It’s been many months, but the wait is over for those awaiting a glimpse of the Consumer Financial Protection Bureau’s (CFPB) new qualified mortgage (QM) rule. The new rule is designed to protect both consumers and lenders. It includes a provision called the Ability-to-Repay rule that says all new mortgages must comply with basic requirements in order to shield borrowers from taking loans they can’t repay. The new rule will go into effect in January 2014.
Additionally, gone are the days of the “no doc” or “low doc” mortgages where consumers were able to state their income. Now, all borrowers must supply important financial information that must be verified before being issued a loan. This includes employment status, income and assets, current debt obligations, credit history, monthly payments on the mortgage, and more.
Another inconsistency the new rule addresses is “teaser” or “starter” interest rates. Now, a lender must base their evaluation on the consumer’s ability to pay over the long-term instead of focusing on these discounted rates that are typically offered during the introductory period of the loan.
The CFPB says they’re looking at other possible amendments to the new Ability-to-Repay rule, including exempting certain non-profit creditors that work with low- and moderate-income consumers. Additionally, consumers trying to refinance from a risky mortgage to a more stable loan would also be exempt from the new rule. If passed, these proposed amendments would be finalized this spring and incorporated into the Ability-to-Repay rule’s existing timeline.
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