QUESTION: I have been reading about "Qualified Mortgages" and the related rules that assure the lenders that borrowers can repay their loans. That's nice for the lenders but are there any new rules that help the borrowers?
ANSWER: The mortgage crisis brought many problems of our mortgage lending system to light. The "ability to re-pay" rule which requires lenders to confirm a borrower's likelihood of repayment and requires that their total debt not exceed 43 percent of a borrower's monthly income is probably the most visible of the changes. A loan that considers a borrower's income, assets, savings and debt against their monthly house payment is called a Qualified Mortgage. Yes, a Qualified Mortgage is safer for the lender.
Some of the requirements that are now being imposed on lenders also work in favor of the borrower. Qualified Mortgages may not carry more than 3 percent in upfront points and fees for loans above $100,000. The "ability to re-pay rule" while protecting the lender from making risky loans, also provides a protection for the borrower who may not realize the real risks involved in taking on too much debt.
There have been other changes that help the borrower. Lenders are being required beginning in August 2015 to use "Know Before You Owe" forms. We are certain to see these used sooner than then.
These forms will be given to borrowers when they apply for a mortgage and also at the closing. The form has been designed to be easy to read and important information is in large and bold type. The interest rate, estimated monthly principal and interest payments, closing costs and pre-payment penalties will be very obvious.
The new rules also impact the way that borrowers will interact with the companies that service mortgages because many inadequate operating practices came to light during the crisis. Mortgage servicers will now have to maintain accurate records, offer ongoing access to staff members and provide options for delinquent homeowners to avoid foreclosure. These rules will no be enforced by regulators.
Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.