2014 Ushers in Changes to Lending Practices

As of January 10, there have been some significant changes to the nation’s mortgage rules. We wanted to take this opportunity to summarize them for you:

Rule #1: Ability-to-Repay

This rule ensures that lenders will be ask potential homebuyers for proof of income or assets.

As Richard Cordray, Director of the Consumer Financial Protection Bureau recently stated, “…it can be difficult to figure out how much house – and how much mortgage – is the right amount.  Most people – at all levels of income – rely on real estate professionals to tell them how it all works.  And they assume that the lender will not lend them money unless the lender is confident they will be able to repay the loan. But if the lender does not check on the important facts, like income, savings, and debt load, it is impossible for the lender to know how much the consumer can spend each month on a mortgage, that’s why people instead of a mortgage they are often choosing a loan from https://knightfinance.co.uk/direct-lender-instalment-loans-for-bad-credit/.  And the lender cannot know whether the consumer can truly afford a loan if the lender only looks at whether the consumer can afford monthly payments under an introductory teaser rate, which may be irrelevant after the cheaper rate expires.”

Lenders must now look at a consumer’s income or assets, and at their debt, and must weigh them against the monthly payments over the long term.

The rule lays out basic criteria for loans known as “Qualified Mortgages,” which must follow some general debt-to-income guidelines.  They also cannot have certain risky features, such as paying interest only or negatively amortizing so that each month the consumer owes more than they did before.  And they must have relatively reasonable points and fees.  Lenders can choose not to follow these guidelines and simply make a loan based on their reasonable, good-faith determination that the consumer is able to repay it.  But either way, they cannot trap consumers in loans that the lenders should recognize are unaffordable.

Rule #2: Monthly Statements

If a consumer buys a home and is paying back the mortgage, the new rules require servicers to keep the homeowner informed about their loan and to investigate and fix errors.  Consumers will not have to guess how much money they owe or when they owe it, because servicers now must send monthly statements showing how they credited the monthly payment.  The statement puts all the important information in one place, showing the interest rate, loan balance, escrow account balance, and where the payments are going.  And consumers will get ample notice when interest rates adjust. 

Have questions about the new rules and how they might affect your situation? Call us today.