ATR (Ability to Repay)/QM (Qualified Mortgages)
and the Impacts on Home Buyers
January
10th signified additional revisions to the home loan
financing industry and has created high anxiety and unanswered questions as to
how it will affect home buyers ability to obtain financing. After sitting through multiple webinars,
conference calls and seminars regarding this topic, I feel comfortable enough
to present to you the reader’s digest version of the changes that have everyone
freaking out!:
To
start, a brief definition and its
origin: ATR/QM represents a
chapter in the Dodd-Frank Act, that 900 page bill that has multiple phases
to it, this being the latest phase to the bill.
Essentially the lender is required to make a reasonable and good faith
determination of the consumers’ ability to repay the loan according to its
terms…This brings us to yet another aspect of the bill that rolls out January
18th, Higher-Priced Mortgage Loan (“HPML”). We’ll come back to that….
Here
is what is eliminated:
·
Negative
amortization (Shocker)
·
Interest
Only (Say what??)
·
Balloon
payments (Boooooo)
·
Anything
over 30 yr amortization (You’re killin me smaaaalls!)
·
Debt-to-Income
not to exceed 43% (Don’t sweat it, I will explain)
·
Total
points and fees not to exceed 3% (Don’t sweat it, I will explain)
With
regards to Debt-to-income ratio, this can exceed 43% if the automated
underwriting system (AUS) issues an “approval” rating. So, if DU (Fannie Mae’s AUS) or LP (Freddie
Mac’s AUS) issues an approval and the DTI is 49.8%, First Cal will still
approve the loan.
With
regards to “HPML”, this will not apply to investment property financing which
is typically accompanied with points. It
DOES affect buyers who like to buy out the mortgage insurance and pay it
upfront. However, First Cal allows
borrowers to finance the upfront mortgage insurance!
So,
what does this all mean for your buyers? It’s really “business as usual”. Personally I haven’t originated a neg-am,
interest-only, balloon or 40 yr mortgage, or a loan with a debt-to-income ratio
over 50% on a CONVENTIONAL LOAN (remember FHA/VA doesn’t apply to QM), in
years.
Next
week I will tell you why statistically speaking, few home buyers will be
affected by FHA’s decision to lower loan amounts will have little impact on the
market.
Financial Markets
The Dow Jones has steadily surged over 400 pts through the
holidays and over the past 30 trading sessions with most of the gains
coming before Christmas. The market has
bobbed along the past two weeks amidst mixed earnings reports.
The bond market, which often trades inversely to
stocks, bucked tradtional trading trends with investors acting
bullish on bonds. As always, I focus on
the Fannie Mae 3.5 coupon which is most directly related to our buyers’
interest rates. The Fannie Mae 3.5
coupon has improved roughly 100 basis points over the past month, which loosely
translates into .25% in lower rate on a 30 yr fixed mortgage.
Southern Nevada Real Estate Related Data
This
past Tuesday, the GLVAR released fresh real estate data for 2013 and the
article below is a great reference for buyers interested in understanding what
the market has done. Among the
highlights, 62% of re sale homes were traditional sales….Roughly 2.8 months
supply (8100 homes, townhomes and condos on the MLS as of December). Generally speaking equilibrium occurs when
there is roughly a 6 month supply of homes so the “seller” still holds the
cards….
For more real estate financing information, please visit my
website
