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Dod-Franks

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What are the requirements for a loan to qualify under the Qualified Mortgage safe harbor rules?
In general one could say that Qualified Mortgage only concerns the debt-to-income ratio. Qualified Mortgage does not require borrowers to have any substantial equity. Some other requirements for a loan to qualify under the Qualified Mortgage safe harbor rules are, bans on negative amortization, interest only, and no-doc (no borrower income or asset verification). In addition to that there will be also limitations on excessive points, which means fees will be deducted from the loan amount.
Why did the regulator find it desirable to provide a safe harbor?
The Dodd-Frank Act assumes that there are no bad borrowers but only bad laws and bad lenders, therefore borrowers have to be protected more and liability on lenders has to be increased.
What are the likely costs of compliance with the safe harbor rule?
The safe harbor rules could create damages which would be too high for most lenders to risk. Therefore most lenders will be forced to make only loans that would protect them from liability, or find any loopholes in the law.
Which loans are exempt from the Qualified Mortgage rule?
The regulation exempts loans involving Fannie/Freddie and federal agencies such as the Federal Housing Administration. In addition to that, the Consumer Financial Protection Bureau made a proposal to extend the exemption to community banks and nonprofits favored entities.
What incentives will the exemptions create?
The new qualified mortgage laws will animate borrowers to “unsustainably leverage up with home equity lines of credit soon after closing” Weiser, J. 2013. Furthermore it will stimulate lenders to offer risky “high-debt-to-income ratio, home equity lines of credit first mortgages.” Weiser, J. 2013.…...

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