A Comprehensive Guide to Qualified Mortgage (QM) Law
After the great collapse in the housing loan market back in 2009, it was important that some rules were formed in order to encourage a healthy loan lending process. With the new qualified mortgage rules in action, it is an honest attempt by the government and other stakeholders to avoid the recurrence of such a massive meltdown. The main idea behind the new rule is the availability of safe mortgage or qualified mortgage where the lenders ensure that the borrowers are able to repay their loans.
The qualified mortgage law also helps protect lenders against lawsuits filed by borrowers in the future due to rebuttable presumptions on the issuance of loans which are qualifying for a mortgage. This rule aims to reduce the chances of casual lending of loans to borrowers. Here is the complete guide to help you understand the qualified mortgage rules.
Key Elements of the Qualified Mortgage Rule
Staying updated with the latest changes in the mortgage industry can be advantageous for various businesses. Here are some of the key elements of the new qualified mortgage (QM) rule -
Under the new QM rule seller financers won't be covered as long as they process five or lesser transactions in a year. The seller financers still have to follow the rules as laid down by CFPB that requires seller financers who have completed more than three registrations in a year to register
Rural Balloon Loans
Some of the rural properties don't exactly fit in to the mortgage lending criteria due to many factors such as a lack of comparable properties, etc. For such instances NAR has supported lenders so as to provide balloon mortgages in underserved rural areas once they qualify for the same
Small Community Lenders
NAR also supports a new qualified category of mortgage that offers further flexibility to small lenders. This could again apply to rural areas and also to other areas, thereby proving helpful to small and medium sized community lenders
Low Dollar Amount Loans
NAR supports raising the 3% cap for loans which belong to the low dollar amount category. The fixed costs involved in providing a home mortgage or loan could make it unprofitable for the lender to lend a low dollar amount loan. As a result, with the cap being raised, more lenders would be interested in servicing the borrowers
Standards for Large Loans
The qualified mortgage rule could impact the costs and availability of mortgages that tend to be over and above the set limit for lending to FHA, Fannie May, and Freddie. Loans above the set dollar limits are also known as Jumbo loans. The biggest concern for writing standards for qualified mortgage will be jumbo loans which have DTI above 43%. These type of loans may be a small part in the market, but at the same time the new QM rule may have an effect on lending in high-cost areas
Fees and Points - 3% Cap
One of the key elements of this new QM rule under the Dodd Frank Reform Act is that the amount of points and fees charged will not be greater than 3% of the mortgage value. At the same time, the QM rule does not consider numerous items in fees and points while determining the purposes for meeting the 3% cap
Other Key Qualified Mortgage Guidelines
- Loans terms are considered as risky loans if they exceed a term of 30 years
- The new rule mandates that processing and closing charges cannot exceed 3% of the loan amount but certain exceptions are made for 'bona fide discount points' on prime loans
- The total debt of a borrower should not be more than 43% of his total income which includes car repayment dues, credit card, loan repayment amount, etc.
- The QM rule encourages healthy lending practices and makes sure that borrowers only go for loans which they can repay
- The new rule makes it difficult for borrowers to get a loan but it is presumed that over 90% of the loans given now follow the QM rules as lenders are cautious before giving out loans
Stay Up-to-date with the New Qualified Mortgage Rule with Outsource2india
Outsource2india has been in the mortgage industry for more than 24 years now and has serviced several clients around the globe. Right from pre-qualification to loan processing and loan closing, we have the relevant experience to provide necessary, high-quality mortgage services. Our business executives completely understand the various changes in the mortgage rules, the effect of new mortgage rules, and are updated with latest regulations.
If you have any kind of mortgage service requirement, feel free to get in touch with us and we will get back to you within 24 hours.