A fair amount of groaning has been heard about how the new mortgage rules may hinder would-be homeowners from successfully securing a bank loan.
However‚ our foreclosure defense attorneys know that as they pertain to loans‚ the new rules simply solidify the more stringent lending practices to which banks were already adhering following the housing market fall-out.
This should help prevent a repeat scenario. But for those on the brink of foreclosure‚ the new rules should serve to slash servicing misconduct‚ bolster borrower protections and ultimately‚ keep more people from losing their homes.
The new guidelines‚ issued by the Consumer Financial Protection Bureau‚ formally went into effect this month.
For those seeking a new loan‚ banks have to make sure borrowers have the ability to repay. That means diligently going through the process of determining how much a person earns‚ how much debt he or she has and weighing those factors against the highest possible mortgage payment for the loan sought. Lenders will have to carefully document each potential borrower’s income‚ debt‚ credit history and assets. Underwriters have to approve mortgages based on the total maximum monthly charges – not just “teaser rates” that only last a few months.
Debt-to-income ratios can’t be higher than 43 percent‚ and banks that make exceptions have to be able to justify the risk. Also‚ upfront charges and fees can’t add up to more than 3 percent of the mortgage balance.
In the end‚ it will mean longer processing times for home buyers‚ but it should produce a more stable housing market. There still won’t be a minimum down payment requirement.
Now‚ for those who are in a situation in which they are trying to hang on to the home they have‚ the new rules require the following:
- Restrictions on foreclosure proceedings while borrowers are trying to secure a mortgage modification. This is also known as “dual-tracking.” Mortgage servicers will no longer be allowed to start foreclosure proceedings while you are actively seeking either a loan modification or some other foreclosure alternative.
- Restrictions on foreclosure sales until alternatives are weighed. So long as the borrower applies for some type of foreclosure alternative 37 days prior to the date of the scheduled auction‚ the servicer has to consider and respond. The borrower must also be provided with enough time to accept the alternative prior to the commencement of the sale.
- Allow for consideration of all foreclosure alternatives. This is for anyone who has missed two or more consecutive payments. In these cases‚ the servicer has to issue a written notice with samples of foreclosure alternatives available to the borrower. These might include anything from loan modifications to deferred payments.
- Offer direct access to help. This means mortgage servicers need to give borrowers access to people who can actually help them with their problem.
- Publication of clear mortgage statements. These statements should have a simplistic breakdown of mortgage payments that clearly indicate the principal‚ the interest‚ the fees‚ the escrow and any indications about upcoming fees and/or alerts.
- Early warnings on rate increases. Servicers managing adjustable-rate mortgages have to let borrowers know when there is going to be an interest rate change that’s going to affect their payment. If that makes the new payment unaffordable for the borrower‚ the mortgage servicer has to offer up information about alternatives.
- Avoidance of force-placed insurance. That means mortgage servicers who are purchasing home insurance for borrowers who have let their own lapse have to provide ample warning and price information‚ and they have to terminate it within 15 days – and refund any premiums – if it’s later determined not to be necessary.
- Be diligent with error correction and credits.
- Maintenance of accurate documents and information that will be easily accessible to borrowers.
Borrowers who are struggling and have questions should seek the advice of an experienced foreclosure defense attorney.
If you are facing foreclosure in Los Angeles‚ contact Cal West Law to schedule your free consultation. Call (800) 568-0707.
What the new mortgage rules mean for you‚ Jan. 10‚ 2014‚ By Les Christie‚ CNN Money