One of the new rules that have emerged from the Dodd-Frank financial regulation overhaul applies to “jumbo mortgages” that have a loan amount higher than $417,000. Still and the works, and set to go into effect on Jan. 1, 2014, these “Qualified Mortgages” are being put together Consumer Finance Protection Bureau, which will then be responsible for enforcing them.
Qualified Mortgages wont have a minimum down payment or credit score, but rather will hinge upon a borrower’s ability to repay the monthly mortgage. The proposed rules maintain that a jumbo mortgage cannot be more than 43 percent of a borrower’s gross monthly income.
Mark Zandi, chief economist at Moody’s Analytics, believes that the rules are likely to lock in today’s rather stringent lending standards, and make them even stricter. The reality is that lenders today are making loans using even stricter guidelines, but the new rules will make many more lenders shy away from the jumbo mortgage market for fear of lawsuits. Under the new rules, borrowers will be able to sue lenders if they feels that they took out the mortgage that they couldn’t pay for. As long as lenders stays within the guidelines of making the mortgage, they should be fine if a lawsuit should present itself. But these day who wants to be named in a lawsuit that involves a mortgage?
Based on my conversations with many jumbo lenders, they are going to wait and see what the final definitions look like, but most are saying that they could reduce or even stop doing jumbo mortgages. This will reduce competition and ultimately drive up costs and rates for borrowers who are looking for jumbo mortgages. This could in turn hurt the higher-end real estate market, which is just now showing signs of turning around.
The CFPB is trying to protect the consumer, but the market has already adjusted itself and further regulation could threaten an already weak housing market.
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