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warningThe CFPB is beefing up its ongoing investigation into Zillow for possibly violating RESPA.  Full article here from my friends at HousingWire You’ve been warned: CFPB puts Realtors, Lenders on RESPA violation watch

question mark manHere’s something ‘exciting’ (note: sarcasm) that your clients will be seeing going forward.  It’s appropriately called the TIP!

What is TIP?  It’s the Total Interest Percentage – basically it’s the total amount of interest they’ll pay over the life of their loan expressed as a percentage.

Now, that doesn’t seem to threatening, right??  Well, what IF the total interest paid shows 65% on a document they have to sign!!??  That might not go over so well….UNLESS they understand it.  My intent is not for you to be a TRID expert, more so to just simply be aware of some of the changes that will impact your client’s heart-rate during the home buying experience.

We (lenders, real estate professionals, title company reps) have had fun explaining APR over the years (said no one) and now we’ll have fun explaining APR AND TIP, which are included together on the same page of the new Loan Estimate & Closing Disclosure.

Here’s the sample that the CFPB used on their site:

TIP edit

Ouch!  69.45%!  Pretty sure you can expect a phone call from your clients when they see this nifty little number.  Don’t’ fret!  It’s really quite simple to explain.  To calculate TIP you’ll take the amount of interest paid over the life of the loan and divide that into the loan amount.  For the above example the CFPB used a $162,000 loan amount at 3.875% interest rate fixed for 30 years.

Here’s the 4 step calculation (stay with me here J)

  1. $162,000 @ 3.875% for 30 years = $761.78 p/mo
  1. $761.78 X 360 payments (or 30 years) = $274,242 (this is the total amount they’d pay over the life of the loan – you may recall this BIG number on the old Truth-In-Lending form….it’s gone! Small victory…VERY small)
  1. $274,242

   -162,000 (original loan amount)

$112,242 (this is the total interest paid)

  1. $112,242 divided by $162,000 (original loan amount) = 69%

Now, notice the CFPB used a rate of 3875% for their example….What happens when rates trend up to, say, 5%?  At 5% rate the TIP = 93%!!  Good times!!

Again, my goal is simply to make you aware of some of the changes to the mortgage disclosures so that when your clients ask you about it, and they undoubtedly will, you’ll know what they’re referring too.

debbie downerOn Jan. 10, the Consumer Financial Protection Bureau (CFPB) rolled out new rules governing how mortgage lenders originate loans. The regulations are designed to prevent shady or predatory lending and otherwise protect consumers. Financial institutions have been preparing for the changes for months. The big fear is that potential homebuyers will be blindsided.

What do ATR and QM mean?

The two keywords from the new rules are “ability to repay” (ATR) and “qualified mortgage” (QM).

  • The ATR provision requires lenders to gather extensive documentation to assure that borrowers will be able to keep up with their mortgage payments.
  • One provision caps total points & fees at 3 percent for loans of $100,000 or more.
  • A more controversial part requires that the mortgage payment, including taxes and fees, plus credit card and other loan payments not exceed 43 percent of a borrower’s gross monthly income.

Lenders don’t have to adhere to the 43 percent debt-to-income ratio, but if they don’t they probably won’t be able to sell the loan to Fannie Mae or Freddie Mac – unless they meet very specific criteria.

 

Qualified mortgages are a new standard that excludes certain mortgages types — interest-only, adjustable-rate, balloon loans, and negative-amortization mortgages, for example — that helped prompt the housing crisis.

ATR and QM: The Goals and Possible Outcome

Most people agree with the goals of the new rules — safer loans and fewer defaults — and in fact, mortgage lenders insist they’ve already adopted many of them voluntarily. “Mortgage lenders have no appetite for loans that may go bad, the consequences are too far reaching, and the sins of the past are still warm and steamy,” says Mark Greene at Forbes.com.

But the devil is in the details, and details can bring unintended consequences.

  • One outcome is almost certainly a decrease in new loans in the first part of 2014. The self-employed and low-income borrowers are the most likely to be challenged by the new rules.
  • Real estate attorney Shari Olefson estimates that “about 20 percent of people who have mortgages right now, will not be able to get qualified mortgages.”

To ensure everyone is on the same page when it comes to financing, set the right expectations at the beginning by having them consult with a mortgage professional as early in the home buying process as possible.