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Home Mortgages Thought Leader

Qualified Mortgages Being Introduced In January to Protect Lenders and Consumers

Starting on Jan. 10, qualified mortgages, sometimes referred to as “Q.M.”, will be introduced as a new way of conducting home mortgage loan origination in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

Kathy Gyselinck is Executive Vice President for Southeast Mortgage

“A qualified mortgage is a fixed-rate mortgage, with a debt-to-income ratio (including the proposed mortgage payment) that does not exceed 43 percent of the borrower’s gross income,” according to an article on Credit.com, “How Upcoming Mortgage Changes Could Affect You.” A “non-qualified mortgage” is a loan that exceeds 43 percent of the borrower’s income.

Other stipulations include that the loan must be fully paid off with a term not to exceed 30 years. Additionally, points and fees paid by the borrower cannot exceed 3 percent of the total loan amount and lenders must be able to prove the borrower’s ability to repay the loan.

The new procedure helps protect mortgage loan originators more than ever. If a lender meets the conditions and underwriting standards, they are promised amnesty from legal challenges that may arise from those loans. The American Bankers Association is recommending that lenders exhaustively examine all mortgage portfolios to ensure each loan falls with the qualified mortgage guidelines.

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“The QM standards include various safe harbor provisions that are likely to mitigate short-term shocks to the real estate lending markets,” according to the ABA. “In crafting these regulations the bureau recognized the need for a safe harbor to prevent a reduction in credit availability and unwarranted lawsuits that ultimately drive up the cost of loans for consumers.”

In other words, the goal is for fewer risky loans to be given, though many lenders believe that most loans given out today already fall under the same rules.

The ABA indicates there could be apprehension that lenders may not be prepared for the changes by January’s implementation. The ABA is urging Congress and the Consumer Financial Protection Bureau to extend a trial period for lenders. Lenders are also concerned that the new regulations are a “narrowly defined box” that consumers must fit in to in order to qualify for a loan­­, limiting consumers’ access to mortgage credit.

“We must get this right for the sake of our customers, our banks’ reputations, and to promote the nascent recovery of the housing market,” said James Gardill, a Virginia bank chairman who testified before the House Financial Intuitions Subcommittee. “For some institutions, stopping any mortgage lending is the answer to this unreasonable deadline because the consequences are too great if the implementation is not done correctly.”


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