Given the fact that the new Qualified Mortgage (QM) legislation (which became active on January 10, 2014) is going to have a significant impact on home sellers, home buyers, realtors and mortgage professionals, I’m a little surprised by how many people seem to be unaware of it. So, I thought it would be a good idea to create some QM awareness by explaining what it is and describing how it can impact various individuals and groups in our local area.
How did QM come about?
Following the financial crisis of 2008, Congress passed the Dodd-Frank Act, legislation aimed at preventing similar crises in the future. Dodd-Frank mandated that lenders must do their due diligence to verify each borrower’s capacity to repay his or her mortgage. However, many lenders paid more attention to the value of the house, and an assumed increase in value, in their qualification assessment than they did to the borrower’s actual ability to repay the loan. Of course, this formula doesn’t work when the borrower can’t afford the mortgage and house values fall, which is what happened during the crisis.
One provision in the Dodd-Frank Act was the establishment of the Consumer Financial Protection Bureau (CFPB). One of the CFPB’s main goals was to protect borrowers by establishing regulations and more stringent financial product qualification requirements that were directly linked to the borrower’s ability to pay the loan. Recently, in order to help protect mortgage buyers from ending up with a mortgage they can’t afford, the CFPB introduced the Qualified Mortgage (QM).
What is a QM?
A Qualified Mortgage is a mortgage given to a borrower that meets the new, more constrictive QM criteria. The ability of the borrower to meet the criteria is a strong indication of the borrower’s ability to repay the loan. Here are some of the specific QM guidelines:
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