Here’s how the four new rules that started January 10th could affect you.
Rule #1: Borrower’s Debt-to-Income Ratio Can’t Exceed 43%
With the new rule you won’t be able to qualify for a loan if your proposed monthly mortgage payment, plus your existing monthly debt payments (such as car payments or student loans), exceeds 43% of your gross (pretax) income. That’s called your debt-to-income ratio.
This rule is meant to prevent lenders from offering more mortgage than you can afford to repay.
Rule #2: Capped Lender Fees
Lenders are not able to charge more than 3% of the loan amount in points and fees,which includes discount points, origination points/fees, and other fees that compensate the lender.
This is a regulation that is intended to make home ownership more affordable. But it does not include third-party charges such as those for escrowed taxes and insurance, notary fees, appraisal fees, flood hazard reports, pest inspections, document preparation, title insurance or credit reports, as long as these fees come from independent companies that are not affiliated with the lender.
If lenders can’t charge more than 3% on certain loans they might be less willing to offer those loans because they won’t generate enough revenue.
Rule #3: Exotic Loans Harder to Find
During the housing boom, there were a lot of interest-only, negative-amortization and balloon mortgages awarded. In these types of loans initial payments are low, but your debt grows, not shrinks, over time. These mortgages made people think they could afford homes they couldn’t and borrowers did not understand and thus lost their homes.
Regulators want to keep riskier loans from being resold as investments in an effort to stay out of any future housing crises.
Rule #4: Borrowers Can’t Sue Lenders that Follow the Rules
As long as a lender follows the new rules a mortgage will be considered qualified and the mortgage company can sell the loan to Fannie or Freddie, who are free to package them as investments.
Lenders issuing qualified loans are shielded from a lawsuit stemming from a homeowner that is foreclosed upon. A borrower will not be able to claim they were issued a mortgage they couldn’t afford.
Borrowers can still sue lenders in violation of other federal consumer protection laws, such as those banning discrimination.