Mortgage Lenders and Loans Might Get tougher – Not Just Charleston, SC

Charleston Mortgage Rates and New National Lending RulesThe Federal Reserve has held interest rates steady at near-record lows over the last several years in an effort to entice buyers into the market, and experts don’t expect serious increases in the rate this year. In fact, the central How Much House Can I Afford?bank said it would not raise short-term interest rates until the unemployment rate drops below 6.5%. Since September the Fed has been buying a total of $85 billion in long-term mortgage backed securities (treasury bonds) each month to help push down borrowing costs (mortgage rates). Part of that is the program known as Operation Twist, in which the Fed buys $45 billion in longer-term Treasuries and sells the same amount of shorter-term ones. As soon as the Fed stops doing this which will eventually happen rates will have to go up. “Mortgage rates were essentially at a generational low last year — they could move modestly higher this year, but it will be the second-lowest [rate] in 40-plus years,” says Yun, chief economist at the National Association of Realtors.The Consumer Financial Protection Bureau issued new qualified mortgage standards last week that detail criteria lenders must use to determine if a borrower qualifies for a loan.The rule states a qualified mortgage cannot include risky features such as extending beyond 30 years or include exotic terms like interest-only payments or negative-amortization payments, where the principal amount increases. Loans can’t carry fees and points above 3% of the total mortgage and limits the total debt-to-income ratio at 43% — which some worry will restrict credit and discourage home buyers at the lower-end of the income scale from seeking a mortgage. On the other hand, some experts argue the rule that mortgage payments don’t exceed 43% of a    borrower’s pre-tax income doesn’t go far enough.“That figure is still high, most borrowers meet that standard easily today,” says Jed Kolko, chief economist at online housing marketplace Trulia. “These rules are not primarily designed to change the mortgage market today, they are to prevent a repeat of the very lax mortgage rules we saw during the bubble.”Lance Roberts, CEO of Streettalk Advisors, would like to see the ratio fall to around 30-35% to help generate more savings, but there could be a downside to bumping up the requirement. “You are going to exclude more low-income and first-time home buyers from being able to buy a house, but that is OK…America is the only country in the world where the poor people live in a three-bedroom house with a pool in the  backyard.” Many feel that not everyone is meant to be a homeowner, and that “American dream” is what got us into this problem in the first place.Additional mortgage rules are aimed at curbing over-borrowing, but could make the process longer for potential home buyers and could prevent some potential buyers from being able to qualify for a loan.“The mortgage rates are very low, but only a few people are able to access that low rate,” says Yun. “A modest increase in mortgage rates may not be harmful, provided that there is a return to more normal underwriting standards.”

Content By:

About the Author