There is much talk that reforms stemming from the Dodd-Frank Act are fundamentally changing every aspect of the mortgage business. A panel of affiliate members with the Silicon Valley Association of REALTORS® sought to shed light on the Consumer Financial Protection Bureau and the two requirements that went into effect early this year - the ability to repay and Qualified Mortgage (QM) rule.
Comprising the lender panel were Steve Papapietro from Opes Advisors; Evelyn Figueira from Wells Fargo Home Mortgage; Michael Colyer from EverBank, and Kenneth Chan from HSBC. They explained that the Consumer Financial Protection Bureau is the agency responsible for consumer protection in the financial sector. The agency makes sure the banks can efficiently serve their customers and that credit-worthy borrowers have access to mortgage credit and receive meaningful disclosures.
Colyer explained banks were given a short period of time to comply with the new mortgage framework and amendments to the initial rules just add complexity and uncertainty to compliance efforts. Other than a level of uncertainty, Colyer said, "The regulations have not had much effect on lending practices, since we (lenders) already adhere to tighter requirements."
The Dodd-Frank Act requires that lenders make a good faith effort to verify a borrower's ability to repay their mortgage and imposes stiff penalties if they do not. All mortgage applications are required to comply with the QM rule, which includes full documentation of income, assets and employment, a maximum of 3 percent for points and fees, a cap of 43 percent on the back-end debt-to-income ratio, and limitations on the type of mortgage products that qualify and prepayment penalties among other requirements. While a 43 percent debt-to-income limit is common practice, it could cause problems for the self-employed and retired persons, since lenders now have less flexibility.
Papapietro said under the new guidelines, lenders need to make "a reasonable good faith determination that the consumer has the ability to repay." Like Colyer, Papapietro said it is "more of the same" - confirming the borrower's assets, income, job stability, which lenders already have been doing.
Figueira touched on the new appraisal regulations. She said lenders need to provide borrowers with copies of all appraisals, even if they are not used or the transaction is cancelled or denied. All appraisals need to be delivered to the applicant no later than three business days before closing. Previously the requirement was three calendar days.
Chan said HSBC is an international bank with many foreign borrowers and investors. He listed the requirements for each type of borrower. Chan noted, "Conditional approval is based on supplied information that is submitted by the borrower."
What do these changes mean for REALTORS® and their clients? "Everyone in a transaction should get involved to ensure that all goes smoothly," stressed Figueira.
Papapietro added that it is important for REALTORS® to set expectations around the new rules and process with their clients so there are no issues. Borrowers need to be made aware of the rigorous verification and lots of paperwork, which will be time consuming. Consumers should expect to document their income, employment and resources.
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 email or call the SILVAR office at (408) 200-0100.