How to Navigate the New Mortgage Laws

broadview_mortgage_santa_barbaraThe following blog post was written by By Susan Bonanno and Kelly Marsh of Broadview Mortgage in Santa Barbara. Broadview Mortgage is the Key Sponsor of the 2014 Home Buying Fair on March 1st from 10am-3pm at Earl Warren Showgrounds. They will be exhibiting the Fair so you can meet with them live to have your home buying questions answered.  Susan and Kelly, thank for sharing your expertise and insights! 

How to Navigate the New Mortgage Laws

Over the past year, the 2014 mortgage industry rule makers kept changing the rules to the game, despite promises to the contrary. Many companies in 2013 were sending out “the sky is falling” messages based on predicted changes. We chose to wait and see what the actual implications would be. We are always looking for ways to make loans work and help educate the community.

For background, federal regulators sent out “final” mortgage rules in January 2013 and gave the mortgage industry one year to comply; however, the regulators then proceeded to change the rules four times, most recently in November 2013, just two months before the January 2014 compliance deadline. When lenders asked for a final version of the rules so we could read them in their entirety without getting confused by all the different versions, the staff-lawyers basically said they didn’t have a final version created yet, and if we figured it out, could we please send them a copy. This is not a joke.

The changes did go into effect January 10, 2014, and even though the changes to the mortgage landscape might still be confusing, do not panic.

The US government has written some mortgage underwriting guidelines into federal law in order to make sure that borrowers have the “ability to repay” their mortgages. These guidelines are collectively known as the Ability-to-Repay (ATR) and the Qualified Mortgage (QM) Rules.  Generally, mortgage companies are now only allowed to originate mortgages that fit into these rules.

The one major difference between the new ATR guidelines and the old lending guidelines is that non-agency and non-government loans now have a maximum 43 percent debt ratio. Although the ATR means a new 43 percent debt-to-income (DTI) ratio, not all loans, as originally feared, fall under their lowered debt-to-income limitations. Most Agency or Government Loans which includes Fannie Mae, Freddie Mac, the Federal Housing Administration, the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture/Rural Housing Service are currently all exempt from having to comply with the 43 percent debt ratios. Even though most of these groups have already said they do not plan to change their maximum debt-to-income from current requirements, it is still prudent for you and your mortgage professional to work together to maximize your purchasing power and look at ways to lower your debt-to-income ratio.

Here are a few ways we’ve helped clients lower their debt-to-income ratio:

  • Lowering down payment and using the funds to pay off other debt which lowers the overall debt-to-income
  • Adding a co-borrower to help qualify
  • Strategic Tax Planning to increase purchasing power
  • Looking into alternative loan programs with lower interest rates
  • Making a larger down payment with the help of gift funds
  • Buying down the interest rate to lower the monthly payment

Either way, borrowers should seriously evaluate these options with an experienced Mortgage Planning Specialist who is skilled in this area.

Susan Bonanno is a senior loan consultant at Broadview Mortgage. She has eight years of experience in the loan industry and specialize in working with first time buyers. For the past four years, Ms. Bonanno achieved the Top Loan Officer award from Broadview Mortgage. Out of 17 branches, she had both the highest dollar volume and highest total number of loans closed. 

Kelly Marsh is the branch manager of Broadview Mortgage in Santa Barbara. Over her more than 16 years in the mortgage industry, Ms. Marsh has closed about 4,000 loans totaling more than $1 billion. She has received the Scotsman’s Guide Accomplishment and is ranked 44th nationwide by Origination News.