Rules and Regulations: Mortgage Rule Changes Coming in January 2014

On January 10, 2014, new regulations that are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) will go into effect for mortgage lenders, establishing new standards for granting home loans to borrowers.

Two of these new rules-the Qualified Mortgage (QM) Rule and the Ability to Repay Rule have led to some news outlets predicting that mortgages may be harder for consumers to get in 2014, while others estimate that the impact will be negligible for the majority of responsible lenders. In this quarter’s look at the regulations that impact our membership, we’d like to explain these new rules in more detail so that you know what to expect starting in January when looking for a mortgage.

New Guidelines

The new mortgage rules prohibit interest-only loans, “balloon” loans, and loans with negative amortizations (when the principal balance doesn’t decrease over time as a borrower makes minimum loan payments).

A new limit has also been established on a mortgage’s “points” (fees or prepaid interest), setting the cap at 3%.

Also, the new rules set a debt-to-income ratio of 43% that borrowers will need to meet, although in special circumstances, exceptions can be made. This ratio is calculated by taking one’s monthly payments on all loans, credit cards, and other debts and dividing that total by one’s gross monthly income.

Moving Forward

As the entire mortgage industry adjusts to these new rules that will be in place to better ensure that borrowers can afford the payments that they commit to making on their mortgages, SF Fire Credit Union will continue to make prudent loans as we have throughout the years. Our delinquency rate on mortgages for the month ending November 2013 stands at 0.415%-a testament to our responsible lending practices to our members.

Questions?

If you have questions about these regulations, please contact our Vice President of Real Estate Jeanny Lo at jlo@sffirecu.org, or visit our website at www.sffirecu.org and Ask Darren.