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Changing Loan Options
Given all the new mortgage rules, are there some forms of financing that will no longer be available?
Lenders are free to make whatever loans they want – no loans are barred outright. However, loans that are not within the “safe harbor” created under Wall Street reform expose lenders to more liability and other problems. The result is that lenders, by and large, are only making “qualified mortgages” or QMs.
Basically, a qualified mortgage is an FHA, VA, conventional or portfolio loan. The lender cannot charge more than 3 percent of the loan amount for points and fees. The loan must be fully documented.
If the interest rate is more than 1.5 percent above the average prime offer rate at the time of origination, a borrower may have grounds to fight a foreclosure.
Mortgages that do not adhere to the rules of the “safe harbor” are still legal. This includes 40-year mortgages and no-doc financing. Equity stripping, also known as fee packing, require huge lender fees and charges and therefore cannot be qualified mortgages. Balloon notes are not qualified because all payments for a fixed-rate loan must be substantially the same. Interest-only financing also is outside the safe harbor.
If you speak with lenders today, you will see that qualified mortgages are very common. The “nontraditional” loan products (many of which led to the mortgage meltdown) are gone, and that means a less risky mortgage system for everyone.
We refinanced a mortgage and had settlement several weeks ago. Now we have received a letter from the settlement provider saying that there was an error, along with a check for $1,200. Given the incredible paperwork demands of the lending process, how could there be such a mistake?
There are millions of loans originated each year, and since billions of pieces of paper are involved, mistakes will happen.
Consider the good news: The settlement provider did its job. They reviewed the closing papers, found the mistake, and sent you a check.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to firstname.lastname@example.org.View Foreclosure Article Archives
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