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What is QM and how will it affect me?

QM stands for Qualified Mortgage.  On January 10th of this year the Consumer Financial Protection Bureau (CFPM) implemented laws requiring mortgage lenders to consider consumers’ ability to repay home loans before extending them credit.  There were numerous changes made that lenders adopted to make sure a loan falls under QM status.  What are some examples of changes under QM? Certain “low documentation” loan types, loan terms longer than 30 years, and “interest only” or “negative amortization” loans do not qualify for QM status. Actually, these loans haven’t been widely available in recent years anyway, as focus returned to traditional loans and underwriting after the market collapsed.

Will QM affect my ability to get a mortgage loan? You may get a different answer to this question depending on whom you ask but my answer is “probably not”.  QM, to a certain degree, went into affect years ago but we just didn’t have a name for it yet.  I think the bigger concern for consumers right now when applying for a mortgage loan is the bank or lender that they are applying with and the overlays that particular bank or lender may have compared to their competitors.  Almost all banks and lenders sell their originated mortgages off to Fannie Mae, Freddie Mac or Ginnie Mae.  The problem is that not all loans sold to these entities perform and when some don’t and go into default there is a possibility that the bank or lender will have to buy them back.  Buying a sold loan back is the worst thing that can happen to a bank or lender but it does happen frequently.  When it does occur most banks or lenders may tighten up their guidelines and create what we call in the industry as “overlays”.  Overlays can vary between banks and lenders but if you hear about a bank or lender being sued or having a lot of loans go bad then there is probably a good chance that they are going to create numerous overlays in their underwriting guidelines as a result.  As a wholesale lender I consider our company and those like us to be a huge advantage to the consumer since we have numerous investors to choose from.  We can not only shop for the best rate but can also stay clear of any bank or lender that may have numerous overlays, strict underwriting guidelines or are limited in the programs that they can offer.

When it comes to getting pre-approved for a mortgage loan I don’t think consumers need to worry so much about QM and instead should focus their attention on the basics: have a good credit score, steady job and a down payment.  This has always been the norm for trying to get pre-approved and it is no different today.  If you have any questions about this topic please don’t hesitate to contact me. To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Visit us online at www.prioritylendingcorp.com 

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