Though mortgage rates in the United States fluctuated somewhat in 2013, they remain close to historic lows. However, the process of applying for a new mortgage or getting your existing mortgage refinanced will likely change in 2014, as new mortgage regulations, spearheaded by the Consumer Financial Protection Bureau (CFPB) went into effect on January 10, 2014.
Changes in mortgage rules for 2014
The new CFPB mortgage rules are designed to prevent ill-considered lending to homeowners who really can’t afford the home they are trying to buy. Such practices are widely believed to have been the cause of, or at least have contributed to, the foreclosure debacle of 2008. Richard Cordray, director of the Consumer Financial Protection Bureau, says that the new regulations are aimed to “improve conditions for consumers seeking to enter the market and for all those who are still struggling to pay down their existing loans.” So, what do you as a potential homebuyer and mortgage holder need to know about the new regulations? Below is an overview:
- The prime component of the new mortgage rules is that lenders are prohibited from lending money to homeowners for a new home or to refinance an existing loan where it would make the total household debt more than 43 percent of the family income. The new restriction will hit first time homebuyers (who may still have student loans outstanding), retirees and those looking to buy and refinance homes in expensive real estate markets particularly hard.
- In addition, current mortgage holders will see greater transparency from their lenders. Just as credit card companies are required to disclose all fees and penalties, so mortgage companies are now required to disclose how every penny of your monthly payment is applied.
- There are also new requirements about how lenders respond to customer inquiries. The lender now has five days in which to acknowledge correspondence and 45 days to respond.
- Lenders are also now required to reach out sooner and with more options to mortgage holders who have missed a payment.
What new mortgage changes will mean for the real estate market?
In the short run, at least, the new CFPB regulations will mean fewer mortgage loans and refinancing loans being approved. The Mortgage Bankers’ Association estimates that there will be 10 percent fewer home loans written in 2014 than there were in 2013. In addition, more homes will be purchased for cash. Currently, nearly 50 percent of all home purchases are made with cash, compared to 20 percent in 2008. Hopefully, too, the new CFPB regulations will allow more homeowners to keep their homes.