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Changes to Mortgages in 2014

Mortgage-Interest-DeductionIt was just announced that the conforming loans ($417K and $625.5K for high balance) will remain the same in 2014 as they were in 2013.  No surprise, but still good to hear.  New jumbo and second trust products continue to come on the market, so (at least in the near term) more, not less, mortgage products are available now and in the upcoming months.

Also, on January 1, 2014 the Qualified Mortgage (“QM”) rule be implemented that was created as part of the financial ‘reforms’ after the 2007 market crash.   While the impact of this implementation is still debated, below are a few thoughts:

  • Overall, there will be changes as a result of QM, but much will remain business as usual at the beginning of 2014.  Conforming, V.A. and FHA financing are almost entirely unaffected by this rule.  Certain financing structures are, for lack of a better word,  restricted (terms over 30 years, interest only products, negative amortization, balloon loans), but these are very rare in 2013, this will impact few buyers.
  • There is an “ability to repay” rule that may result in some buyers with complex finances and high debt-to-income ratios having their buying power reduced, but these, too,  are relatively rare.
  • Some Joint Ventures will be dissolved; a good example being Wells Fargo pulling back from their relationship with Prosperity mortgage.  Prosperity will rebound and be fine … they just have a short period of adjustment ahead in 2014.
  • The QM rule will impact jumbo loans, with the most likely / prominent impact being lower debt to income ratios (43%).  That said, many jumbo loans have DTI requirements already at 43% or lower.

Finally, with any new regulation, there definitely exists some possibility that such new regulation will have an unintended consequence and significantly disrupt the financing markets.   That said, and this is important to note that, should this occur, the most likely scenario is that the disruption will be very short lived.  Once the state of Georgia implemented very strict lending restrictions and almost all lending stopped in GA for a few week period and the regulators rushed to repeal / correct the just implemented rules.  Housing is just far too big of a component to our economy for any regulator to allow any rule adversely impacting home sales to continue for more than a very short period of time.

In summary, loan limits are remaining the same, the QM rule should not have a huge impact on lending, and should some unintended consequence occur, they should be short lived.  There will be changes in 2014, but it should be a great year.

Update provided by:

Paul D. Nagel
Vice President, Residential Lending
First Home Mortgage Corporation
NMLS#: 659474
12150 Monument Drive, Suite 500
Fairfax, Virginia     22033
Direct Line: 703.201.5147
Web: www.pauldnagel.com

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