News Column

Northeast Ohio lenders, home buyers weigh in on mortgage changes

February 11, 2014

By Amy Popik, The News-Herald, Willoughby, Ohio

Feb. 11--Mark and Nicole Hufgard of Mentor didn't think their house could sell so fast.

"The whole process with selling our house and buying a new one was very smooth," Mark said. "We put our house up for sale, got a mortgage pre-approved and our house sold in two days."

The couple later found a house in Willoughby Hills that they placed a bid on and will be moving in March.

"After we got a pre-approved mortgage, I did some shopping around to make sure we got a good value and rates were competitive," Mark said. "It turns out the rates were better and more competitive than other lenders."

The Hufgards said they were very successful in getting a 15-year mortgage with an interest rate under 4 percent from Howard Hanna Mortgage Services.

John Pinto, finance manager for Howard Hanna Mortgage Services in Mentor, who helped the Hufgards through the process, said there have been some changes to federal rules that began Jan. 10.

"There are stricter guidelines that us lenders need to follow," he said. "One of the big ones is QM, or qualified mortgage."

Most important of the major changes is the debt-to-income ratios for borrowers looking to be approved for a mortgage.

Matt Koch, senior vice president of residential mortgage for Fifth Third Bank, Northeastern Ohio, said in an email, "Total debts of the borrower cannot exceed 43 percent of gross income for a qualified mortgage unless the loan is salable to Fannie Mae/Freddie Mac or FHA (Federal Housing Administration). With additional underwriting criteria, the 43 percent threshold can be met on nonsalable loans when a lender has proven the borrower has the financial ability to repay the loan."

This applies to all homeowners, from first-time home buyers to those interested in refinancing.

Koch said there are two other big changes that come along with the tighter rules.

Institutions will no longer be permitted to offer interest-only mortgages, balloon loans, mortgages with terms longer than 30 years and negative amortization.

"Also, certain fees and point structures are capped based on a sliding scale approved in the regulations," he said.

A main reason for these changes are to help the borrower have a more affordable mortgage.

Pinto said this is a good thing because it is helping both the lenders and the buyers.

"Honestly, I think (these changes) are better because we aren't putting people in houses that they many not be qualified for," he said. "Also, it is help to us because all loans we are doing are now qualified loans, and now lenders are on the same playing field."

The new rules won't necessarily make it harder to be approved for a mortgage, but borrowers may need to provide more documentation while going through the process.

W-2s and tax returns for two to three years, along with bank statements and pay stubs for two to three months, will be required with the application.

"It's not any harder, you just need to be qualified," he said. "We are still giving money out, but not giving the money away."

Tim Linich, senior mortgage loan specialist at Home Savings and Loan in Mentor, said three other aspects are important when applying for a mortgage.

"You must have a proper credit score, down payment and continued employment," he said. "A consumer has to understand what they are entering into."

Another change to the new rules is an option to attend home counseling before they enter into a mortgage.

"These changes are all to protect the consumer," he said.

So far lenders have not seen much of an impact from the new rules, and are optimistic that the new rules will help the housing market.

"It's never been a better time to buy," Linich said.


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