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The verdict was nearly unanimous at a recent hearing on Capitol Hill: The new federal “ability to repay” and “qualified mortgage” regulations that took effect Jan. 10 will make obtaining credit tougher, not easier, this year, and potentially force large numbers of credit-worthy homebuyers to defer or cancel their plans.
What nobody addressed at the hearing, though, was the elephant in the room: OK, we’ve got a problem. But what, if anything, can buyers who find it difficult to meet the new standards do about it?
The testimony came from mortgage, banking and credit union leaders – even the head of a nonprofit Habitat for Humanity chapter. Though they didn’t dispute the good intentions of Congress or federal regulators in adopting the sweeping changes – banning or severely restricting most of the worst practices and loan features that facilitated the mortgage debacle of the last decade – they said the new rules amount to overkill.
By forcing creditors to offer mortgages within a tightly confined box of complex underwriting requirements and imposing crushing financial penalties for infractions, the new regulations are making lenders hyper-cautious about approving anybody, especially applicants who appear marginal or don’t quite fit the standard profile.
Bill Emerson, CEO of Quicken Loans, one of the country’s highest-volume lenders, said the new rules could “impair credit access for many of the very consumers they are designed to protect.” These people are all over the country – young first-time buyers with student debts, middle-income minority buyers, self-employed individuals and those whose incomes are not received at regular intervals, plus just about anybody with household debt that exceeds 43 percent of income.
But are there ways for folks like these to improve their chances to get a mortgage this year, rather than waiting the estimated 12 to 24 months it may take for regulators to assess the impact of their rules and loosen up? Yes. Here are a few practical strategies.
• Debt ratios. Though the baseline standard for a new “qualified mortgage” (QM) is that a borrower’s total debt-to-income ratio should not be greater than 43 percent, lenders say there is wiggle room if you search for it. For example, conventional loans being sold to giant investors Fannie Mae and Freddie Mac may exceed 43 percent by a little, provided your overall application makes it through the companies’ electronic underwriting systems, which take multiple factors into consideration beyond household debt burdens.