Overview Of The Qualified Mortgage Rule For Southern California Loans

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The qualified mortgage rule was released by the Consumer Financial Protection Bureau in 2013 as part of the Dodd-Frank Reform Act. It actually took effect in 2014 and affects the way companies qualify and confirm facts for home buyers. An overview of the qualified mortgage rule for Southern California loans is included in this article.

Overview Of The Qualified Mortgage Rule For Southern California Loans

The qualified mortgage rule requires mortgage companies confirm financial facts of home buyers and to determine their ability to repay a loan. First, earnings and assets must be sufficient to repay the mortgage. Additionally, that capability to repay must be considered over the life of the home loan and not just for an introductory period of time. This is a particularly significant rule for mortgages with adjusting terms.

Elements of the Qualified Mortgage Rule

The qualified mortgage rule details guidelines for identifying the ability to pay, debt-to-income ratio limits, and restriction on points and fees. Mortgage companies will be required to apply a minimum of 8 specific underwriting factors to make the determination. These include:

  • Salary and Assets
  • Current Employment
  • Credit History
  • Monthly Mortgage Payments
  • Monthly Payments for Other Mortgages
  • Other Real Estate Ownership Expenses (Real Estate Taxes, Condo Fees, etc.)
  • Additional Liabilities
  • Debt-to-Income Ratios

Debt-to-income ratios will be limited to forty-three percent. This is actually more than the prior forty-one percent maximum. Finally, points and other fees must not be more than 3 percent of the mortgage amount. All of these changes were effective Jan 10., 2014.

Programs That Will No Longer Be Valid

As a result of the new rules, some mortgages were phased out. These include those requiring no documentation, interest-only loans, balloon loans, negative amortization, and loans for terms longer than 30 years. Even though these programs account for a small portion of all mortgages, it does affect certain types of borrowers such as those looking to obtain jumbo products.

Reasons for the Qualified Mortgage Rule

The housing and financial crisis was blamed on negative mortgage practices such as issuing mortgages with high-risk features or buyers obtaining home loans that were obviously beyond their means to repay. The qualified mortgage rule specifically targets harmful loan terms. It also controls excessive fees by mortgage companies. All of this was meant not only to shield consumers but also to minimize the likelihood of a future crisis. The above overview of the qualified mortgage rule for Southern California loans is intended only as an overview. To view full details on the qualified mortgage rule, visit the Consumer Financial Protection Bureau website