from John Inzeo, Vice President of Wisconsin Mortgage Corporation
For the past few years, I have tried to focus on “Best Advice” home financing for buyers. Today we continue that advice with a focus on new regulations that may affect your ability to qualify and/or increase the costs associated with acquiring financing. Familiarize yourself with these two new terms because they will change the landscape of Mortgage Lending for many years to come: The Qualified Mortgage (QM) and Ability To Repay (ATR) standards. Although we agree that most of these new reforms are necessary, we are concerned that the rush to implement new rules can create unintended consequences relative to economic recovery. Housing is a lead industry in America’s economic recovery plans, and we want to make sure that new regulations, sometimes implemented without proper testing, don’t create unintended negative impacts.
The QM and ATR are new regulations born out of the Dodd Frank Financial Reform Law, signed into law in 2010 as a response to the late-2000s recession. Combined, they create many questions about what standards are included, and I hope to provide some answers for you.
Qualified Mortgage standards include a stated maximum debt-to-income ratio (DTI) of 43%. QM also requires that borrowers pay no more than 3% of the proposed mortgage principal in total costs to acquire financing. Please note all aspects of pricing for each loan will require additional documentation reflecting the costs associated with the loan.
Now consider the ATR standard. Among other things, this regulation will require all lenders to document every aspect of the loan much differently. Much like the math teacher who tells us it’s not enough to show the right answer, you must show all of your work and demonstrate how you arrived at the answer. This will require many more work sheets for each mortgage file, as well as additional documentation from customers seeking financing. Meeting the ATR standard represents a massive legal risk to all parties — again, without proper testing, this new standard could produce unintended consequences.
What does this mean to homebuyers? You have time between now and January to take action and purchase a home before the next fog of regulation hits the markets. At a minimum, we know that some buyers who qualify today will, after January, likely pay higher costs to acquire financing and some will qualify for less of a home. Why wait to get tangled in the uncertainty of new regulations and risk paying even more to acquire financing? My advice is to work with a qualified lender now that can guide you through this process. With interest rates continuing to increase on top of regulatory concerns, the time to start towards your homebuying dreams is today. At Wisconsin Mortgage, we have been guiding home buyers through the financing journey for 30 years, and our focus is on people and their housing needs. Much will be changing in the mortgage industry for the next few years — having a capable navigator will ensure your home buying success.
Categories: Quarterly Newsletter