mortgage

How will new mortgage rules affect you?

"I think this could be a bigger issue than the (debt-to-income) cap," says Mathew Carson, a mortgage broker for First Capital Group in San Francisco.

Carson says the majority of his clients rely on interest-only loans. They include middle-class homeowners who choose this option to free up money for other expenses or investments, he says. About 14 percent of the jumbo loans issued in 2012 were interest-only, according to CoreLogic.

Wealthy borrowers and borrowers with substantial assets will always find lenders willing to go outside the qualified mortgage requirements to meet their needs, says Joshua Weinberg, senior vice president of compliance for First Choice Loan Services in New Jersey. "But an average-income earner in the high-valued areas is going to potentially have a more difficult time to get approved" under the new standards, Weinberg says.

Self-employed borrowers

The new ability-to-repay rule means it will be nearly impossible for a borrower to get a mortgage without documenting income. Not that it was easy to get a low-documentation loan since 2008. But more than ever, self-employed borrowers will have to make sure they can document at least two years' worth of sufficient income to get a mortgage.

If you earned $50,000 in 2012 and $100,000 in 2013, the bank will average the two and use an income of $75,000 to process your application, says Jason Auerbach, divisional manager for First Choice Loan Services in New York City. For borrowers with a W-2, the lender uses the current annual income to determine how much the borrower can afford to pay.

Protection against some servicing abuses

Separate from the qualified mortgage rules, the CFPB has issued regulations to protect consumers from abuses by the companies that collect their monthly payments.

The new servicing standards that go into effect next year require lenders to take extra steps before foreclosing on a borrower's home.

Servicers will have to reach out early to borrowers who are struggling to pay their mortgages. This gives borrowers a better chance of working out a solution, such as a loan modification or short sale, to avoid foreclosure.

"Homeowners now have some rights they can enforce if their servicer doesn't review them for a foreclosure alternative," Gordon says.

The new rules don't force the servicer to offer the borrower options when the lender doesn't have workout solutions available. But as long as workout options are available, lenders will be prohibited from foreclosing on a borrower's home until the borrower's application for a loan modification or short sale is processed and the borrower receives a response.

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