As we know, the Dodd-Frank Act was implemented in 2010. This was enacted to ensure Borrowers were protected and that Borrowers have the ability to repay a Mortgage Loan. As most agree, the Act is a bit restrictive against a home buyer or home owner and will only hurt the housing recovery process.
The latest provision of the Dodd-Frank Act (consisting of over 30,000 pages, so I have been told) will take effect Jan. 10, 2014. This new regulation from the Federal Consumer Financial Protection Bureau simply put is designed to make sure lenders make loans only to borrowers who can repay them.
Unlike past years, the Dodd-Frank Act going into effect will affect the buyer who plans to finance their purchase. These new rules appear to be more restrictive, making it more difficult for a buyer to get pre-qualified to finance a home purchase.
Generally, it will require any lender to only lend money to a borrower where the lender has made a good faith and reasonable determination, based upon verified and documented information, that the borrower will have a reasonable ability to repay the loan.
A lender must meet a check list of items. Some of which are as follows:
• Loan provides for regular periodic payments that are substantially equal.
• Loan terms cannot exceed 30 years
• Borrower’s monthly debt to monthly income cannot exceed 43 percent ( currently some loans get approved up to 50 percent)
• Lender must verify borrower’s current expected income and debt obligations ( Stated Income programs will be discontinued)
- Reverse Mortgages– must verify income to ensure homeowner can pay monthly property taxes, Home Owners Insurance, and Association Dues( if applicable)( Currently no income docs are required)
Please note this partial list of requirements is subject to change and may be modified prior to implementation. Also, the Debt to Income ratio for FHA loans remains unchanged at this time. Loans may still qualify up to a 56.9% ratio for FHA programs.