New rules to make mortgages safer for borrowers

 We are all aware of the big housing mess that happened recently. Lending institutions offered mortgages to folks who they knew were not able to afford them. Lenders had little requirements when offering a mortgage such as low credit scores were ok, no down payments, and no due diligence to ensure borrowers could make payments. This reckless behavior inevitably caused many homeowners to be foreclosed on and as results, the economy took hit and big banks suffered as well.

In an effort to prevent such reckless behavior from the lenders and also from the borrowers, federal officials enabled a law to protect both borrowers and bankers as well.

They have defined what is called a qualified mortgage. What is a qualified mortgage?. The steps are used to judge whether a loan is qualified, lenders must consider these factors:

• Income and assets must be sufficient to repay the loan;
• Borrowers must document their jobs;
• Credit scores must meet minimum standards;
• Monthly payments must be affordable;
• Borrowers must be able to afford other debts associated with the property such as home equity loans;
• Borrowers must be able to afford all home-related expenses such as property taxes; and
• Lenders must consider a borrower's other obligations like student loans, car loans and credit cards.

If a borrower meets those guidelines, the mortgage payments cannot exceed 43% of the borrower’s pre tax income.

Once a borrower’s mortgage is deemed qualified and approved, the lender cannot be sued or be liable for any complication arising with the payments or mortgage.  For folks with high income, paying up to 43% of one’s income might not be a big issue but for folks making low income ( Ex: $2500 a Month, 43%= 1075 of the Pretax pay meaning the person will be left with $1425 before paying for income taxes and others).

Some consumer advocates are arguing that the new rules are meant to protect lenders more than borrowers.

Banks see the legal protection as a big win for them. 

This week alone 10 big banks settled to pay $8.5 billion to homeowners