Friday, January 11, 2013

New Rules for New Mortgages Raise New Questions

Although not scheduled to take effect until next January, the new changes in lenders's mortgage regulations are likely to begin affecting the housing market much sooner.

Some consumer groups are complaining that they will provide cover for lenders to refuse more loan applications, l

Most are seen as common sense ways to avoid a repeat of the Sub Prime Loan mess that triggered the housing crisis 7 years ago.

1. Lenders must consider now at least eight criteria in applications, including a borrower’s credit history, debt obligations, employment status, income and assets.

2. Lenders can no longer base borrowers’ repayment ability on teaser rates.

3. “Qualified mortgages,” offer lenders certain legal protections as long as they adhere to the criteria laid out by regulators.

 4.. Most qualified mortgages will have a 3 percent cap on the amount of fees and origination expenses that lenders can charge.

5. A borrower’s total debt burden can not exceed 43 percent of his or her income. Debt in this instance includes student loans, auto loans, revolving debt, alimony, child support and existing mortgages.

What's still needed is clarity on government incentives for homeownership, such as the mortgage interest deduction, zoning, and backing of mortgage underwriters Fannie Mae and Freddie Mac. These have the potential to renew the perception that prices will always trend upward, once again turning home buying into a speculative market.

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