Peaceful Divorce

The Inside Scoop on the New Mortgage Rules from an Expert

One of the things I have learned over the years is that we can not be a Jack-of-all-trades and a master-of-none. In today’s ever-changing world we need to have connections with professionals in other disciplines and specialities. This is especially true working in the divorce area.

In the past it was the attorney’s job to do everything. Today divorcing couples are starting to pool the expertise they need into teams of outside experts. In addition to attorneys they are using financial specialists, mental health professionals and child specialists. I think it is important that we do the same thing and have our own list of specialists. The article below is by Scott Evans, CCIM, CRMS of the Family Mortgage Team, LeaderOne Financial Corporation, Marietta, Ga.

 


The 2nd wave of mortgage-rule changes is being launched on January 10th. Born out of the Dodd-Frank law from 2010, the Consumer Financial Protection Bureau has been hard at work preparing to roll out the mandates from this law. These mandates promise to make obtaining a new mortgage more challenging and expensive. There are two main provisions to this:

  • The Ability to Repay, and
  • The Qualified Mortgage (QM)

The Ability to Repay forces the lender to determine and document that the borrower can do this by considering eight types of information such as income, work history, credit, etc... Nothing really new here except for all of the additional work that will need to go into properly documenting the file.

In order for a mortgage to be a QM it is required to have three main product features:

  • Points and fees on the loan cannot exceed 3% of the loan amount
  • No risky features such as interest-only, negative amortization, balloon payments etc...
  • Maximum loan term of 30 years.

If a mortgage is Qualified it is presumed to have been vetted for the Ability to Repay provision. The sticky part of this is going to be the Points and Fees provision and how to ensure that the lender has not exceeded this. Essentially, they have defined a number of items that need to be included in this calculation and the lenders will need to ensure the 3% threshold has not been exceeded. There are many moving parts to this which promise to make for a quality control nightmare. Ultimately software will be able to perform many of the checks and balances but, just like any technology, you have a human element to the input that is likely to create havoc for some time to come.

Lenders that only originate QM loans are provided a Safe Harbor against lawsuits. They are free to do loans that are not QM, but they understand going forward that they carry more risk and therefore will have higher rates. In the beginning, expect that most lenders will try to stay in the QM arena but once they can better assess the risk, you will likely see the return of more creative mortgage loan products. All this will continue to drive up the cost of obtaining a mortgage. A good rule of thumb is to make sure you are working with lenders that have their pulse on this issue and have the systems and software in place to maintain a seamless workflow.

Next time we will be continuing with an article by Scott Evans which will have an example of how important it is to bring in a mortgage specialist early on the divorce.

The Inside Scoop on the New Mortgage Rules from an Expert

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