By Jonathan Horn3:14 p.m.Jan. 31, 2014
If you need a mortgage to buy a home this year, the government wants to make sure you can pay back your loan.
That’s why on Jan. 10, the Consumer Financial Protection Bureau implemented new mortgage-lending rules that federal regulators say will protect against the risky lending practices that powered the housing bubble and caused a huge collapse in home prices that led to the Great Recession.
For most home loan borrowers, the new rules will have little or no impact on whether they can get a mortgage, experts say, because loan standards have already been tightened.
“They want to make sure lenders are giving loans to borrowers who can afford to pay back those loans,” said David Neylan, vice president of correspondent and wholesale lending at Guild Mortgage, which is based in San Diego.
Here’s a look at the new rules and what they do:
Q: What is new?
A: The big term you need to know is qualified mortgage, or QM. A qualified mortgage meets new guidelines, and consumers who get them are expected to meet ability-to-repay requirements. If lenders make qualified mortgages, they have more protections against lawsuits should the loans later go bad.
Q: What are the qualified mortgage requirements?
A: These loans cannot:
• Contain terms that exceed 30 years.
• Include interest-only payments or payments that are less than the full amount of interest so that the home loan debt grows each month.
• Charge more than 3 percent in upfront points and fees for loans above $100,000.
• Contain balloon payments.
• Push a borrower’s total debt load above 43 percent of his or her monthly income. There are some exceptions when the debt load can exceed the limit. If the loan is eligible to be backed by Fannie Mae or Freddie Mac, or a federal housing agency such as the FHA, for example, that debt load could be greater.
“The risk has gone down significantly because the qualifications are pretty tight. They have to fit into this perfect box,” said Annemaria Allen, CEO of The Compliance Group, based in Carlsbad.
Q: Can a lender still offer a mortgage to borrowers outside these rules?
A: Yes, but lenders wouldn’t have the same protections if the loan goes bad.
Mark Goldman, a loan officer and real estate lecturer at San Diego State University, said the qualified mortgages will receive what are called safe-harbor protections.
“You do get all of the remedies for a regular foreclosure,” he said. “If the loan is qualified, there’s less risk for the lender.”
Q: How many mortgages fall within the qualified mortgage rules today?
A: About 92 percent of loans being made today meet qualified mortgage requirements, the CFPB reports.
Q: Do the new rules include down-payment requirements?
A: No. There are no down-payment requirements. There was an idea floated to require 20 percent down, but it did not happen.
Q: Won’t the new rules make it harder for people to get mortgages?
A: In general, no. Most lenders have already tightened their lending standards since the financial crisis.
But some types of borrowers will notice a difference, including borrowers seeking larger mortgages through a jumbo loan, which is above $417,000. Last year, jumbo loans made up 31.2 percent of mortgages in San Diego County, according to real estate tracker DataQuick. Self-employed borrowers may need to show more verification of income and ability to pay back the loan to get their mortgage.
Q: So, what about the fees?
A: The new rules limit the fees lenders can charge for points and other origination services to 3 percent of the loan amount for loans over $100,000.
The high home prices in San Diego County will likely make that change invisible because lenders can cover their costs. So if the rules applied in 2013, the most fees someone would pay if they bought at the county’s median price of $402,500 would be $12,075. Neylan, of Guild Mortgage, said last year the company had $7 billion in loan originations and the fees came out to less than 3 percent of the cost.