Posted by walthtz on 10/20/13 7:39pm
Msg #488893

Dodd-Frank Mortgage Reform

One of the after-effects of the recent financial crisis is the passage of the Dodd-Frank Mortgage Reform. Once the changes come into effect in January of 2014, it might be harder for you to qualify for a mortgage.

What's the reason for the reform, you wonder?

Well, some financial services companies were underwriting loans and then selling them to lenders. Because they were getting very lucrative upfront fees for originating these loans, some of these companies gave loans to people that couldn't be reasonably expected to pay them back.

So, the Dodd-Frank Act was passed in 2010 to try and stop this kind of predatory lending practice, according to Mitchell D. Weiss, an experienced financial services industry executive, author, and adjunct professor of finance at the University of Hartford. And now, the act is being reformed to protect consumers even further.

Let's take a closer look at eight factors you'll need to consider to qualify for a loan once the reform goes into effect in January.

You'll need enough income or assets to cover your mortgage payments.

It's probably pretty obvious why your income is something important for lenders to look at when determining how much you can afford to borrow - and it's something lenders have been taking into consideration for a long, long time.

"If you go back to the beginning of mortgage lending, you had what we call the 'Four Cs' of traditional lending: capacity, cash, credit, and collateral," explains Hollensteiner.

"The Dodd-Frank Act is very much a literal explanation of those. So when we talk about the borrower's ability to repay the obligation, it's all about the borrower's capacity," Hollensteiner says. By capacity, he's referring to the borrower's income or assets and whether it's sufficient enough to make the monthly mortgage payments.

You'll have to prove employment - or income from self-employment.

One of the surest ways to guarantee income is to have a job. So, this is another pretty obvious thing for responsible lenders to ask potential borrowers about.

"This is as important today as it has always been," Hollensteiner says. "Do you have a position that will be here tomorrow? We can't predict the future, but if a lender finds out a borrower's job will expire prior to the loan closing, that might cause the lender to reconsider the borrower's profile." Without another job lined up, a lender could worry you might not be able to pay the mortgage.

Where this gets a bit trickier is when it comes to self-employed borrowers. If you're an independent contractor, your jobs might only last a few weeks or months - and that could make it hard to convince lenders you're a safe bet.

"Self-employed borrowers have to show a two-year track record of having been in the same business, along with two years of federal tax statements to show their income," Hollensteiner says.

If you're self-employed and thinking about applying for a mortgage, it might benefit you to talk to a mortgage professional to find out what you'll need to prove your income.

[Thinking of applying for a mortgage? Click to compare interest rates from multiple lenders now.]

You'll need to prove you can afford property tax and homeowner's insurance.

In addition to principal and interest payments on your mortgage, you'll also have to pay property taxes, homeowner's insurance, and possibly additional fees like a homeowner's association (HOA) fee. The Dodd-Frank Act wants all of those taxes and fees to be clear to borrowers up front.

"Lenders need to document every payment associated with the property and what it entails," says Hollensteiner. "It's important for the consumer to know what the total payments are for the property."

You'll have to factor in the amount you pay on any additional mortgages.

This factor applies to homeowners who might take out more than one loan on their home, like a second mortgage or a "piggyback loan."

The Dodd-Frank Act simply requires lenders to include both payments (for the first and second mortgage, in this example) when they're figuring out whether or not a borrower is qualified for a loan.

Believe it or not, some lenders previously weren't including the payment on the second mortgage in their calculations - even though it's money the borrower will be expected to pay every month.

You'll need to provide full disclosure of any additional properties you own.

Do you own a second home somewhere? If so, all mortgage-related costs for all of your properties should be included in a lender's calculations to determine if you qualify for a new mortgage under the new reform.

"This would pertain to any properties the borrower owns. Investment properties, second homes, vacation homes, etc," says Hollensteiner. "The lender needs to have full disclosure to the total monthly obligations on all the borrower's other properties."

If you pay child support, you'll have to calculate that in, too.

Maybe you don't have a second property, but you do have to pay alimony or child support every month.

That will also be taken into consideration, as lenders will be required by law to include things like alimony and child support in their calculations. Although the Federal Housing Administration takes this factor into consideration already, it may not be common practice across all lenders.

"The borrower might qualify based on income and debts alone, but monthly alimony payments could have a major impact on their being able to pay," says Hollensteiner. "If the lender doesn't include those obligations, the lender could be helping the borrower get financing that he or she won't be able to continue paying down the road."

You'll need a debt-to-income ratio that's lower than 38 percent.

One of the major tools lenders use to determine whether a borrower qualifies for a new loan is the debt-to-income (or DTI) ratio.

"The monthly debt-to-income ratio calculations have been in the lending industry for - probably forever," says Hollensteiner. "What we're seeing today in the industry is that the maximum DTI range is 38 to 41 percent of the borrower's gross monthly income." That's the highest DTI lenders typically consider when determining whether or not to qualify someone for a mortgage, Hollensteiner explains.

To calculate your DTI ratio as a percentage (which is how lenders typically consider DTI ratios), divide your monthly debt repayments by your gross monthly income (before taxes), and multiply that number by 100. But why is the DTI ratio so important?

"It validates you've got a loan that meets the definitions of a safe loan," says Hollensteiner.

You'll need a clean credit history, and a good credit score.

You probably know that your FICO credit score can be used for everything from determining what interest rate you'll pay on your credit cards, to whether or not you qualify for financing on that new car loan. It should come as no surprise, then, that it's important to lenders, too.

"Going back to the 'Four Cs' of traditional lending, credit has always been considered," Hollensteiner says. "It is tremendously important, and it is a great indicator of how likely the borrower is to repay the obligation."

So it might be worth getting a hold of your credit report and doing whatever you can to improve your score. Pay your bills on time, every time. Dispute any errors on your report. A little effort now could pay dividends down the road when it's time to apply for your mortgage - that's how important your credit history is.

As Hollensteiner notes, "even in the dark ages of business, every lender - even if they didn't look at anything else - looked at a credit report."

Reply by Teresa/FL on 10/20/13 8:14pm
Msg #488894

Walt, what is the source of this article? n/m

Reply by Sylvia_FL on 10/20/13 8:19pm
Msg #488896

Re: Walt, what is the source of this article?

http://homes.yahoo.com/news/the-impact-of-dodd-frank-191118507.html

Reply by Teresa/FL on 10/20/13 8:23pm
Msg #488898

Thanks Sylvia. It's great that Walt took the time to copy

and paste the information, but I like to see the source cited also.

Reply by Sylvia_FL on 10/20/13 8:30pm
Msg #488900

Re: Thanks Sylvia. It's great that Walt took the time to copy

I like to see the source of articles too - plus I often wonder about breaching copyright when a whole article is copied and pasted.

Reply by walthtz on 10/20/13 10:07pm
Msg #488908

Re: Thanks Sylvia. It's great that Walt took the time to copy

Actually, there was NO copy right information there.
There was, however, various buttons to share the article such as :
Email, Facebook, Print, Pinit, Tweet, Share,
When you see that, It usually means that it is OK to share the article.
I did not see a Copyright logo.

Reply by Susan Fischer on 10/20/13 10:52pm
Msg #488912

What's important is the common sense of Dodd-Frank.

All of those underwriting criteria comport with sensible lending, and does address the laxities of the if-you-can-fog-a-mirror-you-qualify- for-insane-cash-outs of old.

Hooray for these sensibilities. Good lenders hire good companies who hire good vendors, who are us.

Sometimes, a clue to the viability of a new SS is *their* client: is it Dewy Cheetham and Howzer Online Bankers?

Thank you for a welcome post, Walt.

Reply by JanetK_CA on 10/20/13 11:15pm
Msg #488915

Re: Thanks Sylvia. It's great that Walt took the time to copy

That may be so, but I agree with the others that it's a good idea to cite the source when copying something outright.

Reply by walthtz on 10/20/13 10:01pm
Msg #488907

Re: Walt, what is the source of this article?

This was on Yahoo earlier:

Eight reasons why it will be harder to get a mortgage in 2014

Don't let the eight new criteria mandated by the Dodd-Frank Mortgage Reform take you by surprise when it's time to apply for your home loan.
Yahoo HomesBy Jennifer Berry | Yahoo Homes – Fri, Oct 18, 2013 11:16 AM EDT

Reply by Christine/OK on 10/21/13 5:23am
Msg #488923

Copyright, Public Domain, and Citing Sources :D

From the U.S. Copyright Office Definitions http://www.copyright.gov/help/faq/definitions.html

"A copyright notice is no longer legally required to secure copyright on works first published on or after March 1, 1989, but it does provide legal benefits."

"Where is the public domain?
The public domain is not a place. A work of authorship is in the “public domain” if it is no longer under copyright protection or if it failed to meet the requirements for copyright protection. Works in the public domain may be used freely without the permission of the former copyright owner."

A separate note on citing sources of data/research:

From Wikipedia http://en.wikipedia.org/wiki/Wikipedia:Citing_sources

"By citing sources . . . you enable users to verify that the information given is supported by reliable sources, thus improving the credibility . . . showing that the content is not original research. You also help users find additional information on the subject; and you avoid plagiarising the source of your words or ideas by giving attribution."

Reply by jba/fl on 10/21/13 7:44am
Msg #488933

Re: Copyright, Public Domain, and Citing Sources :D

Good post - there are those who think citing sources is not needed since it was reported by so-and-so and, therefore, it must be sufficient. Yet, more credence will be given when there are several sources reporting the same subject. Even so, the differences in the reporting can blur/slant/hide the real intent.

Reply by walthtz on 10/21/13 7:50am
Msg #488934

Re: Copyright, Public Domain, and Citing Sources :D

You are right., I should have copied the entire article including who the article was from & in the future I will do that., & the concerns were answered in other posts.
But enough is enough! Too many of you people will major on the minor & that makes it very bad! This is why people like me don't share all the knowledge they have because many people on here just like to point fingers, criticize & so forth.
STOP STOP STOP
I saw something of value & posted it.
Stop MAJORING on the MINOR!

Reply by jba/fl on 10/21/13 8:13am
Msg #488938

Re: Copyright, Public Domain, and Citing Sources :D

You are dealing with a lot of people here who have legal experience and have dealt with other areas who are always having said to them: cite your source, where did you see that?, where did you hear that?, cite your source.

Walt - you posted something very topical, interesting, and germane to this profession. I think we all thank you for this one as it is has great possible impact on the mortgage/loan business at large. I didn't see criticism, just wanting to see the source document.
You gave us a good conversation today and I am thankful. Don't hold back, please.

Reply by Sylvia_FL on 10/21/13 10:00am
Msg #488949

Walt - what Jules said :) n/m

Reply by Sylvia_FL on 10/21/13 9:58am
Msg #488947

Re: Copyright, Public Domain, and Citing Sources :D

Walter, you would find it easier just to copy and paste a link to a story Just give a title or description and then link to the article.

Reply by walthtz on 10/21/13 12:40pm
Msg #488971

Re: Copyright, Public Domain, and Citing Sources :D

Actually Sylvia, When I copied it, My mouse did not grab the end. I thought I had selected it, but I missed it. It was an oversight which I am sure that we are all guilty of. But I should have checked the paste & I didn't.
But the amazing part here which I should not be upset of that most of the people here instead of just saying "Thank you" need to Major on the Minor. This makes them feel important, I guess .... Oh well

Reply by Sylvia_FL on 10/21/13 2:50pm
Msg #488987

Re: Copyright, Public Domain, and Citing Sources :D

"My mouse did not grab the end. I thought I had selected it, but I missed it. It was an oversight which I am sure that we are all guilty of.'

My mouse does that sometimes (of course I have nothing to do with that, the mouse has a mind of its own LOL)

Reply by ToniK on 10/21/13 10:13am
Msg #488952

that wont fly in college... n/m

Reply by 101livescan on 10/21/13 8:31am
Msg #488941

Thanks for posting, Walt. If you want something dissected, evaluated, critiqued, diced and sliced, full autopsy, post here.

We all appreciate your posting this valuable information.

Reply by JanetK_CA on 10/21/13 5:14pm
Msg #489007

I agree. In fact, if it wasn't so interesting, we probably wouldn't have cared about the source. These days when there is so much unreliable information being tossed around, it's become habit to immediately want to check the source.

Reply by TR/NC on 10/21/13 7:27pm
Msg #489015

go to www.consumerfinance.gov

www.consumerfinance.gov

Go under the law and regulation tab then click mortgage rule implementation, you can read all about Frank.

Reply by Bear900/CA on 10/21/13 7:44pm
Msg #489017

I just need $20. Anybody? n/m

Reply by Marazz/AZ on 10/21/13 8:03pm
Msg #489021

The info is good and appreciated.

And posting this not necessarily for the OP but for anyone who may not know: posting an article like that costs that site money.

If they have links for sharing, please use them, then they get the $$$ for people clicking on the article. If you post the article they get nothing, the traffic is no longer coming to their site.

Yahoo is probably too big to care, and NR is probably small enough for them not to bother with. But plenty of smaller blog sites would have sent you a polite notice to take it down and just post a link.

And the lack of a copyright symbol means nothing. Copyright is automatic, when you are writing. Registering the file just makes it easier to collect for an infringement and there are automatic penalties assessed if the offending party is found guilty (I believe $50,000 is the minimum amount).