November 26th, 2013 10:44 AM by Eric Fang
The Qualified Mortgage (QM) rule going into effect on January 2014 will radically change the mortgage lending environment. In fact, a recent analysis of home loans showed that 1 in 5 current mortgages would not qualify under the new rule. To comply and be able to sell mortgages on the secondary market to Fannie Mae and Freddie Mac, lenders won’t be able to offer interest-only loans, negative-amortizing loans, loans longer than 30 years or balloon loans, or charge the borrower more than 3% of the mortgage amount in fees.
Lenders must also adhere to the Ability-to-Repay rule, which says borrowers' total debt liability -- including housing -- should not exceed 43 percent of income. According to the Consumer Financial Protection Bureau, lenders must "make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling." Lenders who issue mortgages that meet the QM criteria have safe harbor, meaning they cannot be sued by borrowers claiming the loan terms are unfair.