Title set in Georgia 50pt

Report
Lending in a
Financial Reform World
Greg Scagliotti
Area Sales Manager
Wells Fargo Home Mortgage
April 29th, 2014
Financial Reform
It’s the law.
— Affects every customer who applies for credit, uses a
bank or buys insurance
— Zero discretion: you don’t get to choose what rules to
follow or not follow
— Mortgage rules apply to all home-loan lenders
1
Ability to Repay/Qualified Mortgage
Basic directive: before closing a loan, make a reasonable
and good faith determination that the customer can repay
the debt.
• At Wells Fargo, applies to loan applications taken on or
after Dec. 7, 2013
• Lenders have no latitude to adjust or waive
documentation requirements. Documentation
guidelines must be followed exactly.
Ability to Repay
A highlight of the new rules includes an ability-torepay standard:
Borrowers must provide—lenders must verify
information documenting that the borrower
can afford the loan they are receiving.
• Before a loan can be approved, borrowers must prove they have
sufficient assets or income to repay their mortgage or home
equity loan
• Documentation MUST be retained in the loan file to show ability
to repay was validated
3
Ability to Repay
 A reasonable , good-faith ability-to-repay evaluation must
include these eight underwriting criteria:
1. Current or reasonable expected income or assets that the customer will
use to repay the loan
2. Current employment status
3. Credit history
4. Monthly mortgage payment-calculated using the fully-indexed rate and
the monthly, fully amortizing payment
5. Monthly payments on simultaneous loans associated with the property
6. Monthly payments for other mortgage-related obligations, such as
property taxes
7. Other debt obligations, alimony and child-support
8. Monthly debt payment, including he mortgage, compared to monthly
income—the debt-to-income ratio or DTI.
 Because we’re required to verify information that shows a
borrower can afford the loan they are receiving, we are
expected to fully document his or her ability to replay.
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Qualified Mortgage Defined
Product feature restrictions




Loans with terms greater than 30 years
Balloon loans and negative amortization loans
Interest-only loans
If an ARM, must use the maximum rate that’s applicable for the first five years in
assessing income ratios
Underwriting requirements

Permanent method: Total DTI ratio is less than or equal to 43 percent as defined

Temporary alternative: Loan meets requirements of—and eligible to be

Documentation: Full documentation is required and based on existing FHA full-doc
by Appendix Q of the final rule
purchased, guaranteed or insured by (1) GSEs or (2) HUD, Dept. of Veterans Affairs,
Department of Agriculture or Rural Housing Service
requirements
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