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Economy & Business

New Mortgage Rule Could Impact Access to Credit

A new regulation slated to go into effect in early 2014 would tighten lending requirements for those seeking a home loan. The Qualified Mortgage Rule is aimed at preventing another housing crisis like the one that hit the U.S. in 2008.

But some in the financial community and on Capitol Hill worry that rule is too broad and will have unintended negative consequences.

“Drying up of capital and removing people who could buy a home, could afford to buy a home, could afford to make a monthly payment, instead they’re going to be renters,” said Congressman Keith Rothfus (R-PA 12). “They’re not going to be able to start to get equity in their home and when people do that sort of investing in a home itself, it really starts to turn neighborhoods around.”

The Qualified Mortgage Rule will prohibit banks from approving mortgages for anyone with a debt-to-income ratio higher than 43 percent. Other provisions going into effect require lenders to verify income differently than in the past, and take into account taxes and insurance when estimating payments. Some lending institutions will be affected differently than others by the new rules.

“Many of the banks who are creating loans just for the purpose of selling them off to Fannie Mae or Freddie Mac, they’re going to have more difficulty getting things up to date by January 2014,” said Richard J. Krauland, president and CEO of Farmers and Merchants Bank of Western Pennsylvania, a smaller community bank. “We don’t do that. When we originate a loan, we keep it.”

Krauland said many smaller community banks already practice many of the new requirements. Still, banking groups large and small joined with lawmakers in a request to the Consumer Financial Protection Bureau.

“We asked them to allow for a one year transition period while we can get the new software, install it, test it, make sure it makes sense, make sure it’s working properly and then begin complying with the new rules,” said Krauland.

If its implementation is not put on hold Krauland said he fears a standstill in home loans.

“One of the concerns others in the industry have is that there will be banks around the country that may stop their lending in January, at least for a brief time, until they’re 100 percent certain they have the systems in place, have the proper disclosures and are complying with the new law,” he said.

So far, there has been no word from the CFPB on a delay in implementation. The Qualified Mortgage Rule is scheduled to take effect Jan. 10, 2014.