Title set in Georgia 50pt

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
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
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.
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

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