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Lending in a Financial Reform World

Lending in a Financial Reform World. Greg Scagliotti Area Sales Manager Wells Fargo Home Mortgage. April 29 th , 2014. Financial Reform. It’s the law. — Affects every customer who applies for credit, uses a bank or buys insurance

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Lending in a Financial Reform World

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  1. Lending in a Financial Reform World Greg ScagliottiArea Sales Manager Wells Fargo Home Mortgage April 29th, 2014

  2. 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

  3. 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.

  4. Ability to Repay A highlight of the new rules includes an ability-to- repay standard: Borrowersmust 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

  5. Ability to Repay • A reasonable , good-faith ability-to-repay evaluation must include these eight underwriting criteria: • Current or reasonable expected income or assets that the customer will use to repay the loan • Current employment status • Credit history • Monthly mortgage payment-calculated using the fully-indexed rate and the monthly, fully amortizing payment • Monthly payments on simultaneous loans associated with the property • Monthly payments for other mortgage-related obligations, such as property taxes • Other debt obligations, alimony and child-support • 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.

  6. 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 by Appendix Q of the final rule • Temporary alternative: Loan meets requirements of—and eligible to be purchased, guaranteed or insured by (1) GSEs or (2) HUD, Dept. of Veterans Affairs, Department of Agriculture or Rural Housing Service • Documentation: Full documentation is required and based on existing FHA full-doc requirements

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