Mortgage Regulations And Guidelines For 2014 Will Be More Restrictive
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 and all mortgage loan originators had to get tested, and undergo federal and state criminal background checks as well as financial and credit background checks. The mortgage lending environment has gotten tougher and tougher year after year. 2013 was a tough year in the mortgage industry but 2014 will be tougher and more rules and regulations will come into effect.
2014 will be more restrictive and stricter when it comes to residential mortgage loan origination, whether they are purchase loans or refinance mortgage loans.
Qualified Mortgage; Mortgage Regulations
Part of the 2014 regulations is the Qualified Mortgage regulation that will be implemented. 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 2014 Will Lower Loan Limits On FHA Insured Mortgage Loans
Luckily, conventional mortgage loan maximum limits will stay the same as 2013, however, for FHA insured mortgage loans, the maximum loan limits will be greatly reduced, thus, limiting the buying and borrowing power for FHA insured mortgage loan 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 2013. In 2014, 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.
Potential Mortgage Rates Spike In 2014
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. 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 2014, 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%.
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.