The Qualified Mortgage grants the creditor greater protection from potential liability. Under this rule, lenders cannot include toxic features such as negative-amortization “option ARMs” that increase borrowers’ debt with each monthly payment, or excessive upfront points and fees (these will be limited in most cases to 3 percent of the loan amount).
Qualified Mortgage loans will generally have to be made to borrowers who have debt-to-income ratios less than or equal to 43 percent, though a temporary exception allows Qualified Mortgage status for higher ratios if the loans are eligible for purchase by mortgage giants Fannie Mae, Freddie Mac, the Federal Housing Authority and some other government programs. Another exemption allows certain small lenders to issue Qualified Mortgages with ratios over 43 percent.
The new rules also help speed up the process of getting a mortgage by giving lenders the authority to reject outright credit-report information if a borrower can prove that it’s wrong. “That’s a huge deal,” said Jeff Lazerson of Mortgage Grader in Laguna Niguel, Calif. “It’s monster-good.”
Richard Cordray, director of the bureau, recently told the Mortgage Bankers Association that most of the home loans granted now would be considered qualified mortgages.
Some in the mortgage industry, however, say that getting a loan could become harder for some borrowers, especially those in lower paying jobs, retirees or entrepreneurs whose income fluctuates.
“If you’re trying to stretch to get into a home, it is going to have an effect on you,” said Ryan Grant, sales manager at Imortgage in Newport Beach, Calif. From the lender’s perspective, he added, “You will have to have some really good compensating factors to go outside of that (Qualified Mortgage rule).”
The people most impacted won’t be the wealthy, Walters said. “It’s going to be the people who traditionally are the first-time homebuyers, the ones who have the most challenge getting a loan.”
Lenders don’t have to adhere to the Qualified Mortgage rule. But if they don’t, they don’t get legal protection if the buyer defaults for a reason that should have been foreseeable.
“If the loan is originated as a (Qualified Mortgage) loan and then is later found to not be … the lender can be exposed to a possible lawsuit or repurchase of the loan, both of which very costly,” said Joe Soto, vice president of mortgage lending for Guaranteed Rate in Los Alamitos, Calif. “What we have done and what most lenders will likely do is try to keep everything the same … to make sure there is no second-guessing.
“At the end of the day, if there is more risk for the lender, then there will be more pressure on the borrower to prove the ability to repay,” he said.
