Or, are you going to get caught in the headlights?
There are some mighty big changes coming to the lending world and two phrases are sending chills down your lenders' backs:
QM (Qualified Mortgage) & ATR (Ability to Repay)
Bottom-line: bye-bye to IO loans, > 30 year loans, neg-am loans, balloon notes, prepayment penalties, any loan costing > 3%, and loans over 43% (this is for conventional, VA, FHA).
Why the hard line on ratios (on guidelines that have already tightened way down)? If a lender approves and closes a loan with any of these features and those borrowers later default, those borrowers have grounds (with government support)to sue the lender for providing a loan they never should have been given. Think about that for a minute. You have a customer that is at a 42.3% ratio, and the overtime on the borrower's paystub was calculated based on a 24 month average. But due to the UW leaving off the YTD months, the file should have used YTD and a 32 month average (raising the ratio to over 43%), you now have a loan in direct violation of these rules. If buyer defaults, he can sue and maybe keep the house. Underwriting has become a challenge, with perfection demanded in every file. What kind of rock turning do you think you will see in underwriting?
No one wants to come waltzing in to a real estate office and tell agents that their far and few buyers may not make it if they don't close this year. But I urge everyone to Google these phrases or at the very least, ask their lender the next time they see them.