Vail Daily column: Mortage rules often change
Within the mortgage industry, things can and do change rapidly. Changes get unveiled and unrolled from a macro level or from entities such as Fannie Mae and Freddie Mac. But changes are also rolled out from a micro level. Such changes may be more subtle, such as an overlay or addition perhaps even a tweak or removal to loan program guideline, made from specific lenders or banks. Macro or micro changes may help or hurt particular borrowers depending on their nature. Either way, for mortgage loan originators to be successful and productive in the current lending and regulatory environment, it is imperative that they are up to speed and paying attention to such macro or micro changes. Let me help illustrate this point by referencing a few such changes that have been made.
Down payments being used to buy a home are the first such example. Within the past week or so, Fannie Mae has unveiled guidelines which now permit for more of a down payment to come in the form of a gift. Prior to Feb. 24, buyers using a conventional type loan (i.e. not direct government financing) had to have 5 percent of their own funds in on the transaction. Any down payments past that 5 percent could be in the form of a gift from a family member or an acceptable other interested party.
Making Home Buying Easier
Recent changes to lending guidelines at the macro level now permit for less than 5 percent to be from the buyer’s own funds. Individual lenders and banks can make their own interpretations based on their own risk assessments from there. For example, I have access to lenders that will now allow for the entire down payment to be in the form of a gift; the borrower need not contribute any of their own money to the transaction. On the other hand, other lenders require that 3 percent minimum come directly from the buyers own funds.
This change to a borrowers’ own required funds in a transaction is a big swing and make the difference in someone being able to buy a home or not. I am not here to debate whether or not a buyer should have a certain amount of their own funds in on a transaction. My point is that a slight guideline change such as this may be the difference in a buyer being able to close on the transaction or not. More importantly, a loan officer must be acutely aware of such tweaks and amendments to loan programs.
On a macro level, the CFPB (Consumer Finance Protection Bureau) rolled out its new qualified mortgage requirements at the beginning of the calendar year. While the nuances and details of the new QM rules are still being worked through, it was widely advertised that all debt to income ratios on conventional type loans would be capped at a reduced level of 43 percent going forward. On a micro level, I can tell you firsthand that deals are still getting done and closed with debt ratios that do not adhere to these ratios.
Other Micro Aspects
I can keep on going. As we approach the tax filing deadline of April 15, verification of a self-employed borrower’s income can be a little tricky. On a micro level, some lenders and banks require that if a self-employed borrower has filed their tax returns, then their transcripts must be available for verification at the IRS in order to use the income reported on the tax returns for qualification. Knowing that the IRS is unpredictable in their processing of returns, other lenders are more lenient as to when the 2013 tax transcripts must be available for verification in order to use this income. Such a nuance as this is obviously a micro aspect of an individual lender’s underwriting procedure. Nonetheless, such a small nuance can certainly be the difference between a deal getting done and not.
Lending and borrowing money can be a complex process in the current environment. Having the assistance of a seasoned and educated loan originator will certainly make the process smoother and easier for all parties involved.
William A. DesPortes, of Central Rockies Mortgage Corp., can be reached at 970-845-7000, ext. 103, and email@example.com.