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New Federal Rules for Lending Aimed at Reducing Defaults and Lawsuits

The federal government has changed the requirements for mortgage qualifications.  This news came out the end of January and signals a change in the processes that have been followed recently for mortgage qualifications.  The stated reason for this change is to ensure that people taking out the mortgages will be able to repay them and not foreclose.  According to David Neylan, Guild Mortgage vice president of correspondent and wholesale lending, said, “They want to make sure lenders are giving loans to borrowers who can afford to pay back those loans.”

The Consumer Financial Protection Bureau introduced new mortgage-lending rules on Jan. 10th and dubbed it “Qualifying Mortgage” or QM for short.  GM will meet new guidelines which have repayment ability requirements built into the mortgage terms before it will be approved.

A list of qualified mortgage requirements includes:

  • Terms cannot exceed 30 years
  • Terms cannot include interest-only payments or payments which allow for the home loan debt growth each month
  • Cannot charge more than 3% upfront points and fees for loans above $100,000
  • Cannot include balloon payments
  • Cannot push barrow’s debt load above 43% of monthly income

All of these new requirements were instituted to ensure that a crash like the 2008 Great Recession doesn’t occur again.  All of these protections are, of course, optional.  They are for the benefit of the lending institution and the purchaser to reduce the risk of default, lawsuits, and foreclosures.  It is also important to note, that while this is the first time that these laws, or similar, have been ratified, most lending institutions adopted similar guidelines after the housing market burst of 2008.

Looking ahead for the North San Diego County real property management industry, it appears as if the market is definitely moving toward stasis, as we have reported.  This is important for the area, with the investors knowing that they are in a secure industry, as well as a growing and booming economy.  2014 is shaping up to be one of the strongest and most stable years in recent memory for the area, making it an ideal time and place to purchase and invest in real estate.

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