Some will pay more, others won't qualify at all when new mortgage rule takes effect

It’s almost certain that fewer borrowers will qualify for mortgages, and it’s likely that many who do qualify will pay higher interest rates when an “ability-to-repay” rule announced by federal regulators in January takes effect next year as part of implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

That’s according to a 28-page analysis by lawyers with K&L Gates. Even if the Consumer Financial Protection Bureau amends the rule to address some industry concerns, “the mortgage banking industry — and consumers — will face a very changed lending environment,” the analysis concludes.

Those most affected include borrowers who do not have stellar credit or whose debt-to-income (DTI) ratios exceed the 43 percent cap for loans entitled to a “safe harbor” from litigation, and mortgage brokers who charge fees of 2 or 3 percent. Loans originated by those brokers will probably not qualify as “qualified mortgages” because they will exceed the 3 percent points and fees maximum.

“Some industry observers seem to consider Chicken Little an optimist — not only is the sky falling, but the earth is trembling and the seas boiling,” the K&L Gates analysis concludes. “But everyone appears to agree that the (proposed rule) has caused the ground to shift beneath our feet.” Source: