No one wants to see another disastrous housing bubble, precipitated by fast, easy, unscrupulous loans to underqualified buyers. So many dreams up in smoke. So many families on the verge of bankruptcy. Never, never again.
Predatory mortgage lending practices during the mid-2000’s caused extreme financial duress to many unprepared families across the United States. They resulted in an unprecedented number of foreclosures and ultimately the nation’s financial crisis. It is estimated that predatory mortgage practices cost consumers over nine billion dollars every year.
Enter the Consumer Financial Protection Bureau (CFPB)
And although most lending institutions have already tightened their lending practices considerably, the Consumer Financial Protection Bureau (CFPB) wants to make sure that no one—lender or buyer—wheedles into an untenable home purchase.
Which is where the new mortgage rules come in. The new mortgage rules prevent consumers from purchasing homes that are beyond their means, thus preventing financial duress when reality hits and the unwary consumer realizes that they cannot pay the mortgage. In addition to helping individual home buyers, the new mortgage rules will hopefully circumvent another disastrous nation-wide housing bubble.
Enter the New Qualified Mortgage (QM)
Beginning January 10th, 2014, a new designation called a Qualified Mortgage (QM) will go into place. The new established standards apply to all lenders and 95% of current loans.
Qualified Mortgage (QM) loans have the following stipulations:
- Loan balance cannot increase as payments are made. (full amortization)
- Loan cannot exceed 30 years.
- Borrower must have the verifiable ability to repay the loan.
- Loan points and fees cannot exceed three percent.
- Lenders cannot use teaser rates to underwrite adjustable rate loans.
- Adjustable rate loans must use the maximum rate for the first five years of the loan.
- Financial incentives formerly paid to mortgage brokers for promoting higher cost loans rather than available lower cost loans (often to unqualified buyers) are now banned.
This is certainly a step in the right direction. We’ll continue to track this topic as the new rules roll out.
More Information on New Mortgage Rules
- AEIdeas: Let’s Not Repeat the Same Mistakes That Led to The Housing Bubble
- Center for Responsible Lending: 2014 brings New Rules to Mortgage Lending
- Center for Responsible Lending: Mortgage Lending: Research and Analysis
- Consumer Financial Protection Bureau (CFPB)
- Consumer Financial Protection Bureau (CFPB): Here’s What the New Mortgage Rules Mean for You.
- Fox Business: Everything You Need to Know About the New Mortgage Rules
- The Washington Informer: Special Report: New Mortgage Rules Take Effect