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The 2015 Mortgage Outlook

by Jason Porterfield

Changes to be Aware of

The Dodd-Frank Wall Street Reform and Consumer Protection Act goes into effect this year. The rule means that qualified mortgages administered by the FHA after Jan. 21 are required to have substantially equal payments. They won’t be eligible for post-payment interest charges or balloon payments. According to HUD, these charges cost homebuyers an estimated $449 million in 2012.

One HUD rule that had been waived will once again go into effect and could have a negative impact on rehabbers. The FHA’s property-flipping rule was first implemented in 2003 with the intention of limiting fraud associated with flipping homes. Under its guidelines, HUD would not insure any loans on homes that had been resold in the last 90 days. While it was intended to protect investors and lenders from losses and reduce higher rates of foreclosure associated with illegal rehabbers, it also harmed legitimate rehabbers. The rule was waived in 2010, but that waiver has now ended. Estate sales, sales by government agencies and homes that are located in areas that have been declared disaster areas are excluded from the rule.

Another regulatory change was made to help homeowners who participated in short sales. President Barack Obama signed an extension of the Mortgage Debt Relief Act of 2007 into law in December to provide some relief for short sale earnings. The act provides relief to homeowners on short sales performed in 2014, according to the Internal Revenue Service. It means that if a bank sells the property for less than the amount of the mortgage, and the homeowner had received mortgage relief, the difference won’t be counted against them as phantom income.

Regulations Pending

There are still some Consumer Financial Protection Bureau regulations that have yet to be finalized. Until rules have been set, they will continue to loom over the market. One that has been finalized is the integration of the Truth in Lending Act and the Real Estate Settlement Procedures Act. When this “know before you owe” change takes effect on Aug. 1, two required forms and applications will be combined into one in an effort to make the process easier and less consuming for consumers. It also effectively ends same-day approvals and closings by requiring a three-day review period for the HUD-1 form, with review periods to follow any changes that are made during the process.

The Good Faith Estimate and the initial Truth in Lending form will be phased out and replaced by the Loan Estimate, intended to provide consumers with information that will help them understand costs, features and risks associated with the loan in question. HUD-1 and the second TIL will be combined into the Closing Disclosure form intended to help consumers grasp all of the costs of the loan and which lenders must deliver to them at least three days before the loan is completed in order to give them a chance to review the details.

“It is hard to say until we see the new guidelines kick in, but what has happened with heightened regulation over the past number of years is typically there is a period of caution and possibly a tighter application process,” Braun said. “After a learning curve, the lenders and borrowers both become acclimated to the new regulations, and it becomes a normal part of the lending process.”


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