Beginning in 2014 new rules from the CFPB should eliminate or reduce the surprises and difficulties that hurt many homeowners during and after the mortgage crisis. These rules will provide new rights and greater protection from predatory loan practices.
These new rules define a new class of mortgages for which borrower's are presumed to be able to pay. The borrowers ability to pay must last for years and not just for a few months when the initial “teaser” rate may keep the monthly payment low. These new classes of mortgages called “Qualified Mortgages” or “QMs” are designed to be safer and easier to understand than those consumers received leading up to the financial crisis.
A Qualified Mortgage requires that the lender making the loan must assess a borrower’s ability to repay the loan. The borrower must have a total monthly debt to income ratio including mortgage payments of 43 percent or less. These requirements must still be followed even if there is a significant down payment or a large cash reserve to offset a higher debt ratio. These incentives are crucial for the lender since if the mortgages don’t meet the QM guidelines the lender will be required to hold the loan as opposed to selling it to Fannie Mae or Freddie Mac.
Qualified Mortgages can’t have risky features such as negative amortization or interest-only payments. The rules will limit the points and fees lenders can charge on a QM loan. For example a loan over $100,000 can’t be a QM if it has points and fees that are more than three percent of the loan amount.
Someone who is paid to arrange for a loan can’t be paid more to steer someone into a higher cost mortgage.
Mortgage servicers must now provide clearer monthly statements to see how your payments are being credited. Mistakes must be fixed promptly and payments credited the day they are received. When an adjustable rate mortgage is re-setting early notice of that change must be given. This provides an opportunity to the borrower to get help in case they can’t make the new payment.
Borrowers who fall behind have greater protections to keep their house. Servicers must call those borrowers who are 36 days late on their mortgage. Servicers generally, under the new rules, cannot initiate foreclosure until a delinquency reaches 120 days. A servicer must provide a distressed borrower with all options when a “loss mitigation application” is submitted. The servicer cannot start a foreclosure while also working with a borrower who is delinquent. Additionally there is a built in appeals process where the servicer is mistaken in the loan modification evaluation.