It is important to be pre-approved before starting your home search more now than ever. What you may have been pre-approved for in the past may not be the same today due to new rules that went into effect on January 10, 2014.
Here are 3 Lenders To Reach Out To For Pre-Approvals
Harry Azzano | NMLS ID 160232 | Chase | Office: 216-781-4437 | Cell: 216-310-7334 | Fax: 866-999-8594 | [email protected]
Kathy K. Vidakovics | NMLS ID 850002 | First Federal Lakewood | Office: 330-835-4264 | Cell: 330-697-7106 | Fax: 234-352-1127 | [email protected]
Rodney Reynolds | NMLS ID 190606 | American Midwest Mortgage | Office: 440-882-5403| Cell: 440-315-0800 | Fax: 440-934-1098 | [email protected]
Article From Cleveland.com
Seven years after the mortgage meltdown, a new era for home loans starts today.
The latest change in banking means it’s now highly unlikely you will get a home loan with an interest rate that’s unfairly high or a monthly payment that’s unaffordable.
However, it also means that mortgages are expected to be more difficult to get, cost more and require bigger down payments and better credit scores.
The rules surrounding the new “ability to repay” and “qualified mortgage” standards are being applauded by both lenders and consumer groups.
“It will clean up the very worst practices of the financial collapse,” said Charles Bromley, director of the Ohio Fair Housing Coalition in Cleveland.
Specifically, the new law says that, in order to be considered a “qualified mortgage,” a loan can’t be approved if the borrower’s debts exceed 43 percent of his income. A borrower will have to document every dime of that income. And if there’s a teaser interest rate, the calculations will be based on the highest possible payment.
It also means that fees and points can’t exceed 3 percent of the loan (except for loans of $100,000 or less), interest rates can’t be out of the normal range, and loans can’t be structured with interest-only payments or certain kinds of balloon payments.
Also gone are loans of more than 30 years or with negative amortization, and kickbacks to mortgage brokers in exchange for increasing a customer’s interest rate.
Requirements like those will protect consumers from lenders and from themselves. The new rules also protect banks by requiring strict documentation of income and down payments.
The rules are part of the sweeping Dodd-Frank Act of 2010, which was aimed at outlawing some of the causes of the financial collapse of 2008.
Consumers should be prepared for far more scrutiny, said Robert Davis, executive vice president at the American Bankers Association in Washington, D.C. “Lenders are required to know more about you,” he said.
The fact that you’ve dealt with a certain bank your entire life or own a well-known company in town or had four mortgages with a particular lender won’t mean a pass from the bank, Davis said. Everyone will have to provide the same kinds of income and financial documentation.
It’s like a store carding everyone who wants to buy alcohol, no matter how old you are, he said.
Andy Neidus, branch manager at American Midwest Mortgage in Mayfield Heights, agreed.
“The bottom line is that everyone will now be treated equally and fairly,” he said. “There are limits to the amount of lender fees that can be charged as a percentage of the loan amount . . . And the rate that we charge each borrower has to be, with some minor exceptions, similar to the rate we give all other borrowers.”
Neidus added that his company is now verifying three years of income history. Self-employed folks will have to jump through even more hoops. There are also stricter requirements about cash reserves that the borrower must have left after closing to deal with home repairs and other expenses.
“It’s pretty reminiscent of the lending climate of the ’80s, when I started in this business,” Neidus said. “It’ll be a little more difficult to qualify.”
The new rules don’t outright prohibit most of the kinds of loans, but say the lender could face penalties and liability if it makes a non-qualified loan and the borrower defaults. Further, the same penalties will affect any company that buys or touches the loan. So a lender is unlikely to originate a non-qualified loan unless it plans to hold on to the loan and not sell it.
At Huntington, one of this region’s largest lenders, the qualified mortgage rule “will add steps to what we already do in the lending consideration process,” said spokesman Bill Eiler.
However, Huntington will offer both qualified and non-qualified mortgages while maintaining credit quality of the loans it holds, he said.
“We believe our mortgage customers should get a fair deal that works for their income level,” he said. “We do not expect the qualified mortgage rule to contribute to any significant decline in our mortgage business.”
Dollar Bank had a similar assessment, saying the new rules “will not have a major impact at Dollar Bank,” said spokeswoman Lisa King.
“We have always originated mortgages meeting the requirements that are now part of the Ability-to-Repay rule. In reviewing our portfolio, the majority of our loans also meet the Qualified Mortgage rule and for those loans that may fall outside of the QM requirements, we anticipate approving those loans if they meet our traditional lending guidelines.”
Dollar doesn’t expect to see a decline in loan approvals, said Mike Henry, senior vice president of residential lending.
“Our plan is to continue to do our mortgage business just as we have in the past,” Henry said. “Our goal is to get all qualified borrowers into a home.
“As a lender who is able to keep loans in our portfolio, we are not dependent upon the need to originate loans for sale to Fannie Mae or Freddie Mac as is mandated by the Qualified Mortgage legislation. We are able to originate portfolio loans outside of these guidelines for borrowers who meet our underwriting guidelines, just as we have been doing for years.”
Davis of the American Bankers Association said the new systems and processes that lenders must have means mortgages will cost more for consumers. “It will be more costly specifically because of QM,” he said. “Regulatory costs have to be passed along.”
Dollar Bank said the new requirements could mean higher interest rates for consumers, but said the bank plans to keep rates and fees competitively priced.
Third Federal, a longtime giant in mortgage lending in Greater Cleveland, said the new rules will require more documentation from the consumer.
“Third Federal is committed to assisting our customers as they navigate these new requirements,” spokesman David Reavis said. “It’s too early to tell whether the new rules will result in additional costs to consumers or how they might impact approval rates. ”
Davis of American Bankers noted that the rules are 4,000 pages long and are filled with exceptions that lenders will have to wade through and understand. Some of the rules were finalized only right before the holidays.
Banks likely will be extra cautious for the next six months or so and will be extra conservative with the loans they approve, Davis said.
It would be like if you’re traveling on the highways on a holiday weekend and you knew state troopers were on heavy patrol and you feared your speedometer was not accurate. You might intentionally drive a few miles under the speed limit just to be safe. Davis expects lenders to drive under the speed limit for at least the first half of this year.
Besides protecting consumers, Bromley said the new rules will protect communities. Neighborhoods in Greater Cleveland and nationwide were destroyed by unethical lending. Further, taxpayers got stuck with footing the bill for billions of dollars spent cleaning up the financial crisis.
“It’s a way to safeguard the future,” Bromley said.
Pamela Banks, senior policy counsel for the Consumers Union in Washington D.C., also applauded the new rules. “Homeowners and taxpayers paid a steep price for the irresponsible lending practices that triggered the mortgage meltdown. These new rules will help curb mortgage lending abuses and ensure that borrowers are treated fairly.”
Compliments of Cleveland.com
Image courtesy of Stuart Miles / FreeDigitalPhotos.net