The Consumer Financial Protection Bureau (CFPB) has issued a rule implementing the “Ability To Repay” (ATR) provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires mortgage lenders to make reasonable and good faith determinations of a consumer’s ability to repay before originating a mortgage loan and establishes protections from liability for “Qualified Mortgages” (QM).
At the direction of the Federal Housing Finance Agency (FHFA) Fannie Mae and Freddie Mac have worked together to formulate and align on certain requirements that address the CFPB Rule.
What this means to you?
Lenders will now be forced to make certain representations and warranties to Fannie Mae and Freddie Mac that the loans the lender has originated conform to the new QM and ATR rules. As long as the the loans conform to the new rule, Fannie Mae and Freddie Mac will provide “Safe Harbor” to the lender in the event of a default or some other defect. Obviously all lenders will desire this “Safe Harbor” protection on their loans so no further liability is created on their end.
In order for a loan to qualify for QM status, the borrower’s Debt to Income Ratio is not allowed to exceed 43%. Many loans these days are allowed to go over 50%. Hence, for the large percentage of US home owners it will once again become harder to qualify and gain access to a new mortgage.
If you are currently in the process of buying or refinancing, act quick so you do not get hindered due to the new systems and protocols going into place.