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Preparing for a Mortgage with QM and QRM

By Marcus McCue, Executive Vice President & Chief Marketing Officer, Guardian Mortgage Company, Inc.

The pre-approval process includes the review of the following by a Loan Officer and Underwriter: >> A buyer’s ability to repay the loan by reviewing current income verification items and historical income from two-years of consistent past employment >> Verification of the cash needed to close by reviewing the source of the down payment, closing costs and cash reserves after closing >> Evaluation of the buyer’s credit history with specific attention to the mid-credit score, any derogatory accounts like collections and disputed account, and any public records related to foreclosure, bankruptcy and judgments With the intricacies surrounding the QM and QRM regulatory rules of Dodd-Frank, the best advice is to meet with your Loan Officer prior to entering the new home or home refinancing process. Your Loan Officer will be able to walk you through the process, ensure you have all the newly required documentation and create an accurate picture of eligibility prior to submitting your application.

It seems like the term “Dodd-Frank” is on the tip of everyone’s tongue lately within the mortgage and other consumer lending industry. But what about the average home buyer? How does this legislation affect the average home buyer’s ability to secure a new home loan? The Dodd-Frank Consumer Protection Act, which was signed into law in July 2010, was designed to restore consumer confidence in the housing industry. The law establishes requirements, referred to as Qualified Mortgage (QM) and Qualified Residential Mortgages (QRM) that must be met before a mortgage, new or refinanced, can be created. Those most expected to feel the impact of these rules are firsttime, lower-income buyers, those with credit scores below 720, the self-employed and anyone wanting a reduced initial down payment. One of the largest changes coming out of this new legislation and the resulting rules is that many new homebuyers may be forced to provide a 20 percent down payment, something most in these identified subgroups could potentially struggle with securing. Another area where the changes are being felt is in the preapproval process. These new regulations are making sellers leery of buyers with only pre-qualifications and are causing them to demand pre-approvals, instead. The pre-approval is an actual credit approval based on review and verification of a buyer’s ability to repay the loan and provide the cash needed to close, With QM’s requirement for full documentation of all underwriting requirements, the initial pre-qualifications where no income, asset or credit information is reviewed and verified, has become obsolete.

1 | April 2013