First, the Qualified Mortgage rule (Q.M.). This limits loans to families whose debt-to-income ratio is less than 43 percent. The purpose is to reduce the number of borrowers who will default. It is a result of the big housing meltdown in 2008.
Take the example of a family with an income of $75,000. The debt-to-income amount (including the mortgage) is $32,350.
Second, the banks can charge the customer no more than 3 percent of the mortgage amount for the cost of making the loan.
Some experts predict these rules will discourage banks from lending to lower-income consumers because the banks will not make enough money on the loans.
The new rules apply to banks that plan to sell their mortgages off to institutions such as Fannie Mae. Selling the mortgage allows banks to use the money to loan to new customers.
Simply put, the banks will make more money, with fewer problems, on bigger loans. Banks being banks, experts say that is the direction in which they will go.
There are exceptions to the rules. Banks that plan to hold the loans and not sell them will not have to follow these rules. Community banks and other non-profit lenders also will not have to follow the rules. The F.H.A. and other federal and state programs can continue to loan money to borrowers.
Source: The Pittsburgh-Post Gazette October 9, 2013