Homeowners Mortgage Relief

How Do New Mortgage Rules Impact the Borrower? 

New Rules For Borrowers Seeking a Mortgage

Earlier this month the Consumer Financial Protection Bureau (CFPB) announced several changes surrounding mortgage proceedings.

Mark Skinner, Mortgage Originations Manager at IBM Southeast Employees’ Federal Credit Union (Boca Raton, FL) details the new rules and how they will impact the industry. “For over a year the Consumer Financial Protection Board (CFPB) has been working on new rules that are designed to protect consumers and help prevent another real estate / financial crises like the one we experienced in 2007.”
He says that the new rules address three topics including ability to repay, escrow requirements, and high-cost loans and home ownership counseling. Certain areas of each rule will go into effect at different points over the next few years. “804 pages on ability to repay and 431 pages on high-cost and home ownership counseling rules go into effect January, 2014. However, on June 1 of this year the new 116 page rule for escrow requirements will go into effect.”

New Mortgage Ability to Repay Rule

Skinner believes the ability to repay rule will reshape the types of mortgage loans being offered in the near future. “The ability to repay rule lays out eight basic requirements to determine the borrower’s ability to repay the loan and defines a ‘qualified mortgage.’ A qualified mortgage provides lenders with a presumptive safe harbor regarding the borrower’s legal options if the borrower defaults on mortgage loan payments.” Underwriting requirements on mortgages made to Fannie Mae, Freddie Mac, Veterans Administration, and Federal Housing Administration are exempt from this rule for at least the next seven years.
He adds that the ability to repay rule also limits the borrower’s total debt payments to 43%, which for decades has traditionally been 45% for most lending institutions. “What this means for a family with a $60,000 annual income is their mortgage payment plus car, credit card, and other monthly obligations cannot exceed $2,150 a month. In determining the 43% debt to income ratio, the mortgage payment includes the principal and interest payment plus 1/12^th of the yearly tax and insurance payment amount along with any home owners association payment as computed to a monthly amount if it is paid quarterly, semiannually or annually.”
Because interest only, balloon, negative amortization and loan terms greater than 30 years are not considered to be qualified mortgages, Skinner predicts that they will become scarce or even extinct. “Additionally, I envision that additional disclosures and or acknowledgments will be required at loan closing to attest a borrower loan as a qualified mortgage. The lender will also be required to maintain the evidence of the borrower’s ability to pay for three years.”

New Mortgage Escrow Rule

“On the escrow rule, borrowers of non-qualified mortgages will be required to escrow taxes and insurance payments for five years instead of 12 months, which is the current requirement,” Skinner says. “The instance of a non-qualified mortgage that occurs most frequently are borrowers that obtain fixed rate equity loans. Equity loans typically have higher interest rates than standard first mortgages but many lenders pay the closing cost associated with an equity loan, which can make that loan more attractive.”
Additionally, equity loans enable consumers to borrow money when they don’t meet the credit requirements of a standard first mortgage. In some cases, an equity loan’s annual percentage rate will require the borrower to escrow their tax and insurance payments even if they are not escrowing on their first mortgage.
Still unsure how the new mortgage rules will impact you? Contact a mortgage professional for more information.

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New Mortgage Regulations - who can take out a mortgage

Mortgage Free and Clear Homeowners

High percentage of U.S. homeowners are mortgage free

One-Third of Homeowners Have No Mortgage

More than 20 million American homeowners own their homes outright free of any sort of mortgage on the property.

About 34.5% of American homeowners aged 20 to 24 owned those properties outright. Real estate agents, in interviews, said these youthful buyers are most likely young millionaires, those with trust funds or those who received help from their parents.

This represents just about one third of all homeowners nationwide, according to a new report from Zillow, a real estate information, sales and mortgage website.
Demographics, home prices and geographical location all seem to play into “free-and-clear” home ownership, according to Zillow’s survey.
Out of the nation’s top 30 housing markets, Pittsburgh, Tampa, New York, Cleveland and Miami had the highest percentage of free-and-clear homeowners. A high number of all-cash, foreign buyers probably plays into New York and Miami. The other cities have relatively low home values, compared to the rest of the nation, making it easier for homeowners to either buy their homes outright or pay off their mortgages more quickly.
The New York metro area had the highest percentage of young, free-and-clear homeowners, with 84.0% of those homeowners owning their properties with no mortgage, according to the Zillow data. The Detroit region had the second-highest percentage of young mortgage-free owners: 53.9%.
Nick Segal, a real estate agent in Beverly Hills, said the trend of young, wealthy homeowners has emerged in recent years as high-end real estate has looked increasingly attractive to buyers who want to park their cash outside of the stock market or the bank.

Senate ‘Cliff’ Bill Retains Mortgage Relief Act

Senate ‘Fiscal Cliff’ Bill Extend the Mortgage Relief Act

As the Administration and Congress negotiate a solution for the fiscal cliff, those discussions have included outright elimination of or changes to the Mortgage Relief Act.

Tax rates would remain the same for most households and mortgage cancellation relief is extended in a budget package passed by the U.S. Senate to avert the so-called fiscal cliff. The House today could take up the bill, which NAR has been monitoring closely because the fiscal cliff’s automatic tax increases and federal spending cuts involve programs important to real estate and impact household wealth. Based on what the House does, the provisions in the Senate bill could change in the final bill.

The “American Taxpayer Relief Act of 2012’’ passed on a bipartisan 89-9 vote in the middle of the night and extends current tax rates for all households earning less than $450,000, and $400,000 for individual filers. For households earning above these limits, tax rates would revert to where they were in 2003, when taxes were reduced across the board. That means taxpayers in the highest bracket would pay taxes on ordinary income at a rate of 39.6 percent, up from 35 percent.
The tax rate on capital gains would also remain the same, at 15 percent, for most households, but for those earning above the $400,000-$450,000 threshold, the rate would rise to 20 percent.
To change this established portion of the U.S. tax code would be to change the rules in the middle of a game, resulting in a massive unexpected redistribution of wealth in the country as most people itemize the Mortgage Relief Act at some point in their home-ownership.
One of the primary misconceptions is that only the wealthy benefit from the Mortgage Relief Act, when in reality it benefits primarily middle- and lower-income families. Almost 91 percent of people who claim the Mortgage Relief Act earn between $50,000 and $200,000 per year and two-thirds of those who claim the Mortgage Relief Act are middle-income earners. Isn’t the goal of the President and Congress supposedly not to hurt the middle class?
Because of the capitalization impact of the expected stream of future mortgage interest deductions, removing the Mortgage Relief Act would decrease home values (conservative estimate) by 15 percent according to the National Association of REALTORS®, and destroy $2.5 trillion in housing wealth… and that includes the wealth of homeowners who own their homes free and clear. That’s a big hit on a family’s pocketbook anytime but especially now.

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Day Global LLC. can help you get your house back and stop foreclosure in its tracks.
Contact us for a free no obligation consultation to see if you qualify.