Lately, all eyes are on the new mortgage regulations. How will these affect VA loan benefits?
Under the Truth in Lending Act (TILA) and the supervision of the Consumer Financial Protection Bureau (CFPB), a new Ability to Repay and Qualified Mortgage (ATR/QM) Rule has been established. Broken down, to comply with the Ability to Repay portion of the rule, lenders must consider these eight types of information:
- Current income and/or assets
- Current employment status
- Credit history
- Monthly mortgage payment
- Monthly payments of other mortgages obtained at the same time
- Property taxes and other mortgage-related expenses
- Any other debts including child support and alimony
- Debt-to-income ratio or residual income
Here is one of the CFPB's statements about Qualified Mortgages: "The rule presumes a lender has met the Ability-to-Repay requirements if the lender makes a Qualified Mortgage, or QM. A QM must meet certain requirements. For example, the loan cannot have certain risky features that harmed consumers during the mortgage crisis. Temporarily, QMs can also be loans that can be bought or guaranteed by Fannie Mae or Freddie Mac or insured by certain government agencies, such as the Federal Housing Administration."
How Does the ATR/QM Rule Affect VA Loan Benefits?
If you're concerned that the ATR/QM Rule has affected your VA loans benefits, don't be. At this time, if a loan is eligible for a VA guaranty, it is a Qualified Mortgage. Borrowers can be assured that the rule hasn't changed VA guidelines. The VA is set to publish its own policy around the new law soon.
Comparing the General ATR/QM Rule with VA Qualifying Guidelines
It may be no coincidence that many of the requirements of QM loans closely mimic VA guidelines. The 70-year-old loan program for service members may have set the bar for the ATR/QM Rule.
The fact is that VA loans have had one of the best five-year track records for fewest foreclosures compared to any other home loan program. According to a release on November 7, 2013 by the Mortgage Brokers Association, last year these government-backed loans saw their lowest delinquency rate since 1980.
Here's How ATR/QM Rule Compares to VA Guidelines
| Requirement |
General QM Loans |
VA Loans |
|
Loan term not to exceed 30 years |
✔ | ✔ |
|
Payments must be approximately equal and regular |
✔ | ✔ |
|
No negative amortization |
✔ | ✔ |
|
No interest-only payments |
✔ | ✔ |
|
No balloon features |
✔ | ✔ |
|
No excess points and fees |
✔ | ✔ |
|
Debt-to-Income ratio |
≥ 43% | ≤ 41% Higher ratio possible with underwriting approval. |
|
Residual Income considered for qualifying |
✔ | ✔ |
|
Lender is responsible for collecting and verifying borrower's financials |
✔ | ✔ |
|
ARM payments cannot be calculated on "teaser" rates |
✔ | ✔ |
Does This Mean VA Loans Comply with the ATR/QM Rule?
The short answer currently, is yes. And, the VA will continue to make sure its guidelines are in line with the new standards.
For more information on the ATR/QM rule, visit https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/.
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