What is the qualified mortgage? By Jim Gay

Oh boy, more government regulations affecting consumers seeking mortgage loans that are eligible for Fannie Mae, FHA and Freddie Mac pricing. Could this be the last? We can only hope. However, for now the letters QM or qualified mortgage need to be understood and dealt with, like it or not. It is one of the final pieces of the Dodd-Frank Act. Whew!
On Jan. 10, QM went into full swing. It contains two main terms we all need to understand: “ability to repay” and “qualified mortgage.” Ability to repay is merely a refocus, once again, on the borrower’s income, credit and liabilities. If you have a mortgage, you surely went through this taxing scrutiny. It is the name of the game. So, what’s new? Extra scrutiny on the borrower’s income calculations and a new limit of 43 percent debt-to-income ratio.

A qualified mortgage is defined somewhat differently than mortgages have been for the last three decades. Negative-amortization loans, interest-only loans, loans exceeding 30 years, and balloon loans are not allowed. Also, a limit has been set on the fees normally paid to the mortgage companies or banks and may not vary even for the benefit of the borrower. Generally, under QM, the limit of points and fees associated with a home loan is now 3 percent of the total loan amount.

What is wrong with this? It sounds like these new QM rules will keep consumers from making unwise mortgage decisions. Yes and no. Qualified borrowers have long enjoyed the options of interest-only loans, balloon loans with lower rates, and amortizations longer then 30 years, but not any more.

Remember, also, that these rules are only for loans eligible for Fannie Mae, FHA and Freddie Mac, which means that jumbo loans are not part of the QM definition.

Most of the details in the QM regulations test the resolve of lenders and homebuyers will never see the complexity involved. So what is the bottom line for the consumer? Associate yourself with a lender possessing experience and knowledge to guide you through any new regulation.

All regulations that make the lending world more complex have the result of shrinking the available lenders that can complete your home loan. For the last three to five years, mortgage companies and loan officers have been leaving the business. Eventually, this trend may result in higher costs for loans because of less competition.

For the family looking to buy or refinance, my continued advice is to find a trustworthy and knowledgeable loan officer as an ally and proceed to accomplish your goals. Ignore the new QM regulations implemented on a national level. Let your chosen loan officer deal with any changes in the mortgage world.