Mortgage News Roundup - What's it Take to Be a Qualified Mortgage?

In today’s blog we’ll look at the drop in foreclosures as well as look at how the new rules make it easier or more difficult to get a loan.

Foreclosures Drop to Lowest Level in 7 Years

The good news is that the foreclosure crisis is finally fading away. The number of new foreclosure filings, including default notices, auctions and bank repossessions, dropped 15% to a total of 113, 454 properties in November. RealtyTrac, an online marketer of foreclosed properties, also reported that this was the biggest monthly decline since November, 2010, and foreclosure filings are now at the lowest level since December 2006.

“While foreclosures will likely continue to stage a weak rally in certain markets next year as the last of the distress left over from the Great Recession is dealt with, it is highly unlikely that there will be a foreclosure comeback that poses any major threat to the solid housing recovery that has now taken hold,” said Daren Blomquist, vice president at RealtyTrac.

Home loans are becoming easier to get – for some

Ellie Mae, a national mortgage tracking firm, is reporting that for closed loans, average credit scores and down payments are lower than before and allowable debt limits are rising. The average FICO score dropped from 750 to 732 in 2013. Also the people with FICO scores under 700 who qualified for loans went from 17% in 2012 to 32% in September of 2103.

Some companies are also allowing higher debt-to-income ratios where it makes sense. Also, it’s just one thing that a mortgage company will look at.

Additionally, there are now more competitive private mortgage insurance (PMI) options for people who can’t have 20% down payment.

What You Need to Know About the New Mortgage Rules

As we’ve been telling you, the rules changed in 2014 to comply with the Dodd-Frank Act passed in 2010 to ensure that borrowers could repay their mortgage loans.

Here are 3 main things you need to know about how the mortgage rules changed in 2014.

1. Not a whole lot is changing when it comes to loans available

These new rules were designed to discourage the kind of predatory and risky lending that was rampant in the years leading up to the housing recession. However, many of the lenders made changes on their own years ago, and the bad type of loans haven’t been available for years.

2. New ‘ability to repay’ guidelines will require more documentation

Lenders are now required to verify all of these items before approving a loan:

• Income or assets you will rely on to repay the loan.
• Current employment status.
• Monthly mortgage payment for the loan. (The rule requires that for adjustable-rate loans, lenders must calculate the payment using the higher of the introductory or fully-indexed adjustable rate.)
• Monthly payment on any other loans associated with the same property.
• Monthly payments for property taxes and insurance that you are required to buy, and certain other costs related to the property such as homeowners association fees.
• Debts, alimony and child-support obligations.
• Monthly debt-to-income ratio that compares the borrower’s total debts with total income.
• Credit history.

3. Most lenders will follow new ‘qualified mortgage’ (QM) guidelines

It protects them as well as you.

So what’s it take to be a “qualified mortgage?” A loan must:

• Have a loan term of 30 years or less.
• Not have negative amortization.
• Not be an “interest only” loan, or a “balloon payment” loan where a large lump sum of the principal is due back at one time (exception made for small lenders).
• Upfront points and fees must not exceed 3 percent of the total loan amount.
• Debt-to-income ratio may not exceed 43 percent.

NOTE: some of these are not in concrete. FHA, FHFA, VA, USDA, RHS, etc do allow higher debt loads. Small lenders could offer balloon payments.

Zillow is predicting that there will be a larger number of loan offerings in 2014 to help people find better lending options.

If you have any questions about mortgages, contact your reputable mortgage officer to find out what is the best option for you.