Financial reform and your mortgage

The legislation gives favorable treatment to plain-vanilla "qualified mortgages." Lenders can sell qualified mortgages to investors with fewer strings attached. That gives lenders an incentive to give consumers mortgages without tricks and traps.

A qualified mortgage:

• Doesn't have a balloon payment.
• Is fully amortizing -- that is, it's not interest-only or an option ARM.
• Has taxes, insurance and assessments included in the monthly payments.
• Meets debt-to-income standards.
• Can't be longer than 30 years.
• Has reasonable points and fees.

The legislation says points and fees generally shouldn't exceed 3 percent of the loan amount. There are exceptions for smaller mortgages.

The lender also has to verify and document the borrower's income and savings, and there are limits on prepayment penalties on qualified mortgages. If a lender offers a loan with a prepayment penalty, the lender also has to offer a similar loan without a prepayment penalty.