Fewer Foreclosures in the Future
The creation of the Consumer Financial Protection Bureau (CFPB) may make it more difficult for financial institutions to foreclose on homes owned by homeowners who have stopped making mortgage payments. “For every foreclosure, lenders will have to show the CFPB that there was absolutely no way they could do anything else” according to Gaffney. This will require financial institutions to offer homeowners behind in their mortgage, additional options other than foreclosure. Those options may involve short sales, refinancing, cash for keys arrangements (these are arrangements where lenders pay delinquent homeowners to hand over the keys to their residence and walk away from their homes) and other potential options. Due to the necessity of offering these alternatives, lenders may become concerned that taking back homes from delinquent homeowners will be more difficult. This may result in more conservative underwriting requirements by lenders which will end up shutting more prospective homeowners out of the marketplace to obtain mortgages.
Ability to Pay Rules
Under the new rules going into effect in 2014, financial institutions will have less latitude in evaluating prospective homeowners regarding mortgages. The lender will have to take into consideration the “ability to pay” of the prospective borrower. The following are a list of the new rules lenders will have to take into consideration in underwriting new mortgages in 2014:
- Current or reasonably expected income or assets;
- Credit history;
- Monthly mortgage payments;
- Current employment status;
- Current debt obligations, (alimony, child support, credit card bills);
- Monthly payments on other loans;
- Monthly payments on mortgage related obligations; and,
- Monthly debt to income ratio or residue income.
Debt to Income Ratio
The debt to income ratio under the new rules will create problems for many families who seek to obtain mortgages. Under the new rules going into effect on January 1, 2014, the monthly debt to income ratio will be set at a maximum of 43%. This means homeowners will not be able to utilize more than 43% of their income to pay all of their financial debts. These debts will include car loans, credit cards, personal loans, and other financial obligations over and above the prospective mortgage they seek to obtain.
Conclusion
Applying for a mortgage in 2014 is going to be more difficult. If you are interested in obtaining a mortgage, apply now!
