Friday, January 11, 2013

New Definitions of a "Qualified Mortgage"

The Consumer Finance Protection Bureau (CFPB) is attempting to redefine who is able to qualify for a mortgage. The CFPB is redefining the term “qualified mortgage” (QM). Lenders will technically have the option of making “unqualified” mortgages to borrowers who do not appear to have the resources or inclination to repay those loans. However, if the loans subsequently go into default, the lender would be open to lawsuits from federal agencies, mortgage insurance companies, and even the borrowers themselves. As a result, lenders are unlikely to make loans that do not comply with QM guidelines . So why are they called “guidelines” if there is a HUGE hammer behind them!!! LOL The guidelines will be much stricter than they have been in the past. Many homeowners and consumer advocate groups actually protested the redefinition of the term out of fear that changing the rules of lending could “effectively close off homeownership to millions of Americans and derail the real estate recovery”. Ultimately, the CFPB decided that it was more important to get lending policies under control. They promulgated a series of regulations that the CFPB believes will help lenders identify borrowers and lending parameters that will work for everyone. A QM now requires the following: 1. That lenders must obtain and verify an applicant’s financial information, including employment status, income, debts, assets, and credit history; 2. The potential borrower must have enough income and/or assets to repay the loans; and 3. “Teaser rates” may no longer be used to hide the “true cost” of a mortgage. This seems relatively simple and straightforward, but in reality the ruling and regulations are not complete nor are they simple. Once the information is disseminated and verified, a myriad other factors must be addressed and the CFPB is not done drafting its new rules. The American Bankers Association (ABA) president Frank Keating warned in response to the new QM guidelines that the CFPB will ultimately “transform our lending practices and could restrict access to credit.” Yippee, more government solutions that are worse than the problem they are trying to resolve!!
Paddy Deighan J.D. Ph.D

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