The New Mortgage Rules that are Likely to Affect Your Next Home Purchase

New_Mortgage_RulesThe New Mortgage Rules that are Likely to Affect Your Next Home Purchase

by: Washington Post Author: Michele Lerner – December 13, 2013 

If you’re planning to buy a house in 2014 – and unless you’re in a position to make an all-cash offer – chances are you’ll be affected by some significant changes occurring in the mortgage application process beginning in January.

Several federal agencies are implementing new policies aimed at addressing lax underwriting standards that led to the housing market crash more than five years ago. The new policies could play a role in how much house you can afford.

The policies require lenders to better verify that borrowers can afford the houses they are seeking to buy and can repay the loans. Some are intended to protect borrowers while holding lenders more accountable for their business practices.

For instance, one set of rules requires mortgage servicers to provide consumers regularly with accurate information about their loan balances and fix mistakes quickly. The rules also prohibit servicers from starting the foreclosure process until 120 days after the borrower’s last payment.

Ability-to-Repay rules

On Jan. 10, the Consumer Financial Protection Bureau will implement a new set of rules designed to address predatory lending practices that spurred a wave of foreclosures the past five years.

Authorized by the Dodd-Frank Act, the “Ability-to-Repay” regulations are aimed at preventing lenders from approving mortgages for borrowers with questionable credit scores and poor debt-to-income ratios, and steering them into adjustable-rate loans or interest-only loans with little or no money down.

More expensive mortgages?

Another criticism cited by some experts is that borrowers seeking conventional mortgages meeting the criteria of Fannie Mae and Freddie Mac may face higher fees.

Fannie Mae and Freddie Mac announced this week that guarantee fees they charge to lenders for servicing their loans will rise an average of 14 basis points on 30-year fixed-rate loans, on top of the 10 basis point increases in both December 2011 and August 2012.

Difficulties for the self-employed

Doug Benner, vice president and sales manager of 1st Portfolio Lending in Rockville, says the hard line requiring a maximum debt-to-income ratio of 43 percent will make it especially harder for self-employed borrowers who have trouble documenting their income.

“If you don’t have a W-2 to prove your income, it’s very difficult to get a loan, but the data shows that a larger percentage of the population is self-employed or doing contract work and they should be able to get loans,” Benner says.

The New Mortgage Rules that are Likely to Affect Your Next Home Purchase

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