Under the qualified mortgage rule, from the Dodd- Frank legislation, mortgage lenders face greater legal liability if they make loans without ensuring the borrowers’ ability to repay. Mortgage lenders who originate “qualified mortgages” enjoy greater legal protections should those mortgages default.
Fannie Mae and Freddie Mac are already requiring more documentation of income and credit history of our borrowers due to the pressure of the pending QM. Bottom line, if the lender closes a loan that falls outside the parameters of QM, they are left with no protection from Fannie Mae or Freddie Mac.
A few examples of the pending changes for QM:
- Loans cannot exceed 43% debt to income ratio (this effects how we calculate income)
- Loans must be fully amortizing (no negative amortization or interest only loans)
- Loans may not have a term greater than 30 years (no 40 year terms)
- Loans must not exceed total points and fees in excess of 3% of the total loan amount
At this time, FHA and VA have not published much regarding QM. But, they will follow suit with their own qualifications.
In summary, QM will require stricter guidelines for the mortgage process. Customers will need to be educated on the pending changes to ensure realistic expectations when applying for a mortgage. Please feel free to contact me with any questions or concerns on QM changes.