Federal Qualified Mortgage Guidelines Has Implications For Lenders, Borrowers… and Community Associations

The Consumer Financial Protection Bureau (CFPB) has just released its federal Qualified Mortgage (QM) standard which sets minimum requirements for all mortgage loans as required by the Wall Street Reform and Consumer Protection Act (more commonly known as the Dodd Frank Act).

The guidelines consist of six standards as follows:

Ability to Pay
This includes not just mortgage principal and interest, insurance premiums and property taxes, but also all community association assessments. In fact, lenders will be required to provide documentation of all association assessments.

Borrower Debt-to-Income Ratio
Borrowers may not spend more than 43% of their monthly income on mortgages and mortgage-related obligations (again, including community association assessments).

Legal Safe Harbor For Lenders
Lenders that comply with the ability to repay standard will be offered protection from borrower litigation (except in cases of high cost mortgages).

High Risk Loan Terms Prohibited
Lenders are not allowed to offer mortgages that permit loan balances to increase or which are in excess of 30 years.

Transitional Standard
All loans eligible to be guaranteed by Fannie Mae, Freddie Mac or Federal Housing Administration insurance will be granted QM status during a transitional period

Delayed Effective Date
Lenders have one year to comply with the QM standards (i.e., January, 2014)