New Federal Mortgage Rules Start January 10th, 2014

New federal rules surrounding mortgages kick in January 10th, 2014, but for the most part, the rules won’t make much difference.

The rules released from the Consumer Financial Protection Bureau require lenders to make “a reasonable, good-faith determination” that their borrowers will be able to repay their loans.

There are additional standards for so-called “qualified mortgages” which give their issuers legal protection against charges of inappropriate lending. Qualified mortgage loans are no longer than 30 years. And they have fees and points totaling no more than 3 percent of the loan’s value.

Lenders managed to win a reprieve on another piece of the standard; a borrower’s total debt payments (including credit cards and student loans) cannot exceed 43 percent of income. Loans eligible for purchase by Fannie Mae (FNMA) or Freddie Mac (FMCC) or for insurance by federal agencies do not have to meet that debt-to-income standard until the year 2021.

Lending Standards Tightened Since Housing Crash

But lenders have already tightened lending standards drastically since the housing crash.

The best evidence for that is the Mortgage Credit Availability Index published by the Mortgage Bankers Association, which shows the index would have stood at around 800 in 2007 if it had existed at the time.  Currently, it’s around 110, which means it’s much harder to get a mortgage than before the housing crash.

Even with that tightening, mortgage credit was easier to get in November than in all of 2012 and the first half of 2013. And sales of new homes are running near their highest since 2008.

The bigger influences on housing affordability in 2014 will be whether or not the economy grows and interest rates. Those who live in states where housing prices are very high or where the bounce-back from the crash has been weakest are most likely to get rejected for loans. Young people who are hoping to “grow into” their mortgages by progressing in their careers are also vulnerable. The rules require lenders to take into account how high the rate might get over the life of the loan, not just the preliminary teaser rate, so it might be harder to squeeze into a home with an adjustable-rate loan.