This morning, the Consumer Financial Protection Bureau released its federal Qualified Mortgage standard. The new guidelines establish minimum requirements for all mortgage loans which now include association assessments. Lenders are required to prove that borrowers have the financial resources to pay mortgage principal and interest, insurance premiums, property taxes and association assessments. If a Lender fails to include assessments within their calculations they will face stiff penalties. In addition, the Qualified Mortgage standard also states:
- No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers.
- No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases.
- Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford.
- Transitional Standard: All loans eligible to be guaranteed by Fannie Mae and Freddie Mac or for Federal Housing Administration insurance will be granted QM status during a transitional period.
For more information and in-depth analysis read CAI National’s article, “Qualified Mortgage (Ability to Repay) Guidelines Released”.