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New Lending Rules for 2014

There are some sweeping changes coming in 2014 to the mortgage industry. As a consumer, you need to be aware of these changes. They can significantly harm your ability to qualify for a loan. As a buyer or a seller this could affect the outcome of your escrow and ultimately cause a deal to fall apart.
The Qualified Mortgage (QM) rule was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was finalized by the Consumer Financial Protection Bureau (CFPB) in January 2013, and will take effect on January 10, 2014. This rule was designed to prevent some of the high risk lending practices that caused the housing market to crash.
Here are some of the most important points of this new regulation...
Limits on loan features
  • The loans terms may not exceed 30 years
  • No balloon payments
  • No interest only periods or negative amortization


Fees and points cap
  • Origination fees of no more than 3%
  • Up to two discount points depending on rate


Underwriting requirements
  • Monthly debt to income(DTI) ration cannot exceed 43%
  • Consider and verify current debt obligations including alimony and child support
  • Use maximum rate in first five years after first payment using full amortization
  • Consider and verify income and assets


The QM rule is designed to protect consumers from risky loans. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines. These new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.
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Peter B. Savio is President and Chief Executive Officer of the Savio Group of Companies. Peter has more than 40 years experience in real estate development and sales in the Hawaii market; he has been helping his clients realize the maximum return on their real estate investments since he founded Savio Realty Ltd. in 1980.

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