After years of dithering, new rules on mortgages went into effect earlier this month.
The new rules influence what kind of loans a lender may offer you. You will start to hear the term "qualified mortgage." What makes a qualified mortgage today is different than what it used to mean. The following loans are no longer considered qualified:
- Negative amortization loans - Where you made a payment, but the loan balance rose instead of shrunk
- Interest-only loans
- Any loans where you take on a massive amount of debt vs. income
Lenders have been proactive in getting out ahead of the new rules. That's why some lenders had you jump through extra hoops last year if you tried to qualify. Expect lenders for much of this year to continue to overreact and be difficult to work with on income verification.
The whole goal of this is to no longer have a situation where lenders wash their hands of it all when they make a loan to somebody who can't pay.
There are also new rules about what happens if you fall behind on your mortgage.
Under the new rules, lenders are required by the sixth day following when you miss a payment to contact you and try to work with you. (By contrast, lenders were previously basically ignoring you for 3 months, making it very hard to get out of that hole.)
In addition, new rules that supersede state laws make it so that there will be a 4-month period before a lender can foreclose.
This is all a bit late to the game. Most people are servicing mortgages as agreed, and the number of people upside down has steadily shrunk as home values have risen significantly in much of the country over the last 18 months.
So these new rules are forward looking things that should help us avoid any repeat of what we went through with the housing bust.
For further reading:
- Can you still get a deal on a home?
- Save thousands on a mortgage or refinance
- First-time homebuyer guide