How New Banking Guidelines Will Affect Buyers in 2013

 Just as the housing market is starting to recover, Consumers, Attorneys and Realtors have expressed concern how the recently implemented Dodd-Frank Wall Street Reform and Protection Act (CFPB) will affect lending practices.  The Greater Fairfield Chapter of the Women’s Council of Realtors gathered some of the most respected bankers in the area to discuss and debate how buyers would be affected by the changes.  Speaking to over 70 of the top real estate professionals, panel members included Brian Skarda (SVP of Residential Lending, Union Savings Bank), Terence Floyd (VP Residential Lending, Peoples United Bank), Debra Killian (President Charter Oak Lending), and Martin Morgado (Executive VP, Savings Bank of Danbury).

Discussion was lively but all panelists agreed that, although putting stress on internal systems, the new regulations were designed to do three things;  To protect the consumer from bad products and false information; To ensure a competitive lending environment by establishing rules; To minimize risk to investors purchasing the bundled loans.  The regulations, which will standardize forms, terminology, timelines and documentations,  will provide a transparency so that private investors will regain confidence in mortgage backed securities and re enter the market.  The goal on this point is to reduce the market dependence on government loans which has been necessary since the loss of investor confidence.

 All loans must adhere to the Ability to Repay Rules.  They must show total documentation, have incomes verified and the borrower must be able to repay the loan based on the actual payments, not on “teaser rates”.   The lenders issue a QRM (Qualified Real Estate Mortgage) which is one that would be bundled for investors. The investor then knows the quality of the package they are buying. If it was determined that the lender had mislead or misrepresented the lender  would be liable to buy back that loan.  All of this puts the burden on the banks to scrutinize borrower worthiness. 

 The larger issue, they noted, was the inability of Banks in Connecticut to actually get clear title to delinquent homes  to complete the foreclosure process.  Because of the time involved in the courts, investors are less likely to put their money into properties here since they process of recourse for non payment is so onerous. This will cause lenders to have even stricter guidelines.

 A secondary issue is the changes to FHA guidelines.  This will affect the condo market. In any mortgage process there are actually 2 approvals.  The first is the buyer and the second is the property.  For a single family home, the condition and purchase price are scrutinized.  For a condo some of the review includes how many owners are in arears on the payment of common charges and if the association has a line item budgeted for reserves.  Many condos currently do not meet these guidelines.

 In the changing landscape of mortgage lending it is especially important to work with knowledgeable Lenders, Attorneys and Realtors who are up to date in their knowledge of how these changes will affect their Buyers.