Beginning in January, several federal agencies are implementing new policies which are intended to address the lax underwriting standards that contributed to the housing crash more than five years ago.
For example, on Jan 10th, the Consumer Financial Protection Bureau will implement a new set of rules that were created to stem the predatory lending practices that are deemed responsible for the wave of foreclosures over the last five years.
These “Ability-to-Repay” regulations are authorized by the Dodd-Frank Act and aimed at preventing lenders from approving mortgages for borrowers with questionable credit scores and poor debt-to-income ratios.
One of these rules requires that borrowers’ debt (including all credit card, car loans, mortgage amount, etc) cannot be more than 43 percent of their gross income.
This simple enactment may prevent a lot of potential home buyers from purchasing a home, if they do not complete the transaction by Jan 10th, 2014.
Mortgage lenders will also be required to thoroughly verify consumers’ income, assets and financial obligations, or otherwise risk a lawsuit from borrowers who default on their mortgages.
In addition, mortgage rates are on the rise, which will make it more difficult for many borrowers to afford a home loan.
Because these potential borrowers are limited by the new mortgage rules with the 43 percent debt-to-income ratio, higher mortgage rates and higher fees coming into fruition, many will be locked out of the housing market, at least for the time being.
Self employed applicants in particular will be facing greater scrutiny and paperwork, to accurately verify their income.
With all these changes taking place in the very near future, it is likely to keep many people renting, who would otherwise be looking to make the transition to home ownership.
Many of those people will be highly-qualified renters, and that could make 2014 a banner year for landlords.
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