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Avoiding Homeowner Loan Delinquencies And Foreclosure: with CFPB's new "Ability To Repay" Rule
Are you behind in your mortgage payments, or know someone who might be? Have you received a preforeclosure letter from your lender? Use Home Destination's mortgage worksheet to help secure your ability to stay in your home.
The National Association of Mortgage Professionals (NAMB)immediately affirmed the Consumer Financial Protection Bureau (CFPB) announcement of the Ability-to-Repay rules mandated by the Dodd-Frank Act, also known as Qualified Mortgages (QMs). NAMB regards themselves as a proponent of homeowner rights working to ensure that struggling home loan borrowers have the ability to repay mortgage loans and buy a home with better mortgage disclosures.
Reducing Borrowing That Over Stretches The Homeowner
The CFPB released mortgage standards aim to help stop home foreclosure due to the type of risky lending that caused the housing market crisis. "The rule defining a 'qualified mortgage' really means one a borrower can actually be expected to pay back, while eliminating questionable loans that stretched homeowners to the capacity that many faced foreclosure and couldn't stay in their homes. We would like to see the regulations loosen choking loan standards by limiting bankers' liability for home loans that can be sold to mortgage giants such as Fannie Mae and Freddie Mac," says Jenna Thuening, owner of Home Destination.
Ability-to-Repay Rules Help Homeowners in Minneapolis MN Avoid Foreclosure
The CFPB’s efforts to reach out to the housing industry for feedback regarding these rules is positive as the Bureau has the enormous and challenging role of creating a rule to protect consumers from poorly-designed loans, such as pay-option ARMs and no-doc loans. In the balance, the CFPB also cannot limit home buyer choice by creating an uneven playing field between the “Too Big to Fail” institutions and the thousands of small businesses originating loans today. The sticky point is with the QM rule surrounds the Dodd-Frank Act’s mandate of a three percent cap on points and fees. Homeowners need the primary protection of better disclosure and training included in the sieving of applicants that ensures their ability to repay the loan.
"Homeownership is the key to wealth generation in this country for many Americans. Overly restrictive definitions of the QM could lead to many Americans being forced into a permanent class of renters. NAMB membership works to protect equal access to credit for all consumers, not just those whom can afford to buy more expensive houses." ~ NAMB President Don Frommeyer.
Ability-to-Repay Rules Help Homeowners Avoid Foreclosure
Home Destination Sees The Top Features of A Quality Mortgage As:
Excess upfront points and fees are not allowed: A QM limits points and fees previously used at times to embellish loan originator compensation, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, resulting in responsible borrowers paying a lot more than anticipated when buying and home needing better mortgage disclosures. If reviewed well at the point of the loan application, hopes are to avoid homeowner loan delinquencies from happening later.
No toxic loan features: A QM cannot be created with overly risky loan features, such as terms that exceed 30 years and interest-only payments where the homeowners' loan principal amount increases. In the lead up to the crisis, too many home buyers took on risky loans that they didn’t fully comprehend. They didn’t realize their debt or payments may increase and catch them unable to make monthly payments.
There's a limit on what percentage of a homeowners income can go toward debt: QMs are anticipated to have approval for homeowners who have debt-to-income (DTI) ratios less than or equal to 43%. This requirement helps ensure home buyer are safer, only gaining a mortgage that they can likely afford. Before the housing crisis, many borrowers took on home loans that raised their debt levels to a height that challenged repayment considering all their financial obligations or any income upsets.
Eliminate risky negative-amortization: where the homeowners amount owed actually increases at some point because the borrower does not even pay the home loan interest and the unpaid interest gets added to the amount borrowed.
Both Homeowner And Lenders Can Win When Someone Buys A Home
A strong emphasis is placed on creating a win - win scenario when a resident buys a home. A lack of quality loans and clear mortgage disclosures have hindered the success of too may potential home buyer loan applicants. According to White House comments about the New rule, "Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial incentives – that both of them win when borrowers can afford their loans".
The Bureau's announcement addresses past failures to verify the applicant's income or debts and that lenders qualified home buyers for mortgages based on “teaser” interest rates that would cause monthly payments to jump to un-affordable levels after the first few years. While the home buyer was able to enter into the American dream of owning a home, when the monthly payments jumped to new levels, many have been trapped financially, unable to make monthly payments and eventually fell so far behind they lost their homes to foreclosure, damaged their credit ratings, and were forced out of their homes. The new rule is meant to taken better care of reviewing the home buyer's application and ability to pay in advance to avoid later problems.
Twin Cities Home Buyers Need Terms They Can Trust
The Bureau expects to finalize the concurrent proposal this spring so that affected creditors have time to make full preparations for the January 2014 effective date. However, many lenders are already implementing the measures.
In a January 10th posting titled Assuring Consumers Have Access to Mortgages They Can Trust, the CFPB made the following points:
It's great for homeowners because the impact on their credit is less harmful than in a foreclosure. You may be able to buy another home in as little as two to three years after a Short Sale, versus a typical seven-year wait after a foreclosure.
To qualify for a home loan, the home buyer must have sufficient assets or income to pay back the loan.
Lenders must determine the borrower’s ability to repay both the home loan principal and the interest over the long term − not just during an introductory period when the rate may be lower.
What Makes Up An Ability-to-Repay Determination
Impacting the national and local Minneapolis real estate recovery, at a minimum, the general rule is creditors must evaluate the following eight underwriting factors:
current or reasonably expected income or assets
current employment status
the monthly payment on the covered transaction
the monthly payment on any simultaneous loan
the monthly payment for mortgage-related obligations
current debt obligations, alimony, and child support
the monthly debt-to-income ratio or residual income
the home buyers credit history
The Dodd-Frank Wall Street Reform and Consumer Protection Act
Contact a Minnesota Certified Distressed Property Expert; there are still steps you can take that will help stop your foreclosure. At a minimum, the general rule is creditors must evaluate the following eight underwriting factors:
It has long been recognized by real estate professionals and housing market leaders that The Dodd-Frank Wall Street Reform and Consumer Protection Act left a need to mandate that lenders ensure consumers have the ability to pay back their mortgages. Under the law, responsibility for drafting the Ability-to-Repay rule initially fell to the Board of Governors of the Federal Reserve System. Over time, the CFPB took responsibility, and in July 2011 began creating the Ability-to Repay draft. The Act also provides the CFPB the authority to define criteria for certain loans called “Qualified Mortgages” (QM) for an applying definition to meet the Ability-to-Repay rule requirements. How loose or broad the definition is will bear tremendously on homeowners ability to gain a quality loan in the future.
Lenders, investors, housing professionals,consumer advocates and civil rights groups wrote to the CFPB "to urge that a broadly‐defined Qualified Mortgage (QM) be central to the forthcoming Ability to Repay regulation". See document attached below.
Additional Resources And Important Documents To Read
Download the Federal Reserves Tips To Protect Yourself Against Mortgage Relief Scams provided by The Federal Reserve Board.
Download the CFPB's newly announced Homeowner Ability To Repay Rule.
Download the CFPB's Ability To Repay A Qualified Residential Mortgage Factsheet giving the rule's history.
Download RE/MAX Results List of Tips To Avoid Foreclosure and Homeowner Loan Delinquencies.
Download the Industry Letter to the CFPB Requesting A Broad Qualified Residential Mortgage (QM) Definition
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