New mortgage rules will take effect in January of 2014 and the Chicago residential real estate market could be in for some major changes. What effect will this have on people seeking to purchase or refinance a home?
These new rules were designed to protect consumers and ensure that borrowers are qualified and able to repay their mortgages. They work in tandem with rules that provide for increased background checks and licensing requirements for those who originate mortgages.
Licensed mortgage originators, like those at A and N Mortgage, are subject to rules in the same way lawyers, doctors or CPAs are licensed and are subject to annual reporting and continuing education.
Among the new rules are:
- Borrowers’ debt-to-income ratios can’t exceed 43 percent, compared to the current rate of 45 percent. The lower the debt-to-income ratio, the more affordable the property should be for the buyer. However, a temporary exception will be granted for loans that are eligible to be sold or insured by Freddie Mac, Fannie Mae, FHA or VA. This will help buyers because the vast majority of borrowers’ loans are purchased by the “three Fs.”
- Origination fees can’t exceed three percent of the loan. This makes loans more affordable for consumers, but according to Neena Vlamis, president and co-owner of A and N Mortgage Services, mortgage brokers will struggle.
- Interest-only, negative amortization and balloon house loans can’t be resold into the secondary house loan market. According to Vlamis, these types of loans are higher risk products and have a higher default rate than conventional fixed or adjustable rate mortgages. Jumbo loans will be harder to qualify for as well because more cash reserves and credit scores over 700 may be required.
- Mortgages that don’t meet the standards for a “Qualified Mortgage” (QM), as defined by the Consumer Financial Protection Bureau (CFPB), could expose lenders to lawsuits. However, borrowers won’t be able to sue lenders who follow the rules.
- Homeowners will also get renewed protections when they fall behind on payments. This will help reduce foreclosure rates, which benefits homeowners, neighborhoods and the economy overall.
Since the financial crisis of 2008, lenders have been tightening lending standards, so these rules won’t affect the majority of those seeking to buy or refinance. Regardless, it is always best to work with a licensed mortgage originator to find the mortgage that meets the new requirements, as well as the individual needs of each buyer or home owner.
Celebrating its 10 year anniversary this year, A and N Mortgage is located in Chicago’s Bucktown neighborhood. The firm currently has more than 50 employees and is one of the top mortgage firms in Chicago. A and N is a hub for learning in the Chicago real estate community, dedicated to keeping Realtors informed and educated through monthly seminars and workshops. In addition to mortgage services for residential and one-to-four unit properties, A and N is a Credit Union Service Provider and offers businesses a Corporate Lending Program for employees.