It should be easier for you to get a mortgage now that President Donald Trump signed legislation that will lift lending restrictions on community banks.
Trump signed the bill, which rolls back certain Dodd-Frank banking rules, on May 24. The reforms ease some of the mortgage laws from the Dodd-Frank Act of 2010, a massive financial law enacted in response to the financial crisis.
As a result, more homebuyers are likely to get approval for a mortgage from their local community bank or credit union.
“Any changes to soften the lending aspects will make it easier for borrowers to get loans,” says Rick Sharga, executive vice president of Ten-X, an online real estate marketplace.
Here’s the problem
Many lenders said the mortgage laws had become too restrictive for them to make mortgages outside of the so-called Qualified Mortgage rule. The rule is based on your ability to repay the mortgage by requiring that your debt does not exceed 43 percent of your income.
But there are very specific requirements when proving your income. The task gets trickier if you’re a business owner, for example, and don’t have consistent income flows.
“Lenders, particularly retail banks, have just stopped taking on any risk at all,” Sharga says. “Getting those smaller lenders back into the game could have a material impact on the housing market.”
What the bill fixes
The new changes allow community banks and credit unions to offer mortgages outside the typical Qualified Mortgage rule so long as they don’t sell that mortgage but keep it in-house. By holding that mortgage on the books, it would be deemed a Qualified Mortgage. The carve-out applies to institutions with less than $10 billion in assets.
Many lenders think this change would allow more community lenders to offer mortgages. It would also be helpful for homebuyers, when mortgage rates are rising but still low.
It’s unclear how much of an impact a change to the mortgage laws would have on the housing market. A large portion of homebuyers already meet the requirements within the Qualified Mortgage rule. The Urban Institute says the Qualified Mortgage rule has had “little impact” on credit availability, though there are fewer mortgages being offered for under $100,000.