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New Mortgage Rules Go Into Effect, Impact on Maine Uncertain
01/10/2013   Reported By: Jay Field

Tough new federal mortgage rules could make it hard for some Maine borrowers to qualify for home loans. Under the rules, unveiled in Baltimore today by the Consumer Financial Protection Bureau, banks will be shielded from consumer lawsuits, if they follow strict debt-to-income requirements and avoid interest-only loans and other risky practices that fueled the housing collapse and financial crisis.

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The guidelines do have some short-term exceptions, designed to keep the housing recovery going, that will let some borrowers exceed the new debt limits. Here in Maine, there are questions about how the rules will effect thousands of people who work in seasonal industries.

The new mortgage regulations are built around a concept called ability to repay. It sounds like a no brainer, except that, during the run up to the housing meltdown and financial crisis, it actually wasn't. Across the nation, especially in states like Florida, California and Nevada, unscrupulous lenders offered interest-only mortgages and other sketchy loans for amounts far beyond borrowers means, worrying little about whether people actually had enough dough to make the payments. Lloyd LaFountain said under the new rules that's not likely to happen again. LaFountain is Superintendent of the Maine Bureau of Financial Institutions.

"In order to meet the definition of qualified mortgage, you're going to have to show that you have the ability to repay the loan, based upon the loan terms," LaFountain said. "You're also going to have to demonstrate that you have the ability to make the property tax payments."

Borrowers will need to show that their debt-to-income ration doesn't exceed 43%. They'll also need to provide comprehensive documentation that shows they have a good credit history and a steady source of income, coming in regularly. But Chris Pinkham, who heads the Maine Bankers Associations, said this is where some Mainers could run into trouble.

"QM, a Qualified Mortgage, is going to have specific definitions on the ability to pay," Pinkham said. "We have a lot of industries and a lot of people in this state who do not necessarily fit the profile of being able to have twelve equal payments."

Tourism, agriculture, lobstering and other natural resource-based industries, for example, employ thousands of Maine residents in seasonal jobs.

"A lender isn't helping a borrower by granting a loan that they can't afford," said Pinkham.

John Murphy, President of the Maine Credit Union League, said the intent of the new regulations are spot on.

"I think the million dollar question is, What about these unique circumstances where people have seasonal income? Is that threshold, the 43%, the magic number to be able to sell a loan to Fanny or Freddie?" Murphy asked.

Murphy, whose organization represents 61 credit unions in Maine, said it is too early to know the answer to this question. At the event in Baltimore, where it unveiled the new rules, the Consumer Credit Protection Bureau also proposed a few amendments that could help lower-income borrowers. One exempts certain non-profits that work with these kinds of clients from having to follow the "ability to pay" guidelines. Another would offer "qualified mortgage" status to certain loans made by small community banks and credit unions.

"The goal of a bank and its lending team is to find ways to accommodate people's requests and their needs," said Chris Pinkham, with the Maine Bankers Association.

He said his members will carefully scrutinize the exceptions to the new mortgage rules.

"And if those are not able to meet what our borrowers needs are, then we may have to return to the CFPB and ask them to open up more avenues to accommodate them," he said.

Pinkham said banks don't want to see exemptions out numbering the rules. He said they just want a better sense of how to work with people in what he calls the gray area, seasonal workers, first-time homebuyers and others whose salaries and income-to-debt ratios don't quite meet the new federal standards.

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