NEW MORTGAGE RULES & DISCLOSURES Cynthia A. Riddell, Esq. RIDDELL LAW GROUP www.rlglawfirm.com Email: criddell@rlglawfirm.com

DODD-FRANK ACT The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in January 2010 All “consumer financial protection function” is now under the Consumer Financial Protection Bureau (CFPB) The CFPB prescribes rules and issues orders or guidelines pursuant to any Federal consumer financial law.

The new policies and guidelines issued by the CFPB are aimed at addressing lax underwriting standards that led to the housing market crash more than five years ago. The new policies could play a role in how much house your BUYERS can afford. The policies require lenders to better verify that borrowers can afford the houses they are seeking to buy and can repay the loans. Some are intended to protect borrowers while holding lenders more accountable for their business practices.

Ability-to-Repay Rules and Qualified Mortgage On Jan. 10, 2014 the Consumer Financial Protection Bureau will implement the “Ability-to-Repay” and/or Qualified Mortgage rules and regulations. New rule provides for debt-to-income ratio of 43% - Any higher and Buyer will not qualify unless they reduce debt or boost their income. This eliminates no-doc loans. The rules are aimed at preventing lenders from approving mortgages for borrowers with questionable credit scores and poor debt-to-income ratios, and steering them into adjustable-rate loans or interest-only loans with little or no money down.

WHAT TYPES OF TRANSACTIONS ARE COVERED UNDER THIS NEW RULE? The Bureau’s ATR/QM rule applies to almost all closed-end consumer credit transactions secured by a dwelling including any real property attached to the dwelling. This means loans made to consumers and secured by residential structures that contain one to four units, including condominiums and co-ops. Unlike some other mortgage rules, the ATR/QM rule is not limited to first liens or to loans on primary residences. Specific categories of loans are excluded from the rule: •Open-end credit plans (home equity lines of credit, or HELOCs) •Time-share plans •Reverse mortgages Temporary or bridge loans with terms of 12 months or less (with possible renewal) •A construction phase of 12 months or less (with possible renewal) of a construction-to-permanent loan •Consumer credit transactions secured by vacant land

QRM (qualified RESIDENTIAL mortgage) is equal to QM under the new CFPB rule: A loan already classified as a qualified mortgage by CFPB standards could move forward with no down payment requirement under QRM, allowing these mortgages to escape risk retention requirements. Prior to aligning QRM to the QM rule, lenders who wanted to sell mortgages off to the secondary market had to retain a stake in the credit risk when mortgages sold off are originated without at least a 30% down payment requirement. Without the alignment of the two rules some Buyers may have been pushed out of the market.

PREPARE YOUR BUYERS FOR THE DOCUMENTATION REQUIREMENTS KEEP IN MIND in 2014… PREPARE YOUR BUYERS FOR THE DOCUMENTATION REQUIREMENTS Ask you Buyer whether they are self-employed. The NEW Ability to Repay-QM rule by the CFPB requiring a maximum debt-to-income ratio of 43 percent may make it especially harder for self-employed borrowers who have trouble documenting their income.

MORE EXPENSIVE MORTGAGES KEEP IN MIND in 2014… MORE EXPENSIVE MORTGAGES Since borrowers are limited by qualified-mortgage rules to a debt-to-income ratio of 43 percent or less, higher mortgage rates and higher fees that increase the size of their housing payment make it more difficult for some borrowers to qualify for a loan.

NEW INTEGRATED DISCLOSURES and What happened to the HUD-1? On November 20, 2013 the Consumer Financial Protection Bureau (CFPB) released the nearly 1,900-page final RESPA-TILA Integrated Disclosures Rule. The rule will be effective for applications received on or after August 1, 2015. THE LOAN ESTIMATE & THE CLOSING DISCLOSURE

THANK YOU! Cynthia A. Riddell, Esq. RIDDELL LAW GROUP www.rlglawfirm.com