In the government’s on-going effort to prevent another foreclosure fiasco, the Consumer Financial Protection Bureau(CFPB) has formally released its qualified mortgage (QM) rules which will become effective on January 10, 2014.  Just this month the bureau laid out new mortgage rules under which banks and other lenders will be prohibited from making home loans that offer deceptive teaser rates or require no documentation from borrowers mortgagewishing to purchase Tampa FL real estate and will be required to take more steps to ensure that borrowers can repay.

The new guidelines effectively ban many types of high-risk loans that were implicated in the growth and collapse of the housing bubble, including interest-only mortgages, stated income loans (so-called liar loans), most mortgages with balloon payments, and negative amortization loans where the principal owed continues to grow over time.

Key to the new guidelines is an "ability to repay" rule that sets standards lenders must follow when qualifying a borrower for a mortgage. Lenders will be required to look at a borrower's ability to repay over the long term and will also be required to take into account a borrower's income, assets, debt load, and credit history in addition to the monthly loan payment. The total debt obligations, including the mortgage and assorted costs of a potential buyer of Tampa FL real estate would be limited to 43 percent of monthly income under the new guidelines. (Note:  This figure will result in more buyers still being able to qualify for a mortgage.)

Absent from the new guidelines is any mention of a minimum down payment requirement for qualified mortgages, an issue that had generated a great deal of concern from the mortgage industry. Early proposals were for a down payment requirement as high as 20 percent for a mortgage to be considered as qualified, which lenders said would severely restrict mortgage lending.

The final rule also implements section 1414 of the Dodd-Frank Act, which limits prepayment penalties. Finally, the rule requires creditors to retain evidence of compliance for three years after a covered loan is consummated.  Lenders who follow the rules in making a loan will be exempt from liability if the borrower later defaults on the mortgage on the Tampa FL real estate. Consumers would still be able to make a claim that the lender did not properly follow the guidelines, however.

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