State of the Mortgage Market - QM (Qualified Mortgage) and ATR (Ability to Repay)

QM (Qualified Mortgage) and ATR (Ability to Repay ) have arrived.  Effective today, January 10th, 2014 - the Dodd Frank Act piece of legislation on mortgage reform arrives and with it comes the new rules that will have an impact on mortgages moving forward.

Some of the main changes that have come down:

• Most mortgage will need to meet the criteria as follows:
• Max DTI ratio of 43%
• ARM loans must be 5 years in length or more
• No Interest Only loans
• No Fees in excess of 3% of the loan amount
• Minimum of 2 years Required Income information (Tax Returns, etc.)

Here is a great article that explains the impact to the consumer:  http://files.consumerfinance.gov/f/201309_cfpb_ability-to-repay-rule_what-it-means-for-consumers.pdf

Some of the highlights:

1. On ARM Loans - must qualify at the highest rate the ARM can adjust to
2. No loan terms longer than 30 Years
3. No Balloon Payments - where a large lump amount is due at the very end of the loan or during the loan period.

Overall, the market has been moving towards these items over the last few years - so while there will be an impact - over time, these moves are best for the mortgage industry.  The idea behind lending or financing a home should never be to over-extend oneself to the point where they find themselves unable to pay their mortgage (due to a program and notwithstanding an unforseeable event such as death, long term loss in job, etc.).

Change is difficult, but some change is necessary.  For the safey of the consumer and for the betterment of our industry, these rules have been put in place.