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:



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