CFPB Ability To Repay Rule Helps Worried Homeowners Keep Their Homes

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The Consumer Financial Protection Bureau (CFPB) announced its new rule to protect home borrowers from irresponsible mortgage lending by requiring lenders to ensure prospective home buyers have the ability-to-repay their mortgage. Home Destination, a Minneapolis Realtor with RE/MAX Results, comments on how home buyers benefit from the rule.

Homeonwers ability to repay thier home loan and avoid risk of foreclosure or short sale

Homeowners Avoid Loan Delinquency

"Homeownership is the key to wealth generation in this country for many Americans. Overly restrictive definitions of the QM could lead to many Americans being forced into a permanent class of renters." ~ NAMB President Don Frommeyer

The Consumer Financial Protection Bureau (CFPB) announced its high anticipated new rule that will protect borrowers from irresponsible mortgage lending and avoid loan delinquencies by requiring lenders to ensure prospective home buyers have the ability-to-repay their mortgage.

Home Destination's owner Jenna Thuening puts it simply: "The CFPB released mortgage standards aim to help stop home foreclosures due to the type of risky lending that caused the housing market crisis. "The rule defining a 'qualified mortgage' really means one a borrower can actually be expected to pay back, while eliminating questionable loans that stretched homeowners to the capacity that many faced foreclosure and couldn't stay in their homes."

In the balance, the CFPB cannot limit home buyer choice by creating an unevenness between “Too Big to Fail” institutions and thousands of small businesses originating loans. The sticky point is the QM rule surrounding the Dodd-Frank Act’s mandate of a three percent cap on points and fees. Homeowners need the primary protection of buying a home with better mortgage disclosures included in the sieving of applicants that ensures their ability to repay.

Homeowners also need protect by "a better understanding of their right of redemption and mortgage reinstatement if facing foreclosure", says Thuening.

In a January 10th posting titled "Assuring Consumers Have Access to Mortgages They Can Trust", the CFPB pointed out that the new rule is great for homeowners because the impact on their credit is less harmful than in a foreclosure. Homeowners that have been foreclosed on may be able to buy another home in as little as two to three years after a Short Sale, versus a typical seven-year wait after a foreclosure.

Key aspects of the Ability-to-Repay rule include:

  • Potential home buyers have to supply financial information when applying for a loan, and lenders must verify it
  • To qualify for a home loan, the home buyer must have sufficient assets or income to pay back the loan.
  • Lenders must determine the borrower’s ability to repay both the home loan principal and the interest over the long term − not just during an introductory period with a lower rate.

Home Destination Sees The Top Features of A Quality Mortgage As:

1) Excess upfront points and fees are not allowed: A QM limits points and fees previously used to embellish loan originator compensation, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, resulting in responsible borrowers paying a lot more than anticipated when buying, they needing better mortgage disclosures.

2) No toxic loan features: A QM cannot be created with overly risky loan features, such as terms that exceed 30 years and interest-only payments where the homeowners' loan principal amount increases. In the lead up to the crisis, too many home buyers took on risky loans without full comprehension.

3) There's a limit on what percentage of a homeowners' income can go toward debt: QMs are anticipated to have approval for homeowners who have debt-to-income (DTI) ratios less than or equal to 43%. This requirement helps ensure home buyers are safer, only gaining a mortgage that they can likely afford.

4) Eliminate risky negative-amortization: where the homeowners amount owed actually increases at some point because the borrower does not even pay the home loan interest and the unpaid interest gets added to the amount borrowed.

The National Association of Mortgage Professionals (NAMB) immediately affirmed the Consumer Financial Protection Bureau (CFPB) announcement of the Ability-to-Repay rules mandated by the Dodd-Frank Act, also known as Qualified Mortgages (QMs). NAMB regards themselves as a proponent of homeowner rights working to ensure that struggling home loan borrowers have the ability to repay mortgage loans and buy a home with a quality loan.

The CFPB’s efforts to request the housing industries feedback regarding these rules is positive, as the Bureau has the enormous and challenging role of creating a rule to protect consumers from poorly-designed loans, believes Thuening.

The emphasis is on creating a win - win scenario when buying a home. A lack of quality loans and clear mortgage disclosures have hindered the success of too may potential home loan applicants. According to White House comments about the New rule, "Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial incentives – that both of them win when borrowers can afford their loans".

Contact Home Destination to learn more about avoiding foreclosure and loan delinquency by buying a home with better mortgage disclosures. Call 612-396-7832.

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Jenna Thuening
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