The real estate industry has waited for the government to release rules that would dictate mortgage terms. While the QRM (qualified residential mortgage) overseen by the Federal Reserve has not yet been announced, the National Association of REALTORS® applauds the Consumer Financial Protection Bureau (CFPB) for releasing on Jan. 10 a broadly defined Qualified Mortgage rule that establishes strong consumer protections while ensuring continued access to safe, affordable mortgage credit.
The CFP's "qualified mortgage" guidelines are designed so home loans will be given only to qualified borrowers who can repay them, thus protecting consumers from predatory lending. Lenders who follow the rules in making a loan will be protected from liability.
A statement released by the national REALTORS® group says, "We are pleased that the rule encompasses the vast majority of the safe, high quality lending being done today."
Under the new guidelines, which take effect on January 2014, lenders must obtain and verify an applicant's financial information, including employment status, income, assets, debts, and credit history. Borrowers must have enough income or assets to repay the loans. Interest-only and undocumented income mortgages, including loans in which the principal increases over time and loans that exceed 30 years will no longer be allowed.
Under the "ability to repay" rule set by the new guidelines, lenders will be required to look at a borrower's ability to repay over the long term by looking at a borrower's current income and assets, employment status, credit history, the mortgage's monthly payment, other payments like property taxes and other debt obligations. A borrower's total debt obligations, including the mortgage and other loan obligations, is limited to 43 percent of the borrower's monthly income.
There is no minimum down payment requirement for qualified mortgages. Earlier proposals of a down payment of as much as 20 percent in order to qualify for a mortgage raised concerns that such a requirement would disqualify potential borrowers from owning a home.
Banks are not required to follow either the QM or QRM rules, but it is likely they will. By following the QM guidelines, lenders are afforded some measure of protection from litigation. By following the QRM guidelines not yet announced, banks will be able to sell their loans to Fannie Mae and Freddie Mac.
"These guidelines are a step in the right direction ensuring that all mortgages offered to consumers are fair, and preventing the predatory lending practices that led to the recent breakdown of the housing and finance system," said Carolyn Miller, president of the Silicon Valley Association of REALTORS®.
The National Association of REALTORS® will continue to work closely with the CFPB to ensure that the cap on fees doesn't restrict consumers' mortgage options. The national REALTOR® group urges regulators "to mirror the forthcoming Qualified Residential Mortgage rule after the QM rule to ensure affordable credit remains available to qualified borrowers."
For more information on the new qualified mortgage rule, visit the Consumer Financial Protection Bureau website at www.consumerfinance.gov/.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.