Last week, the Consumer Financial Protection Bureau (CFPB) announced its rules for a qualified mortgage. Let’s take a look at what it will mean to housing.
The idea of a QM is to assure the “ability to pay” — what standards a bank must follow to make sure a borrower has the ability to make the mortgage payments before offering a loan.
The CFPB issued their QM rules which will be effective January 10, 2014. The rules determine the limits on the loan types which can be offered by banks, the fee structures which can be charged by banks and other such issues.
The biggest news impacting a potential mortgage applicant is that the allowable back-end-debt ratio was set at 43% which is more lenient than the discussed 36% limit.
“A ratio that indicates what portion of a person’s monthly income goes toward paying debts. Total monthly debt includes expenses such as mortgage payments (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages.”
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