Q&A with Joel W. Harmon
New legislation’s rule changes may affect your mortgage loan
Q: What are some of the recent/upcoming changes taking place under Dodd-Frank legislation?
A: The portions of the Dodd-Frank legislation coming into effect in 2014 that will most impact consumers have primarily to do with mortgage lending rules. These are referred to generally as the Ability-to-Repay rules and the Qualified Mortgage rules. They are theoretically designed to prevent the alleged abusive practices leading up to the mortgage crisis that began in 2008 and to ensure that home loan applicants are, indeed, able to repay the loan for which they are seeking approval. The new rules are designed to prevent low or no-documentation loans that hide the true costs or risks of a mortgage. There are also new rules coming into effect that have to do with protections for borrowers facing foreclosure and compensation for loan originators.
Q: How will these changes impact the loan process from the perspective of the bank and the consumer?
A: Banks will continue to have to adapt to a changing set of rules that are growing in volume and complexity. Implementation of the new rules by the relatively new Consumer Finance Protection Bureau will continue to evolve. This will require additional training for mortgage lenders and possibly the addition of qualified staff. For consumers applying for a mortgage loan, they will encounter a more rigorous due diligence process and strict procedures for approval of a new mortgage loan. Interest-only periods, negative amortizations, repayment periods over 30 years and balloon payments will all become rare or non-existent. More conservative debt service to income ratios must be met. The approval and closing process may be slower. Self-employed individuals that have uncertain or fluctuating income may especially have a more difficult time demonstrating their ability to repay when held to the new guidelines. It is uncertain how much discretion a lender will have when dealing with a borderline situation.
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