How Mortgage Regulations Impact Home Buyers And Homeowners

How Mortgage Regulations Impact Home Buyers And Homeowners

This BLOG On How Mortgage Regulations Impact Home Buyers And Homeowners Was UPDATED On December 1st, 2017

The real estate and credit meltdown of 2008 has totally revamped the whole mortgage industry. There are many factors that affect How Mortgage Regulations Impact Home Buyers in qualifying for government and conventional loans. Every loan program has its own rules and mortgage guidelines for mortgage borrowers. Credit and debt to income issues are reasons on How Mortgage Regulations Impact Home Buyers.

  • Thousands of local banks closed their doors or gotten acquired by giant mega banks like JP Morgan Chase, Bank of America, Citibank, and Well Fargo
  • Thousands of mortgage bankers and mortgage companies have closed their doors and mortgage loan products such as state income mortgage products became nonexistent
  • Mortgage brokers were all required to abide by the newly created SAFE ACT
  • This ACT required all mortgage loan officers to take national and state exams and undergo federal and state criminal background checks and personal credit checks and financial background checks to get state mortgage licenses
  • Over half of the mortgage loan originators either left the business or did not qualify for a mortgage loan originator license due to their backgrounds and the elimination of no doc, state income, and sub prime loans

Creation Of Dodd Frank Mortgage Reform Act

The creation of the Dodd Frank mortgage laws and new mortgage regulatory agencies has sparked creation of new mortgage regulations year after year.

  • New mortgage regulations constantly change without notice that could effect home buyers and homeowners seeking refinance mortgage loans
  • Mortgage regulations will also set rules for banks, credit unions, mortgage bankers, and mortgage brokers
  • Mortgage regulations main focus, Ability To Repay, will be that mortgage lenders will not be able to originate residential mortgage loans that borrowers does not have the ability to repay

Mortgage Regulations And The Dodd Frank Act

The Dodd Frank Act, which was enacted in 2010 due to the real estate and credit meltdown of 2008:

It reated a new federal mortgage and financial regulatory agency called the Consumer Financial Protection Bureau, also known as the CFPB

  • Purpose of the CFPB was to create and implement new rules and regulations that requires mortgage lenders to analyze and evaluate if a residential mortgage loan to a public mortgage loan borrower is affordable to the borrower
  • This new rule and regulation created by the CFPB was mainly not enforced and most mortgage lenders considered this an option whether to implement it in their internal underwriting guidelines
  • However,  the Consumer Financial Protection Bureau has now made this as a mandatory rule and part of the new mortgage regulations that took effect on January 10, 2014
  • Mortgage lenders will need to now confirm and verify and have documentation proving the following:
    • Income
    • Credit history
    • Asset information
    • All debt obligation
    • Employment documentation on mortgage loan borrowers

They need to sse these facts in making a determination if the mortgage loan borrower is capable of repaying his or her new residential mortgage loan

  • In the event if the mortgage lender does not comply with these new rules and regulations, the mortgage loan borrower or borrowers who has a hard time making their mortgage and housing payment may sue the mortgage lender who has given them the mortgage loan

Other New Mortgage Regulations

The Consumer Financial Protection Bureau has also created new mortgage regulations and guidelines for QM, Qualified Mortgages which protects mortgage lenders from lawsuits from public mortgage loan borrowers.

  • To meet the Qualified Mortgage lending guidelines, a mortgage loan borrower will have a cap on their back end debt to income ratio
  • This will be capped at 43% debt to income ratio of his or her monthly gross income, which will include his new housing payment along with all other minimum monthly credit obligations

Elimination Of Mortgage Loan Programs

Other mortgage terms and conditions that was offered prior to the collapse of the housing market will be totally banned and mortgage lenders cannot offer it anymore effective January 14, 2014.

  • For example, any residential mortgage loan products over a 30 year fixed rate product will not be allowed such as 40 year fixed rate mortgage products
  • Other banned mortgage loan products are the optional mortgage payment for a mortgage loan borrower to pay less than the minimum monthly interest payment
  • This will not add the balance on the mortgage balance of the borrowers mortgage
  • Balloon mortgage loans are another product that was very popular prior to the real estate market collapse will now be banned permanently
  • Mortgage lenders will be capped at 3% on fees and points they can charge mortgage loan borrowers

Upcoming New Mortgage Regulations

By implement the new mortgage regulations and if mortgage lenders follow the new rules and guidelines for new mortgage loans already in place for good credit mortgage loan borrowers, mortgage lenders will have great protection against law suits from defaulting mortgage loan borrowers.  On the flip side, it will be much tougher for a mortgage loan borrower to get qualified for a mortgage.

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