What You Need To Know About Changes To Mortgage Applications and Servicing Guidelines
There are several changes to the process of obtaining a home loan as well as to the process by which such loans will be serviced that will take effect in early 2014. Brief summaries of some of the most important changes are provided below together with links to websites that can provide additional information about each new policy.
New Rules Pertaining to Loan Applications
Ability-to-Repay/Qualified-Mortgage rules (effective January 10, 2014): Under the Dodd-Frank Act, lenders are required to make reasonable, good faith efforts to determine whether prospective borrowers will be able to repay the mortgage loan for which they are applying. The Consumer Financial Protection Bureau (CFPB) has issued new rules under which borrowers will be assessed, in part, to determine whether they would have a debt-to income ratio of 43 percent or lower after taking out a home loan. Borrowers who meet these standards will have mortgages known as "qualified mortgages." In addition, lenders on qualified mortgages over $100,000 cannot charge origination fees above three percent of the mortgage loan value, and similar restrictions will apply to lower cost mortgage loans. For additional information on these rule changes, please click here.
The U.S. Department of Housing and Urban Development (HUD) has issued rules defining "qualified mortgages" for loans it insures, guarantees or administers. For additional information on HUD's definition of qualified mortgage, please click here.
Reduction in the Federal Housing Administration's (FHA) loan limits (effective January 1, 2014): Beginning January 1, 2014, the ceiling for FHA loans on single-family mortgages in the highest cost areas will be reduced from $729,750 to $625,500. Areas with lower property costs will continue to have a loan limit set of $271,050.
For additional information on FHA's loan limits, please click here.
New Rules Pertaining to the Servicing of Existing Loans
The CFPB has issued new standards to guide mortgage servicing. These rules, which take effect January 10, 2014, provide new protections for borrowers, including the following:
1) Mortgage servicers are required to provide borrowers with a monthly statement written in plain language that explicitly discloses the current loan balance, interest rate, escrow account balance, and how each portion of a payment is being credited to the account.
2) Borrowers' mortgage payments must be credited on the date they are received by the servicer.
3) Servicers are required to acknowledge receipt of a loss mitigation application and notify the consumer whether it is complete or not within five days of receipt. If the servicer deems the application to be incomplete, the consumer must also be made aware of what information or documentation is needed to complete the application.
4) A mortgage servicer cannot evaluate a borrower for a loan modification or other loss mitigation option while also preparing to file a foreclosure action. This practice, commonly known as “dual tracking,” was common during the financial crisis but is no longer permitted. Additionally, a lender may not file an initial notice or other documents to advance a foreclosure action unless a borrower is more than 120 days delinquent on a mortgage loan.
5) Finally, before involuntarily placing insurance on a home (commonly known as "forced-place insurance"), a servicer must have a reasonable basis to believe that a borrower has failed to maintain the proper hazard insurance and must provide proper notice to the borrower. If a borrower demonstrates that the property has proper hazard insurance, the servicer must cancel any force-placed insurance and reimburse any premiums charged to the borrower for such insurance.
For additional information on a borrower's rights under the new mortgage servicing standards, please click here.