Some portions of the rule are simply not going to affect any of us; no 40 year terms, no stated income, no interest only; those are about 6 years too late!
More important are the items which could affect new applications after January 2014, the biggest of which is ATR – Ability To Repay. Within the ATR rule, the item that stood out most was the cap on Debt-to-Income (DTI) at 43%. Now, had it not been for the 7 year reprieve that was built into the rule we may have been in trouble. The rule basically states that as long as Fannie/Freddie, FHA/VA and USDA don’t come out with their own restrictions on DTI AND you receive an Automated Underwriting System approval then the 43% DTI restriction won’t apply for the next 7 years.
Here are some of the other items that are required to ensure we have documented the borrower’s ability to repay:
•Income should be verified through a third party. Movement already orders 4506T on all files
•All debts will be considered as part of the DTI ratio.
•Assets will be verified for a minimum of 2 months.
Another items that falls under the new rules that take effect in January:
• Copy of the Appraisal must be given to the borrower 3 business days prior to closing. This rule has been in place for some time now and we still have the ability to waive the 3 day period on rush closings at client’s request.
I think it might be business as usual!