Mortgage market could see few changes as new regulations take effect

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— New federal mortgage rules that seek to vet borrowers more thoroughly went into effect Friday, but banks and loan originators have been phasing in more stringent requirements on their own ahead of the effective date.

“People are aware that the mortgage market has changed,” Kathryn Pedersen, of PrimeSource Mortgage, said about the post-housing bubble market. “Yes, we’re going to need more stuff from you, more financial documents.”

The new Consumer Financial Protection Bureau rules establish a category called qualified mortgages.

Qualified mortgages have certain feature requirements (for example, no terms longer than 30 years and points and fees less than 3 percent of the loan amount) and fall into three general categories: loans with debt-to-income ratios of less than 43 percent, loans eligible to be purchased by a government-sponsored enterprise (for example, Fannie Mae and Freddie Mac) and loans originated by lenders that meet the definition of a small creditor.

Loans that do not meet these new standards are called nonqualified mortgages. A nonqualified mortgage exposes the lender to increased legal liabilities.

Pedersen said that most of what’s now done in the mortgage industry counts as a qualified mortgage.

Jumbo mortgages, which for a high-cost area like Routt County means anything more than $625,500 in 2014, can be qualified mortgages if they meet the feature requirements, but interest-only jumbos and balloon jumbos will be nonqualified.

The jumbo market will be affected more than conforming loans, Pedersen said, but less than you might think.

“Overall, I don’t see a big change coming for the consumer,” Pedersen said.

A lot of lenders have been implementing changes along the lines of the new rules in the past couple years, she said.

The Mortgage Credit Availability Index, a Mortgage Bankers Association report, barely changed from November to December, showing that lending standards did not significantly tighten ahead of the effective date for the new rules.

“Many investors appear to have already made changes in prior months with respect to the new CFPB mortgage regulations,” a release from the Mortgage Bankers Association states.

Nonqualified mortgages aren’t inherently more risky or worse for consumers, and some banks will continue to offer products that don’t conform to the CFPB’s definition of qualified.

Mountain Valley Bank, which has offices in Steamboat, Meeker, Walden and Hayden, holds all of the loans it originates and has not been selling on the secondary market for a few years, according to vice president and compliance officer Donna Lyons.

“Because we’re a rural bank, we’re able to still offer some products that big banks can’t,” Lyons said.

Mountain Valley Bank offers qualified and nonqualified mortgages, she said, but as a rural bank, it employs more flexibility when evaluating borrowers and still will offer products such as balloon loans.

“Even with a nonqualified mortgage, you're still going to look at the ability to repay,” Lyons said.

“As most people know, what we’ve needed from the client has grown in the past couple years,” Pedersen said about the mortgage process. “Getting a loan is still possible. We’re doing loans all the time.”

To reach Michael Schrantz, call 970-871-4206, email mschrantz@SteamboatToday.com or follow him on Twitter @MLSchrantz

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