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Real Estate Corner: Mortgage rules ensure homeowners have ability to repay

Prior to the financial crisis, access to home ownership became increasingly common, partly due to limited documentation loans coupled with additional risk layering. Fannie Mae and Freddie Mac, along with the Federal Housing Administration and Wall Street, encouraged Americans to become homeowners, through programs with reduced guidelines and generous debt-to-income requirements.

As the market is continuing to heal from the after effects of these loans, part of the new process is determining a qualified mortgage coupled with an ability to repay analysis. American consumers deserve access to quality mortgages they can afford. Our economy still suffers from the consequences of the housing collapse, yet the pendulum has swung too far the other way.

This ruling from the CFPB (Consumer Finance Protection Bureau) strikes the right balance between responsible lending and mortgage availability. Knowing what constitutes a qualified residential mortgage will bring back private capital to the marketplace.

Residential mortgages are now required to meet the standards of a qualified mortgage and the requirements for calculating a borrower's ability to repay. The CFPB regulations have formulated the rules to guide this process. In order for a mortgage to be considered a qualified mortgage it must meet specific criteria:

• Terms must be 30 years or less.

• No balloon loans. No interest-only loans. No negative amortization.

• Points and fees must be 3 percent or less of total loan amount for loans more than $100,000.

• Adjustable rate mortgages must be qualified using two test methods.

• Debt to income is limited to 43 percent or less (temporary exceptions for Fannie Mae, Freddie Mac, FHA VA, USDA and state housing loan.)

• High-priced mortgage loans have stricter qualifications.

• Consideration and verification of consumer's current or reasonably expected income or assets and current debt obligations, alimony and child support.

To determine the ability to repay, a lender must evaluate eight factors: current income or assets, current employment, monthly payment on the subject loan, payments on other loans secured by the property, payments for taxes and insurance, homeowners association fees if applicable, current debt obligations, credit history and debt-to-income ratio.

Most lenders have been preparing for these new regulations, so most consumers are seeing few changes in the mortgage process.

However, all consumers will have to provide full, complete and accurate documentation to verify both income and debts. As some underwriting guidelines have changed, it would be most beneficial to contact your local mortgage lender to either reconfirm your pre-qualification or to start the process.

Ralph Coppola, branch manager of Merrimack Mortgage, 157 Main Dunstable Road, Nashua, NH 03060, provided this column on behalf of the Mortgage Bankers and Brokers Association of New Hampshire. Any questions about its content should be directed to the MBBA-NH at 6 Garvins Falls Road, Suite 106, Concord, NH or email MBBA-NH maintains a website at


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