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Risk Management Corner continued No excess upfront points and fees: Points and fees are fine, as long as they are for the loan itself, not “to compensate loan originators, such as loan officers and brokers.” Points and fees cannot exceed three percent of the total loan amount in most cases. No “toxic” features: Terms can’t exceed 30 years; interest-only and negative-amortization payments (where the principal amount increases) are banned. Debt-to-income limit: A borrower’s debt-to-income ratio must be less than or equal to 43 percent. (There’s an exception — see below.) Diff’rent strokes Keeping those rules in mind, the CFPB created two types of QMs: prime and sub-prime. Why? Because consumer groups wanted borrowers to be able to challenge a lender if that lender didn’t underwrite properly, while lenders wanted a “safe harbor” from lawsuits and loan buybacks if it followed the rules. So the CFPB did something for everyone. Sub-prime QMs: higher priced, but borrowers can challenge. These loans are for folks with lower credit ratings. They still meet all the standards, but if the borrower ends up defaulting (“if the loan goes south,” as the CFPB put it), he can can attempt to prove that the lender shouldn’t have qualified him. This is known as “rebuttable presumption,” meaning the lender is presumed to have complied; the onus is on the borrower to prove otherwise. If the borrower does prove that, the government can require the lender to buy back the loan. Prime QMs: lower priced, with safe harbor for the lender. These are for your less-risky consumers — the ones with high credit ratings etc. etc. With these loans, if the lender meets the QM underwriting criteria it has “safe harbor” — the government can’t force the lender to buy back the loan if the borrower defaults. Finally, there’s a temporary exception to that 43-percent rule. CFPB was concerned that there are loans that might not meet the specific and detailed QM requirements, but still qualify for government backing. “[S]uch loans are better evaluated on an individual basis under the ability-to-repay criteria,” it wrote. So the bureau created a temporary category of loans “that have more flexible underwriting requirements” but still satisfy the general QM rules; this will be in effect for the next seven years (or less, if Federal agencies issue their own guidelines) and the details will be available soon. Higher cost, tighter restrictions On the heels of its definition of qualified mortgages, the CFPB also released its new rules for high-cost mortgages. Here’s an outline.
REALTOR ® Update Update REALTOR7
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