Long Island Law Firm Explains Impact of New Lending Regulations on Home Buyers

BOHEMIA, N.Y., March 19, 2014 /PRNewswire/ -- "When it comes to buying a home, consumers need to be prepared for changes affecting the loan qualification process in 2014," says Christine Perrucci Smith, Esq., an associate with the Long Island Law Firm of Roe Taroff Taitz and Portman, LLP.  As always, consumers must conduct due diligence ahead of time and understand what will be expected of them in order to qualify for financing prior to signing the Contract of Sale.  Smith has identified changes that are being implemented this year and preparing Long Island home buyers for what to expect when trying to obtain financing for a mortgage.

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Today, consumers are impacted by new regulations in the lending industry that began taking shape when the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act charged the Consumer Financial Protection Bureau ("CFPB") with the authority to implement rules related to residential mortgages aimed at shielding borrowers (now labeled "consumers") from the harmful lending practices that contributed to the recent financial crisis.  For the past few years, the CFPB has been gathering information throughout the industry from consumers and lenders (now known under the rules as "creditors") and on January 10, 2014, some of the CFPB's new rules made their debut.

Whether you are soon to be a first-time home buyer or whether you consider yourself a seasoned veteran in the mortgage application process, the lender that you select will now be required to make "a reasonable and good faith determination" that you have a reasonable "ability to repay the loan." (15 USC 1639c.)  Of course, underwriting guidelines have always had to consider a consumer's ability to repay, but the CFPB's new rules take this concept one step further by establishing a new set of criteria which, if met, designate a mortgage as a "Qualified Mortgage" (QM).  Typically, a QM is a loan that will not (1) contain any excessive fees or points; (2) be an interest-only loan or a negative amortization loan; (3) contain a balloon feature; or (4) exceed a debt-to-income ratio of 43 percent.

From a Lender's standpoint

From a lender's standpoint, extending a QM over a non-QM may be preferable because a QM is presumed to have met the ability to repay requirement and, therefore, under the new rules, it is afforded certain protections from a consumer lawsuit.  But what does this all mean for the consumer?

From a Consumer's Standpoint

Consumers will need to be prepared. First, more than ever, consumers seeking mortgages today must be prepared to furnish lenders with documentation about their current sources of income, assets and other financial obligations.  In addition, for those consumers who may only qualify for non-conforming loans, it may take some time to find a lender willing to take on the additional risk of extending a non-QM.  The CFPB does not prohibit a lender from making a non-QM loan if it otherwise determines that the ability to repay rule is satisfied. 

However, the lender, among other things, would not be entitled to some of the safe harbor protections under the rules, should the consumer later default and commence an action against the lender for failure to comply with the CFPB rules.

Second, under the new rules, consumers who later find themselves facing foreclosure may potentially have an additional defense to foreclosure if it is shown that the lender failed to properly verify the consumer's ability to repay, for instance, by not considering the consumer's living expenses in addition to mortgages and other debts.

The purpose of the new rules is to encourage safer loans and eliminate risks for the consumers.  Only time will tell, however, whether the CFPB's rules will negatively or positively impact the consumer's home-buying experience and ability to obtain financing. 

"As always, we recommend seeking the counsel of an experienced real estate attorney who is well-versed in the new regulations and who can provide guidance and support throughout the home buying process," says Smith.

About Roe Taroff Taitz and Portman
Roe Taroff Taitz and Portman, LLP provides a wide variety of legal services to Long Island. Our attorneys have served the residents of Suffolk County for more than two decades. Comprised of attorneys, legal assistants and administrative staff, the firm provides support at various levels of legal expertise. Our resources are available to both businesses and individuals looking for experienced legal representation. The firm's primary areas of concentration include civil litigation, creditor's rights law, trust and estates issues, estate planning, admiralty claims, business counseling and real estate matters. For more information, please call 631-475-4400 or visit http://www.RTTPLaw.com.

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SOURCE Roe Taroff Taitz and Portman, LLP