Updates to Dodd-Frank Guidelines

In the past year, there have been a number of changes to how banks can make mortgage loans. Luckily for most customers, this doesn’t necessarily mean it’s harder to get a loan; it simply requires that customers be prepared to supply banks more documentation. Here are the key ways last year’s new Dodd-Frank guidelines changed how a bank can make your next mortgage loan:

  • The federal government now requires banks to have formal documentation that a borrower has the ability to repay the loan. The Ability To Repay rule ensures all banks give thoughtful consideration before making a loan. There are eight factors banks must consider:
    1. Current or reasonably expected income or assets
    2. Employment
    3. Monthly mortgage payment for this loan
    4. Monthly payments for other simultaneous loans
    5. Monthly payment for property taxes and insurance the home requires
    6. Financial obligations, such as debts, alimony or child support
    7. Monthly debt-to-income ratio
    8. Credit history
  • A Qualified Mortgage assumes that a bank has fulfilled the Ability To Repay requirements, as well as met additional underwriting criteria. A QM protects consumers from overly risky mortgages and protects banks from potential liability if it can’t be repaid.

Previously, borrowers could apply for a mortgage without all the pieces of the puzzle firmly in place. Banks used to have more flexibility to use their judgment – doing whatever they felt prudent to make the mortgage. The good news is, for customers who show they can reasonably repay the loan, it’s not any more difficult to get a mortgage today. And for banks who were already using prudent judgment, we aren’t necessarily making fewer loans; we’ve just had to learn the ins and outs of new guidelines.


This edition of Market Momentum was written by President of the Mortgage Division, Cade Crawford.