New mortgage rules for 2014

Owning a home is a goal that many consumers dream of.  For several families nationwide, that dream turned into a nightmare during the housing market crisis. New mortgage rules established by the Consumer Financial Protection Bureau set to take effect January 2014 are meant to provide current and future homeowners with added rights and protections from damaging and harmful practices, such as predatory lending and mortgage servicing. These rules are meant to ensure, among other things, that consumers aren’t encouraged to take out loans they cannot repay and to help borrowers manage their mortgage loans better.

 

Under the new mortgage rules, lenders are required to evaluate the borrower’s ability to repay the loan. They will have to take into consideration factors such as income, assets, employment, ongoing debt obligations, and credit history. Lenders will have to make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan according to its terms.

 

 “Qualified Mortgages”, a new class of mortgages designed to be safer and easier to understand, will be available. Eligible borrowers must have a total monthly debt-to-income ratio (debt including mortgage payments) of 43% or less. Qualified Mortgages cannot have risky features like negative amortization or interest only payments, and the rule limits the points and fees lenders can charge. Loans over $100,000 can’t be Qualified Mortgages if it has points and fees that are more than 3% of the loan amount. Other factors such as terms longer than 30 years, options to pay less than the full monthly interest, and balloon payments are prohibited.

 

Loan originators can’t be compensated more to steer consumers into higher cost mortgages under the compensation rule. Financial institutions and other organizations are required to ensure their loan originators are licensed or registered under existing state and federal laws. Employers of loan originators must also provide periodic training to make sure employees understand the legal protections and requirements that apply to loans they originate.

 

For existing loans, mortgage services are required to

Also, certain servicers are required to provide borrowers who are delinquent with a written notice of their options to avoid foreclosure and they must call or contact most borrowers when they are 36 days late on their payment. Foreclosure proceedings cannot begin until the borrower is more than 120 days delinquent and mortgage servicers can’t start a foreclosure while working with a homeowner who has submitted a complete application for help. Additionally, loan servicers are required to inform delinquent borrowers of all options available to them and must consider all options when evaluating borrowers who submit loss mitigation applications early enough. If the application for loss mitigation is rejected, a reason for the denial must be provided to the borrower who may then appeal any mistakes made by the servicer in evaluating the application for loan modification.

 

First-time homeowners considering loans that allow for negative amortization are required to get homeownership counseling and every applicant for a mortgage must receive a list of homeownership counseling organizations within three days of applying for a mortgage loan.

 

For more information visit the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation’s consumer news website. Check out a mortgage provider or any other type of company using our Business Consumer Alliance directory.