Lenders Forecast Further Housing Market Gains

Prepare buyers for heavy documentation requirements starting in January, according to CEOs and senior executives from the biggest names in mortgage lending at the recent National Association of Realtors® (NAR) annual convention.

New regulatory hurdles could temporarily restrict lending to some buyers, but their effects will likely even out over time.

The Qualified Mortgage (QM) or ability-to-repay rule becomes effective in January and contains a number of underwriting standards that will constrict mortgage availability and deny credit to some first-time homebuyers. The QM rule requires significant documentation from consumers to justify lenders’ underwriting decisions, and lenders face strict penalties if a loan is made outside the specific criteria.

Among the new rules:

• Borrowers can still get a private loan, as long as the loan does not have risky features and the borrower’s total debt to income (DTI) isn’t over 43%. This means that a borrower’s total debt expense (including total mortgage payment) does not exceed 43% of their gross income (before taxes are withheld). The lower DTI, however, means some buyers will be offered less mortgage money than they were this year.
• Origination fees can’t exceed 3% of the loan, and affiliate fees and points count towards the 3% cap. This could create a problem for lower-income homeowners, however, since many closing costs are fixed: 3% of $50,000 is significantly less than 3% of $300,000.
• Some of the riskier loans offered before the housing slowdown won’t be allowed, such as interest-only, negative amortization and balloon house loans.

Read more at Florida Realtors®