(KTVI) – New mortgage regulations are now in effect as of Friday. Created after the 2008 housing crisis, the new rules basically keep buyers from getting into loans they can not afford.
First National Bank President Rick Bagy says the Consumer Financial Protection Bureau (CFPB) created the rules which were mandated under the Dodd-Frank Act to ban practices that led to the 2008 housing bubble burst.
This new class of loans, called Qualified Mortgages (QM), prohibit interest-only and negatively amortizing loans and limits the amount of points — fees or prepaid interest on a mortgage — to 3 percent of a loan`s value.
Lenders will also be required to verify that borrowers have the ability to repay their loan, according to the CFPB.
The ability-to-repay rule says lenders must assess and document a potential home buyer`s income and assets, employment status, credit score and other outstanding debt levels before issuing a loan.
QM requirements are below:
• Cannot have excessive upfront points and fees;
• Cannot be longer than 30 years;
• Cannot have certain risky features, such as paying only interest and not principal, or paying less than the full amount of interest so that the total debt grows each month;
• Must be in one of three categories:
1. The monthly loan payment, plus the borrower`s other debt payments, does not exceed 43 percent of the borrower`s monthly income; or
2. The loan qualifies for purchase or guarantee by a government sponsored enterprise (Fannie Mae or Freddie Mac), or is insured or guaranteed by a federal housing agency; or
3. The loan is made by a small lender that keeps the loan inportfolio.