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Experts worry new loan standards, lending limits could hurt housing market [Redding Record Searchlight, Calif.](Record Searchlight (Redding, CA) Via Acquire Media NewsEdge) Dec. 12--New mortgage qualification rules and lower FHA lending limits that take effect next year threaten to slow the housing market's recovery. Buyers in 2013 have been leveraging low interest rates and bargain prices. Home sales in Shasta County through October were up 4 percent over a year ago and more than 20 percent for the same 10-month period in 2011. But real estate experts worry about new Qualified Mortgage (QM) rules established under the Consumer Finance Protection Bureau. The standards are meant to minimize risk and help assure borrowers can pay off their loans. These would be for loans insured, guaranteed or administered by the federal government. The Qualified Mortgage rules come on line about the time Federal Housing Administration lowers its loan limits on Jan. 1 in Shasta County from $423,750 to $273,700. Limits in Tehama and Siskiyou counties go down to $271,050. Ken Lawrence of Silverado Mortgage in Redding said the FHA program has been a good loan for borrowers with relatively lower credit scores and/or those recovering from a financial setback. "The $300,000 to $375,000 home is affordable to some folks who have been able to recover and get back on their feet," Lawrence said. "The loss of FHA financing is going to put some of these homes out of reach for them." Lawrence has been a lender for 30 years and he says the $150,000 drop in FHA loan limits in Shasta County was unexpected and unprecedented. "There were rumors that FHA was going to cut back some but we thought it would be more of a tapering," Lawrence said. Meanwhile, a recent survey by Burlingame-based ComplianceEase said one in five mortgages would not qualify under the Qualified Mortgage rules, which take effect Jan. 10. ComplianceEase analyzed the impacts the new rules would have on current mortgage loans and found among other things that more than half would have fees that exceed the new 3 percent points and fees threshold and had annual percentage rates that are too high to qualify for the new "safe harbor" classification. Experts differ on the impact of the new rules, but most agree it may take the first half of 2014 for the market to adjust. Rick Sharga, vice president of Auction.com, said credit is already tight so the new rules won't help in the short-term. "The longer-term perspective is that gradually lending standards will probably loosen a little bit, but those loans with looser lending standards will probably be more expensive, so that becomes an affordability issue for those borrowers as well," Sharga said. It's another reason borrowers need to make sure they have good credit before they start shopping for a house. David Reiss, a law professor at Brooklyn Law School in New York, said there is nothing wrong with tying the price of a loan to the risk. "There is some talk that if it's not a Qualified Mortgage loan, the cost for the creditor or lender will be higher and the cost will be passed on to the homeowner. That will probably be true," Reiss said. But Lawrence of Silverado Mortgage said just because one in five loans written today wouldn't pass Qualifying Mortgage muster doesn't necessarily suggest the loan would not be approved and closed under the new standards. "Making a minor adjustment such as using a different interest rate and closing cost combination may allow a loan to meet the standard that it wouldn't otherwise," Lawrence said. Lawrence knows there will be some loans for which an alternative can be found to resolve a Qualifying Mortgage issue. "But I think most buyers start with getting pre-qualified before they find the home they're interested in purchasing," Lawrence said. Check your credit To order a free copy of your credit report, go to http://www.consumer.ftc.gov/articles/0155-free-credit-reports. ___ (c)2013 the Redding Record Searchlight (Redding, Calif.) Visit the Redding Record Searchlight (Redding, Calif.) at www.redding.com Distributed by MCT Information Services |