How the new consumer mortgage rules may affect you Apr 14, 2014, 10:13 am By Heidi Carmack Pfaffroth

This year several new mortgage rules went into effect to protect consumers and to reduce the risk of another housing recession. Each of the new rules is meant to address a perceived abusive practice by lenders toward borrowers. For the most part, there won’t be many changes for Bank of American Fork customers, but below we’ve highlighted differences you might see in obtaining a mortgage loan after the rule changes took place in January.

Some changes you may notice:

More-thorough application process.  The Ability to Repay rule, mandatory for all mortgage lenders, is meant to address one of the purported causes of the financial crisis—borrowers entering into mortgage-loan contracts that they were unable to repay.  Specifically, the rule mandates that lenders consider and verify the applicant’s ability to repay before making a mortgage loan. For example, lenders will ask about employment status, income or assets, loan repayment terms, debts, credit history, monthly debt-to-income (“DTI”) ratio, monthly payments associated with the property being purchased like taxes and insurance, and monthly payments on a simultaneous loan secured by the property being purchased. Although Bank of American Fork and many other banks already made mortgage loans responsibly, some lenders disregarded basic underwriting standards and made loans based on the expectation that the loan would be repaid when the property was refinanced or sold, rather than by regular principal payments made by the borrower over time. Lenders now have an extra incentive not to make loans with risky features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments (where the principal amount increases), and not to make “stated-income loans”, i.e., loans based on the income the borrower lists on the application but which has not been verified by the lender.

It will be harder to get loans with risky features such as balloon payments, terms exceeding 30 years, negative amortization, interest-only payments, and loans to borrowers whose DTI exceeds 43%. Again, most banks, including Bank of American Fork, already made mortgage loans responsibly, but because some lenders didn’t, the new rule gives lenders an extra incentive to avoid these risky features when making loans.

Your lender must provide you with a list of homeownership counseling agencies when you apply for a mortgage loan. Housing counselors throughout the country can provide advice on buying a home, renting, defaults, foreclosures, and credit issues. The counseling agencies on this list are approved by the U.S. Department of Housing and Urban Development and they can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, often at little or no cost to you. This list will show you several approved agencies in your area. One of the new rules requires lenders to provide this list within three days of application. You can also find counselors yourself at http://www.consumerfinance.gov/find-a-housing-counselor.

You will receive an appraisal even if you do not request it. Lenders are now required to provide home-loan applicants with an appraisal of the subject property even if they do not request it. It must be provided within a certain time before closing, although that timing requirement can be waived by the borrower if the waiver is done early.

Some home purchases will require a second appraisal. When a seller sells a home after owning it for less than 180 days and for a price that is substantially higher than he or she paid for the home, and a lender finances the sale to a new buyer, if the new buyer’s APR exceeds a certain amount, a second appraisal must be obtained from a different appraiser.  The new buyer won’t have to pay for the second appraisal—the lender has to pay for it—but it may delay the closing.

Bank of American Fork is committed to caring for its customers, and that includes keeping you apprised of changes in the banking industry that may affect you. To find specific information, talk to a mortgage loan officer today. Come back often for information and news!

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