QM and the Ability to Repay Changes – Plenty of Options Still Available


Effective January 10, 2014, the Consumer Financial Protection Bureau (CFPB) amended Regulation Z, which implements the Truth in Lending Act (TILA). Regulation Z currently prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan.  The amendments generally require creditors to make and document a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages" (QM).


There is a lot of anxiety in the marketplace regarding how these amendments are affecting the flexibility of lenders to customize a loan to meet the needs of a particular borrower, and the impact on loan interest rates.  In addition, there is concern that the newly implemented tighter underwriting guidelines may, for families with moderate income, limit the amount of a mortgage loan for which they can qualify, and that the maximum 43% debt-to-income ratio may even cause some borrowers to fall short of qualifying for the mortgage loan they need for the home they want to purchase.


Although these new regulations will impact some potential homebuyers as noted above, there are plenty of mortgage loan options still available -- conventional (Fannie Mae/Freddie Mac), FHA, VA, and USDA; most people would still be able to qualify for the loan they want under one of these programs.


As always, it is advised that the borrower, if considering purchasing or refinancing a home, contact a licensed mortgage professional in order to ensure they are aware of the latest information and options available to them, and to get fully pre-qualified.