The qualified mortgage (QM) rule was implemented in January of 2014. It is the first of two rules that came from the Dodd–Frank Wall Street Reform and Consumer Protection Act that will impact the housing market. This law is intended to protect consumers by strengthening underwriting standards, but some have argued that the rules will raise costs and reduce access for consumers. To gain insight on the impact of the new law, NAR Research surveyed a sample of lenders with questions about the impact of the lending on their business and how the rule could in turn impact consumers.
On Friday, January 10th, 2014, the requirements of the ability to repay and qualified mortgage (QM) rule went into effect. The Dodd-Frank act requires that originators make a good faith effort to verify a borrower’s ability to repay (ATR) their mortgage and imposes stiff penalties if they do not. The QM rule allows for varying degrees of assumed compliance with the ability to repay rule, which is advantageous to lenders as it allows them to minimize and to budget for potential penalties and litigation expenses. All mortgage applications received on or after January 10th are required to comply with the QM rule which includes full documentation of income, assets and employment, a maximum of 3% for points and fees, a cap of 43% on the back-end debt-to-income ratio, and limitations on the type of mortgage products that qualify and prepayment penalties among other requirements.
What does this change mean for REALTORS and consumers? Consumers should expect to have to document their income, employment and resources. If your client has a high debt-to-income ratio, the FHA as well as Fannie Mae and Freddie Mac will be more lenient than private financers. However, if your client falls under one of the other aspects of the non-QM space or even the rebuttable presumption portion of the QM space (e.g. high fees, subprime, interest only, etc.) your client might require help finding a specialty lender. Consider finding a few lenders who specialize in financing these special cases at affordable rates so that you can meet your client’s needs if the time comes.