ByTribune Media Services — January 19, 2014
This week, the Consumer Financial Protection Bureau’s (CFPB) new qualified mortgage (also known as the ability-to-repay) rule went into effect.
The new rule is about helping borrowers understand the true costs of the mortgage they apply for. On the flip side, it is designed to keep lenders from lending money to borrowers who can’t afford to make those payments over time.
If it works out the way the CFPB has planned, the number of foreclosures should drop in the coming years, and, hopefully, some of the conditions that helped create one of the biggest real estate bubbles in U.S. history will be eliminated.
To be considered a qualified mortgage, a lender may not charge excessive upfront points and fees (capped at 3 percent of the loan), and the loan cannot be longer than 30 years in length (say goodbye to 40-year mortgages.)
Also, interest-only loans (also known as zero-down payment loans) and negative amortization loans (where the monthly payment doesn’t not cover the true cost of the interest, so the total amount of the debt grows each month) will not be considered qualified mortgages.