirement of the seemingly never-ending Dodd-Frank Wall Street Reform and Consumer Protection Act. Attached is a thorough overview of the rules but below is a briefer summary of the key things you need to know.

2. Effective with the new set of rules, lenders will only be able to offer "Qualified Mortgages" that meet "Ability-to-Repay" standards. The intent is to eliminate many of the risky mortgage programs that caused the mortgage collapse five years ago.  Obviously, there are many politicians clueless to the fact that the industry has already naturally reacted and even over-corrected. Nevertheless, expect even more underwriting scrutiny moving forward as there is more at stake than ever for lenders to substantiate and document a borrower's income, debt, credit, and assets. Needless to say, there will only be "full doc" loans offered in the future.
3. Outlawed loan types moving forward include negative amortization, interest-only, balloons, and amortization periods over 30 years. No major losses on this list.
4. The most threatening new rule is a cap of 43% on the debt ratio. You are certain to hear a lot about this new cap but be aware that for the next seven years this cap does not apply to any Conforming, FHA, VA, or Rural Housing loans that get an automated approval. Fortunately, this is most of the loans made in 2013! Not sure what the significance of seven years is but unless this is overturned, the number of loans lenders can make is going to drop a lot in 2021 because a large percentage of loans made today do have debt ratios over 43%. For now, the greatest impact with this cap will be on Jumbo loans > $417,000.
5. A few other rules worth mentioning:

• There will be a cap on the points and fees that lenders can charge of 3% of the loan amount for loans > $100,000. Up to two additional discount points that are used to buy down rate will be allowed. There is ongoing discussion about which fees are part of the 3%. In its current state, this rule will give the consumer fewer mortgage options which is not a good thing. For example, programs that allow the borrower to pay for the PMI in advance rather than monthly might no longer be allowed.

• ARM loans must be underwritten at whatever the maximum possible loan rate is over the first five years of the loan.

• Another victim of this law is the Conventional 3% down loan. The minimum down for all Conventional loans moving forward will be 5%.

6. One of the key components of the new rules is the fact that borrowers who have been foreclosed on will actually have the ability to sue lenders claiming that they did not have ability to repay. Lenders have a "safe harbor" from such lawsuits, however, if they properly document loans and keep the interest rate on the loan within 1.5% of the "Average Prime Offered Rate" (APOR). You can bet that lenders will be going to a lot of trouble to only offer loans that meet the safe harbor requirements.  

Thanks to my buddy Mark Moore with Shelter Mortgage for this info!

Great article about some important things for Buyers to know when looking for a home. It claims that these are items an agent won't tell you, but my clients get all this information from me up-front!

10 Things Your Real Estate Broker Won't Tell You

How the Government Shutdown is affecting real estate transations

The government shutdown has long-reaching impacts, particularly on the lending side.  Here are some of the highlights:

Internal Revenue Service (IRS)The IRS is closed and has suspended the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. We have received indications that many loan originators are adopting revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac have also adopted relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans. 

Social Security Administration (SSA)The Social Security Administration is closed and has suspended most customer service functions. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service will also be suspended during the shutdown, a further complication for mortgage processing. As with IRS income verification, policies vary among lenders, with many choosing to exercise forbearance during the shutdown period subject to subsequent verification. Fannie Mae and Freddie Mac have also adopted policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.
Federal Housing AdministrationHUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program, but it will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. Management & Marketing (M&M) Contractors managing the REO portfolio can continue to operate. You can expect some delays with FHA processing. 

VA Loan Guaranty ProgramLenders will continue to process and guaranty mortgages through the Loan Guaranty program in the event of a government shutdown. Expect some delays during the shutdown.  

Flood InsuranceThe Federal Emergency Management Agency (FEMA) confirmed that the National Flood Insurance Program (NFIP) will not be impacted by a government shutdown, since NFIP is funded by premiums and not tax dollars. Changes to the flood insurance program scheduled to take effect on Oct. 1 will be implemented as scheduled. 

Rural Housing ProgramsFor the U.S. Department of Agriculture programs, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lenders will not receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.
It is important to note that the traditional definition of “rural” for qualifying communities for assistance will be continued in effect during the shutdown.  We expect that language to continue the current definition will be included in whatever funding measure is eventually enacted. 

Government Sponsored EnterprisesFannie Mae and Freddie Mac will continue operating normally, as will their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds. 

TreasuryThe Making Home Affordable program, including HAMP and HAFA, will not be affected as the program is funded through the Emergency Economic Stabilization Act which is mandatory spending not discretionary.

Several sources predicting a continued rise in home prices!

The past 6 months have seen a real surge in the housing market.  I know I personally have been swamped, which is fantastic!  Inventory is incredibly low and homes are selling faster and for more money than I have seen in years.  Recently several national sources have come out with studies supporting what I have personally been seeing and predictions that this great market will continue. Great news!  If you have been considering selling your home, now is the time! Most of my listings since November have sold in less than a week and for at least 98% of the list price (if not OVER list price).  I would love to help yours do the same!

Check out these articles for more information about the improved housing market we are seeing:

Fannie Mae: Confidence in Home Price Gains Reaches Record Levels

Firm Forecasts 8% Increase in Prices, Decrease in Mortgage Rates

CoreLogic: Home Prices Post 12.1% Annual Gain in April

How to pick the right mortgage

Great flow chart to help you figure out what your best loan option is!

Compliments of one of my favorite lenders, Kim Jones with Fidelity. If you have any questions, please contact her: kim.jones@lionbank.com