2007, when the housing market crumbled and the dominos of the economy followed suit the Consumer Financial Protection Bureau or CFPB; decided to take control by reforming what lenders can do from originating to the servicing of loans. Beginning in January 2014, the banks and financial institutions that continue to have real estate transactions will have to continue to make the necessary fine-tuning with the latest in technology. The new mortgage rules were created to safeguard and protect consumers like homeowners. The idea behind the new mortgage rules was to provide homeowners no runarounds, no extra surprises and no traps for those who are in debt. The new mortgage rules require loan offices or creditors will need to do the process of all the loans through verifying whether the homeowner is able to repay and have qualify mortgages with documentation.
- The biggest requirements of new mortgage rules:
- Ability-to-Repay the mortgage of a home is based more on the income-to-debt ratio based on documented information that has been done through a verification process. The income-to-debt ratio is figured out by taking a person or individual’s monthly payments/bills and adding them all together. This includes any outstanding credit card payments, car payments, medical and dental that are considered being recurring payments, utilities, student loans for college/universities, insurances including health and other debt. Once this is done, then divides the total the monthly gross income.
- It is important to remember that the gross income is the money that is in the paycheck before all the necessary taxes are taken out.
- The new mortgage rules provides the lenders and homeowners a direction regarding the actual application of the basic underwriting factors. It also gives an outline what the smallest amount required for the mortgage loans as a repayment.
- Qualified Mortgages (QM) loans or non-Qualified Mortgages are also a requirement with the new mortgage rules. Banks or lenders are finding that these loans are complex and very technical because of the varying levels of legal protection and certain regulatory exemptions. The CFPB still considers these loans secure for homeowners to get as the economy rebounds. The CFPB and the government will continue to amend the new mortgage rules for the future consumers. Sometime in 2014, the CFPB will add servicing amendments along clarifications for all parties to understand what the new mortgage rules apply to them.
- The other important aspect of the new mortgage rules that the CFPB or Consumer Financial Protection Bureau put into place was the expansion of coverage to the old Home Ownership and Equity Protection Act (HOEPA).This is to cover the home equity loans that are advertised in the media along with home-purchase loans.
- The final part of the reform is to provide all mortgage applicants, first-time home buyers and homeowners all disclosures which have the locations of debt counseling services to prevent foreclosures in the future.
- The CFPB also revised the rates and fees threshold for coverage and added a new coverage test solely based on transactions and having any chance to face any negative amortization type loans. This all took affect after January 2014 as financial institutions continue to make the changes according to the new laws.
- Banks and financial businesses now accept the CFPB new restrictions when it comes to receiving compensation from where the loan originated from. This will include any type of proxy payments based on a term, bonuses and any other based profit compensations arrangement. People who put into place any loans or the originators must meet stiffer screening standards like background checks for criminal accusations, the necessary training that might be needed, and reviews character reviews and financial status.
- The new reform that the CFPB will initiate not until fall of 2015 will the amended definition of the loan application and that the borrower acquired all the accurate Closing Disclosures which will take at least three business days for a person to receive it.
- While the reform constitutes of documents and various statements will be watched carefully and monitored as loans intersect with one another. In February 2013, HUD delivered a specific amendment to the existing rules/laws. The HUD now gives consumers the ability to challenge the housing or mortgage lending companies. Unfortunately, this part has not been implemented into the rule or even issued.
The upcoming GSE Reform pertaining to the Fannie Mae and Freddie Mac is continually being watched since it is still a considerable risk to taxpayers. As the economy continues to rebound in the right direction the long-term stability ensures the second mortgage market as being tangible. Community as well as many regional banks is receiving some federal government support, but it is limited to only assisting a select group of borrowers when it comes to loans.
There will be consider debate by the Consumer Financial Protection Bureau and other government organizations as the reform receives fine tuning to protect the homeowners from what happened in the housing market in the past to those individuals in the future.