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New Regulations Have Impact on Seller Financing

April 1, 2014 |  Article By : 

home loan pic for blogLawmakers passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in 2010 in response to the mortgage crisis.  In January 2013, the Consumer Financial Protection Bureau (“CFPB”) issued regulations as part of implementing the Dodd-Frank Act.  These new regulations took effect January 10, 2014 and they appear under the Loan Originator Compensation Requirements in the Truth in Lending Act (“TILA”).

The Dodd-Frank Act placed new requirements on loan originators.  A loan originator is defined as anyone who, for compensation, performs any activities related to the origination of mortgage loans, including but not limited to taking an application or offering, arranging, or assisting a consumer in obtaining or applying for credit.  Lumped into the Dodd-Frank Act was language that in effect included some (but not all) seller-financed transactions.  A seller financer will be categorized as a loan originator and subject to the new rules unless the seller financer qualifies for an exclusion.

There are two categories of seller financers that are exempt from the definition of loan originator: those that sell three or fewer properties in any 12 month period (“Three Property Exclusion”) and those that sell only one property in any 12 month period (“One Property Exclusion”).  In either case, a seller financer must meet other very specific criteria in order for the exclusion to apply.

The One Property Exclusion is the more flexible of the two exclusions.  Therefore, the safest course for a person who sells a property using the less restrictive one property exclusion who then wants to sell a second property may be to wait for the expiration of 12 months after consummation of the first sale before selling the second property.  That way, they avoid the Three Property Exclusion coming into play.

This article provides a very basic overview of some aspects of the new requirements and is not considered to be comprehensive.  Because the new requirements are extremely complex, it is recommended that any seller considering a seller-financed transaction consult an attorney.  The attorney will be able to determine the applicability of these new regulations on the potential seller-financed transaction and assist with establishing the best course of action.

By Deb Newel, General Counsel, RE/MAX Results

QM and ATR Impact on Real Estate Industry

March 27, 2014 |  Article By : 

The latest buzzwords in the mortgage industry are “Qualified Mortgage (QM)” and “Ability-to-Repay (ATR).” These concepts are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and provide specific guidelines for the origination of residential mortgages.

As of January 10, 2014, mortgage lenders have to abide by specific lending guidelines set by the Dodd-Frank Act and enforced by the Consumer Financial Protection Bureau (CFPB) in order to benefit from protections from consumer lawsuits.

A qualified mortgage has limits on loan features and requires verification of all income, assets, and debt.  A qualified mortgage will have no negative amortization, balloon payments, or terms that exceed 30 years.  To be considered a qualified mortgage, points and fees are capped at 3%.  The debt-to-income (DTI) ratio is capped at 43% for loans not eligible for purchase by Fannie Mae, Freddie Mac, or guaranteed by FHA, VA, or USDA Rural Housing.

These standards were enacted to verify a borrower’s long-term ability to repay their mortgage.  If these standards are met, the loan is considered a qualified mortgage (QM) that meets the ability-to-repay (ATR) rule.

The industry is assessing the impact of these new regulations.  Many experts believe lenders will have less flexibility when originating loans and will be less likely to make exceptions to their underwriting criteria. Industry experts also expect to see a much larger impact on consumers seeking non-conforming or jumbo mortgage loans that are above the 43% DTI requirement.

The ability-to-repay rule is intended to prevent consumers from getting mortgages that they cannot afford and prevent lenders from making loans that consumers cannot repay.  The impact on the real estate industry remains to be seen.

By Bob Strandell, Bell Mortgage

20 Questions To Ask Before You Pick a Home Loan

March 18, 2014 |  Article By : 

20 questions jpgHome loans can be complicated. But choosing one that meets your needs can be much easier if you gather enough information before you make a decision. Here are 20 questions that might apply to your situation.

Rate, term and payment

The most fundamental questions about any loan concern how long you’ll have to repay the amount you borrowed, how much interest you’ll be charged and whether the interest rate and payments are fixed for the entire term or subject to periodic adjustments as market interest rates fluctuate.

Here are four questions to ask:

1. What is the term of this loan?
2. What is the initial interest rate?
3. Is that rate fixed or adjustable?
4. How much would my initial monthly payments be?

Adjustment periods, caps and negative amortization

If the interest rate on the loan is adjustable, your monthly payment likely will change in the future and could be much higher than your initial payment.

Here are some questions to ask on this topic:

5. When can the interest rate be adjusted?
6. How will the interest rate be calculated?
7. What is the maximum interest rate increase for each adjustment period?
8. What is the maximum interest rate increase over the lifetime of the loan?
9. How much would my payment be today if the interest rate were calculated as it will be at the first adjustment period?
10. How much would my payment be at the maximum interest rate?
11. Could the amount I owe increase over time?

Costs and fees

Along with the interest rate and payment, you’ll want to consider the upfront and ongoing fees and costs you’ll be charged in connection with the loan.

Here are some questions to ask regarding costs and fees:

12. Can I see a Good Faith Estimate (GFE) for this loan?
13. Which of the costs on the GFE might change and by how much?
14. Are there any other costs that aren’t on the GFE?
15. Does this loan have a prepayment penalty?
16. Would this loan require an escrow account for homeowner’s insurance and property taxes?
17. Would I need to pay for mortgage insurance on this loan?

Needs and qualifications

Not all loan products are available to all borrowers, so you’ll want to explore your options before you decide which loan would be right for you.

Here are three questions that may help:

18. What are the qualifications for this loan?
19. Why would you recommend this loan for my needs?
20. Which other loans might also meet my needs?

These 20 questions can help determine if a loan is right for you. Don’t be afraid to ask your lender these and any other questions you may have. The more you know, the better equipped you’ll be to choose your loan.

Written by Lending Tree, RealtyTimes


For Gen Y: The Road To Homeownership Starts With Saving

March 4, 2014 |  Article By : 

For many people, the American dream of owning a home is exactly that: a dream. The housing crisis, the high gen yunemployment rate, increasing debt, and tougher restrictions on mortgage qualifications, make it seem like Mission Impossible, especially for generations like Gen Y. The millennias, as they’re also often called, are referred to as the group born between the mid-seventies to late nineties.

While this group came of age during turbulent economic times, homeownership is still a priority to them. It may, however, seem that factors are stacked against them. This group tends to be well educated – many went to college — and also have an entrepreneurial spirit that makes them creative with their money.

But for Gen Y, if they want to achieve the American dream, a few critical steps will pave the way to the road to homeownership.

Get a handle on debt. This generation likes the idea of being their own boss, working from home, tele-commuting or “sidepreneurism”, the term used for people who start their own side business while still working full-time. They can be very creative in developing money-making jobs with the Internet and start-ups are often part of their dream job. However, sometimes these starts-ups are funded with only their own credit cards, which can rack up a considerable amount of debt. If the company is profitable all ends well but if not, they may be strapped with that debt which makes it very difficult to save for a home. Plus much of this generation has student loans and debts that they’re still paying off.

Like anyone interested in buying a home, focusing on reducing debt will help prepare them to qualify for a mortgage. When possible, cutting back on major expenses is a good way to start saving for that home.

For the first time, people are keeping their cars longer than ever. Many people are opting to continue with repairs and maintenance rather than have a monthly car payment. This can be an excellent strategy to help save money as long as the repairs and gas money on the older car don’t equal more than a new car payment and cost of gas, registration and insurance. A newer car will have a higher vehicle registration fee but also, at least initially, fewer repair expenses and it will likely get better gas mileage.

Other ways Gen Y can save are to cut the cable and home telephone cords. This can save more than $100 a month. This generation grew up with the use of computers and electronics. Many see no real need for cable or even Internet at home. Their offices are often coffee shops that offer free WiFi. They often use their smartphones and cellular data packages to watch shows and get the news. A home phone has become obsolete for many because they simply use their cell phones. Cutting household utility expenses such as these can end up saving them hundreds of dollars a year.

Still others are renting rooms out or even renting out their furnished homes when they travel for work or play. Using sites that advertise for short term rentals, some in this generation are finding they can make a little extra cash by having a roommate or placing their furnished home for rent, even for a short period such as a couple of weeks when they’re away. And, of course, some are moving back home with their parents to save up for that down payment. The more they can save, the better prepared they’ll be to achieve the American dream of homeownership.

Written by Phoebe Chongchua, realtytimes.com