How the 2014 Mortgage Rules Impact You

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Imagine that you're playing a game where the rules constantly change, and everybody is always confused about them (including the rule makers). Welcome to the 2014 mortgage industry! Here's the inside scoop: federal regulators came out with "final" mortgage rules in January 2013. They gave the mortgage industry a full one year to comply. Then, the regulators literally changed the rules 4 times since then. The latest changes came out in November, 2013... just two months before the deadline for compliance.

Last year, we asked the regulators for a final, final, final version of the rule so that we could read it in its entirety without getting confused by all the different versions. Their staff-lawyers replied, "Good idea! We don't have a final, final, final version of this created yet, but if you figure it out, please send us a copy!" This is NOT a joke. No wonder why everyone is so confused... So here's what we did: we broke down the new rules into three bite size pieces.

#1 - The QM and ATR Rule: What is it?

The US government has written some mortgage underwriting guidelines into federal law in order to make sure that borrowers have the "ability to repay" their mortgages. These guidelines are collectively known as the Ability-to-Repay (ATR) and the Qualified Mortgage (QM) Rules. The good news is that for the next seven years, all mortgages are considered "qualified" if they are purchased by Fannie Mae, Freddie Mac, or insured/guaranteed by the FHA, VA or Rural Housing Service (RHS).  This means that for most homebuyers, the new rules won't make the process of getting a mortgage in 2014 much different than it was in 2013.

#2 - New Debt Ratio and Annual Percentage Rate (APR) Requirements

Mortgages with lower APRs and borrowers with lower debt ratios get better treatment under the new rules.  (Your debt ratio is your total monthly debt and housing payments divided by your total monthly income.)  That's why it's probably a good idea for you and your mortgage professional to discuss ways of lowering your APR and/or your debt ratio. Here's how:
  • Consider less of a down payment in order to use the funds to pay off other debt and lower your overall debt ratio; or,
  • Consider more of a down payment to lower the mortgage payment; and/or,
  • Consider seller-paid points to reduce your monthly payment and/or the APR on your mortgage.
#3 - The New Appraisal Rules Under the Equal Credit Opportunity Act (ECOA)

The new appraisal rules require mortgage lenders to provide you with a copy of your appraisal three (3) business days prior to closing. However, you can waive this requirement if you sign a waiver 3 business days before closing. Either way, this could be a problem for you if the mortgage company doesn't get the appraisal or waiver to you in a timely fashion. Be sure to check with your mortgage professional to determine his/her policy in this area in order to make sure that your closings don't get delayed over this issue.

Please consult with a CMPS-certified professional for further information on any of these topics!
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HomeQB is the official housing and mortgage blog of CMPS Institute. CMPS Institute is a national organization that certifies mortgage bankers and brokers. Our mission is to help homeowners and homebuyers improve their lives by using the right mortgage strategies.

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