Could new regs lock out borrowers in 2014?
As the industry knows all-too-well as this point, new rules for mortgage lending are set to go into effect in January, as part of the Qualified Mortgage (QM) rules under the Dodd-Frank Act.
One of them, the so-called 3 Percent Test, is gaining some attention -- fees on QM-eligible loans need to be below 3 percent of the mortgage amount, lest the mortgage be cast as high-cost.
Per the Pittsburgh Post-Gazette, some working-class buyers could find themselves squeezed by this rule:
[Ernie Hogan, executive director on Pittsburgh Community Reinvestment Group] believes this rule will make lower-priced homes more expensive for banks because they will not make as much money on that kind of business.
"It will hurt working-class families buying homes for $75,000 or less," he said. "Those loans will be classified as a high-cost loan. You are going to lose people in the mortgage industry looking at that segment. That's what we think will happen. Banks will make a better spread on higher-priced homes."
The National Association of Mortgage Brokers is concerned, too -- that's because brokers' fees are counted towards that 3 percent limit:
"Loans between $100,000 and $160,000 will be caught in the middle," Mr. Frommeyer said. "Until this is all sorted out, we won't know how the 3 percent rule will actually work."