Lawmakers 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
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
Home 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
Last year’s 3.5% mortgage rates are long gone — and experts say consumers who hold off buying or refinancing homes in hopes that sub-4% interest levels will return could miss out on today’s sub-5% rates, too.
“We think 3.5% rates are in the rearview mirror now,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association. “It’s highly unlikely that we’re going to get back to those levels again.”
Benchmark U.S. mortgage rates hit a record-low of around 3.5% in late 2012 and early 2013 as the Federal Reserve’s Quantitative Easing III program helped push long-term interest rates into the cellar. Under QE3, the central bank had been buying $85 billion of Treasury bonds and mortgage-backed securities each month in a bid to drive rates on mortgages and other long-term debt down.
But mortgage rates shot up to around 4.4% last summer after the Fed hinted in May at plans to begin winding QE3 down.
Now, market watchers expect QE3’s phaseout and the strengthening U.S. economy’s increased inflation risks to push mortgage rates to 5% or higher by year’s end.
Fratantoni predicts rates will hit 5% by summer and 5.3% by Dec. 31.
“The U.S. economy is growing again, the Fed is beginning to back off of its very-aggressive policy to lower rates and we have [increasing federal budget-deficit] pressures,” he says. “Given all of that, rates are much more likely to go up than down from here.”
Market tracker Zillow likewise foresees 5% mortgage rates later this year, but economic research director Svenja Gudell says interest levels should rise slowly enough to give consumers plenty of time to buy or refinance places first.
“I don’t think there’s the need to rush out and buy a house this very second,” she says. “But I’d recommend locking in a mortgage below 5%, because I expect rates to continue rising.”
On the plus side, Gudell believes lenders will have to ease today’s relatively tight lending standards to keep their home-loan operations humming. After all, she says, higher interest rates typically reduce consumer demand for mortgages.
“I think we’ll see banks be more generous about extending credit to people who perhaps would have had a trouble getting mortgages in 2013,” the expert says.
For instance, Gudell predicts lenders will lower the FICO score required for the best home-loan rates to around 710 from today’s approximately 740.
But Lawrence Yun, chief economist at the National Association of Realtors, says consumers shouldn’t expect sub-4% mortgage rates to return any time soon unless a “major shock” throws the economy back into recession.
“I think that if people are hoping for some temporary dip in rates, they’ll be disappointed,” says Yun, who forecasts 5.3% rates by late 2014. “I realize that many people have seen colleagues and friends lock in mortgages at record-low rates and are jealous. But for now, those rates are history.”
By Jerry Kronenberg, homes.yahoo.com