HUD's DEFINITION OF QUALIFIED MORTGAGE RULE

Department of Housing and Urban Development or HUD released its version of the Qualified Mortgage rule.   Effective January 10, 2014, the new rule will apply to the new mortgages applied on or after the said date. HUD oversees FHA (Federal Housing Administration) which caters to the low income and first time home buyers and has a 3.5% minimum down payment requirement.  

The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition that is aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) as well as the Department’s historic mission to promote affordable mortgage financing options for underserved borrowers. HUD’s rule builds off of the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year. (Source:www.hud.gov)

To qualify under the new HUD'S Qualified Mortgage definition, mortgage loans must: (Source: www.hud.gov)

- Require periodic payments without risky features

- Have terms not to exceed 30 years

- Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing Section 184,Section 184A loans and other)

- Be insured or guaranteed by FHA or HUD.

There are 2 types of Qualified Mortgages under the new rule:

1. Rebuttable Presumption Qualified Mortgage - are loans with an Annual Percentage Rate (APR) greater than the Average Prime Offer Rate (APOR) + 1.15 percentage points and ongoing mortgage insurance premiums. 

2. Safe Harbor Qualified Mortgages - loans with APRs equal to or less than APOR + 1.15 percentage points

+ on-going Mortgage Insurance Premiums (MIP)

In addition, the HUD's rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages. 

Unlike the Consumer Financial Protection Bureau's Qualified MOrtgage rule, HUD's final rule does not require borrowers to have 43% or less debt-to-income ratio. 

HUD also adopts CFPB's list of transactions that are exempted from the ability-to-repay requirements which incudes reverse mortgages, bridge loans with terms of a year or less and construction-to-permanent loans of a year or less for the construction phase.  

According to NAR (National Assocation of Realtors), the new rule will have a major impact on how lenders determine the underwriting standards to be used to qualify borrowers.  Most Realtors think that with the new Qualified Mortgage rules in effect, it will be more difficult to qualify for a new loan.  Especially for the first time home buyers.  Even though, there are only a few weeks left until the effectivity of the new Qualified Mortgage rules, there's still time to take advantage of the more relaxed credit standards. ACT NOW! Don't wait until it's too late! 

For more information on listings, please visit www.jamesteamrealestate.com.

Tax Could Increase in 2014

Mortgage Foreclosure Debt Forgiveness Act of 2007 - a tax break for struggling mortgage borrowers is set to expire in January 2014. This law was created to help distressed home owners and prevent them from defaulitng on their loan. Normally, debt forgiveness results in taxable income. But under the Mortgage Foreclosure Debt Forgiveness Act, the home owner can exclude up to $2M of debt forgiven on his/her principal residence. 

According to National Association of Realtors (NAR) a return of the tax could have a BIG IMPACT on underwater home owners. 

Once the law expires, a home owner who owns a $400,000 property and sells it for $250,000, the forgiven debt of $150,000 will be taxed after January 1 of 2014. The tax payable could reach up to $35,000. In addition to that, the debt that was forgiven from 2007 to 2013 must be included in the taxable income.  

NAR president Gary Thomas firmly believes that extending the Mortgage Foreclosure Debt Forgiveness Act is detrimental to the continuous recovery of the housing market. 

"If it's allowed to expire, many distressed homeowners may opt instead for continued default until foreclosure or simply to walk away from the property," said Thomas. "Either way, this would destabilize communities as foreclosed and vacant houses drive down values in the surrounding neighborhood." (Source: www.money.cnn.com)

There's a very slim chance that the government will extend the bill. With only approximately 2 weeks into the year and Christmas season at that.  Our best bet is if the government extends the bill by next year and apply it retroactively.

If you have any more questions, please feel free to contact me.