How Mortgage Regulations Affect Home Buyers In 2018

This BLOG On How Mortgage Regulations Affect Home Buyers Was UPDATED On November 19th, 2017

The mortgage industry has went through a major overhaul since the implementation of new mortgage rules and regulations after the financial meltdown of 2008.

  • Half the country’s mortgage originators left the business
  • All mortgage loan originators had to get tested, and undergo federal and state criminal background checks as well as financial and credit background checks
  • Top mortgage loan officers with criminal records were forced out of the mortgage industry due to new mortgage regulations
  • The SAFE ACT was created and implement
  • Dodd Frank was created and implements
  • NMLS was launched
  • The mortgage lending environment has gotten tougher and tougher year after year
  • 2017 was a tough year in the mortgage industry but 2018  will be tougher and more rules and regulations will come into effect

2018 will be more restrictive and stricter when it comes to residential mortgage loan origination, whether they are purchase loans or refinance mortgage loans.

How Mortgage Regulations Affect Home Buyers: Qualified Mortgage

Part on  How Mortgage Regulations Affect Home Buyers in 2018 regulations is the Qualified Mortgage regulation that already has been created and launched:

  • Qualified Mortgage, also known as QM, is also known as the Ability to Repay mortgage regulations and is part of the controversial Dodd Frank mortgage act
  • Qualified Mortgage ( QM ) mortgage regulations is implemented by the CFPB, the newly created Consumer Financial Protection Bureau
  • The CFPB will be a pioneer in trying to be the first regulatory agency to ever attempt at setting mortgage regulations and rules in establishing a uniform standard for qualifying mortgage loan borrowers for residential mortgage loans
  • A big part of the Qualified Mortgage regulation and rule is lowering and capping the back end debt to income ratio at the 43% level for conventional mortgage loans  
  • Currently, depending on how strong the mortgage loan borrower is, the cap on the back end debt to income ratios can be between 45% to 49.99% depending on what DU Findings say
  • This lower cap of 43% will hurt mortgage loan borrowers and decreasing their buying power and eventually could hurt the housing market

New Mortgage Regulations In 2018 Loan Limits On FHA Insured Mortgage Loans

Luckily, conventional mortgage loan maximum limits will stay the same as 2017. However, for FHA insured mortgage loans, the maximum loan limits has slightly increased, thus, increasing the buying and borrowing power for FHA mortgage borrowers:

  • California mortgage loan borrowers will probably be the most hard hit
  • For example, San Francisco and the Bay Area has always been a high priced home area
  • In high cost areas like San Francisco, the current maximum loan limits were $729,750 in 2017
  • In 2018, the maximum loan amount in high cost areas will be reduced to $625,000
  • With rising home prices and lowering the FHA loan limits in high cost areas, this will limit thousands of people from becoming home owners on high cost areas as well as other areas

Higher costs in Guarantee Fees:   

  • Guarantee fees, also known as G-fees on Fannie Mae and Freddie Mac mortgage loans will spike up by 11 basis points
  • This date was released by the Federal Housing Finance Agency, also known as the FHFA
  • The Guarantee fees are normally escrowed into a fund and used to insure losses incurred by both Fannie Mae and Freddie Mac
  • The unfortunate part of the spike in the G-fees, also known as the Guarantee fee, is that the ultimate parties that pay for this is the mortgage loan borrowers because the cost of originating loans becomes much more costly

Loan Estimates And Closing Disclosures And How Mortgage Regulations Affect Home Buyers

The old Good Faith Estimate (GFE) was replaced by the newly created Loan Estimate (LE).

  • The Loan Estimate needs to be disclosed to mortgage borrowers no later than three days of the borrower applying for a loan
  • Fees and costs on the LE are estimates and most likely overly disclosed
  • Lenders are allowed to over disclose but cannot under disclose closing costs that a borrower may incur
  • This is so although the lender has nothing to do with closing costs
  • If the borrower has been under disclosed of 10% or more, the lender needs to pay for the shortage of disclosure even though the lender has no benefit or profit from the under disclosed closing costs
  • With Closing Disclosures (CD), the final figures are stated on the CD. The CD is the replacement of the old HUD-1 Settlement Statement
  • Mortgage Borrowers needs to wait three days from the date of CD has been issued and acknowledged

Potential Mortgage Rates Spike In 2018

Interest rates have been at historical lows due to the fact that the Federal Reserve have been purchasing mortgage backed securities, also known as MBS. How Mortgage Regulations Affect Home Buyers in 2018 is yet to be seen.

  • Common sense dictates that the Federal Board does not have a blank check and cannot continue purchasing Mortgage Backed Securities indefinitely
  • When the Feds begin tapering off in buying Mortgage Backed Securities, which most likely happen in 2018, you can bet that mortgage rates will start rising
  • News and rumors of the Feds slowing in buying Mortgage Backed Securities a few months ago this year spiked up mortgage rates by more than 1% in a matter of several weeks
  • This can happen and we can all expect mortgage rates surpassing the 5% mark, possibly north of 6%

Bottom Line

The bottom line, there is no need to panic

  • Worst case scenario, mortgage rates will increase and loan limits will decrease and getting a mortgage loan approval might be slightly more tougher, but we will still be originating loans and home buyers will eventually close on their dream home

Non-QM Loans And Alternative Financing

Non-QM Loans and Bank Statement Mortgage Loans For Self Employed Borrowers will be more popular in 2018.

  • The Gustan Cho Team at USA Mortgage is a direct lender with no lender overlays on government and conventional loans
  • We have launched our NON-QM Loan Program in 2017 and our Bank Statement Mortgage Loan Program For Self Employed Borrowers
  • NON-QM Loans have no waiting period after the following:
    • Foreclosure
    • Deed In Lieu Of Foreclosure
    • Short Sale
    • One Year Waiting Period After Chapter 7 Bankruptcy
    • 10% to 20% down payment is required
    • To qualify for 10% down payment, borrowers credit scores needs to be 680
    • 660 credit scores require 15% down payment
    • 640 scores for 10% down payment
  • Bank Statement Mortgage Loans For Self Employed Borrowers benefit self employed borrowers who do not show enough income on their income taxes due to write offs:
    • With Bank Statement Loans, borrowers 24 months bank statement deposits is averaged and used as their monthly income
    • With business bank statements, 50% of the bank deposits is averaged over the previous 24 months
    • With personal bank statements, 100% of the bank deposits is used 
    • 20% down payment is required

Qualifying For Mortgage With Direct Lender With No Overlays

Mortgage Borrowers who need to qualify for a mortgage with a direct lender with no lender overlays can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are licensed in multiple states and are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.