When the clock struck midnight and 2014 was being welcomed in across the United States, so were sweeping new rules and protections for consumers.
Beginning January 10th, lenders must take steps to ensure a borrower, can afford to repay the loan they are seeking, based on their income, debts, and credit history. To many of us this may sound like common sense, but during the last housing cycle many borrowers ended up with loans that they couldn’t afford, in their wildest dreams. It was commonplace for borrowers to take out negative amortization loans or adjustable rate loans with payments that were affordable at an initially low “teaser” rate, but quickly became unaffordable once the interest rate increased.
Many, if not all, lenders already have adopted most of the changes in underwriting, but the new rules make the requirements more precise. Lenders can comply with the new rules by making a qualified mortgage (“QM”), which is a loan with features aimed at making it safer for consumers. QM loans can’t have risky features such as interest-only payments or negative amortization. Furthermore, debt to income ratios will be tighter to better ensure the borrower’s ability to repay the loan, although exceptions will exists for the next few years. Additionally, points and fees are limited to three percent of the loan amount.
Also effective January 1st, there are also new rules for mortgage servicers. Servicers must send you a clear monthly statement, credit your payments on the day they are received and fix any mistakes promptly. The rules also specify the steps servicers must take if you fall behind on your payments. Servicers must take the initiative to contact most borrowers if they are 36 days late on their loan payment. Also, servicers can’t start a foreclosure until the borrower is more than 120 days delinquent.
So as we all welcomed in 2014 with great excitement we all will need to be mindful of the new rules and protections which we now must live under.
If you are a lender, mortgage broker, realtor, buyer, seller, or investor in the South Florida real estate market and have any questions regarding the recent changes in the law or the handling of a real estate transaction please do not hesitate to call or e-mail Brian Abelow, Esq., with Benson Mucci and All Property Title & Escrow to discuss your specific situation.