3OYS: 'Ability to Repay' rule kicks in this week

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By Tami Hoey By Tami Hoey

PHOENIX -- The housing crisis is still fresh in the minds of many homeowners. But, to keep us from going through that painful experience again, the Federal Government is cracking down and holding lenders accountable.

"If you're a loan officer, you have to know your job really well and know your guidelines," said Dean Wegner, a mortgage specialist in Scottsdale. "You just have pay more attention. The easy loans are gone."

Wegner says something called 'The Ability to Repay' rule should keep lenders in check.  For starters, the rule asks lenders to review significant documentation provided by homeowners that proves they can afford the mortgage they're applying for.

"What we feel is more of the onus will fall back on the employer to show when did they actually start, exactly what do they do, do they get steady raises?  Things like this to show they have the ability to repay," Wegner said.

In the past, risky loans were frequently sold from one lender to the next and whichever lender wound up with a foreclosure, basically bit the bullet. But under The Ability to Repay rule, mortgage companies can get their money returned from the previous mortgage company, and be allowed to bounce the bad loan back to where it came from.

Plus, the rule gives homeowners the upper hand. According to Wegner, "A homeowner can now sue a lender directly for giving them a bad loan.  Before, they had to complain to HUD and different government agencies. But, now because it is a law, they can hold their lender accountable and say, You gave me a bad loan."

And finally, The Ability to Repay rule caps the debt-to-income ratio at 43 percent. That means you won't qualify for a loan if your house payment and other loans combined are more than 43 percent of your income.

However, this part of the rule wouldn't apply though if you have a government backed loan like a Fannie Mae loan.

Wegner says his company and other mortgage brokers have been implementing these changes over the past few months to ensure things are running smoothly come January 10th when the rule will officially be in place. "About three months ago, the compliance department started to prepare for these changes and for the most part  there really hasn't been a difference than what we've done."