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Impact of Dodd-Frank Act on Fredericksburg TX Real Estate

Posted in: Mortgage News/Sources
By SAGE - Premium Texas Real Estate
Nov 18, 2014 - 11:49:00 AM

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No precise measurements exactly gauge the impact of the Dodd-Frank Act on the Fredericksburg TX real estate market.  What we do know is that this legislation is a burden to lenders and consequently to borrowers.  Many lenders are tightening the restrictions on borrowers even further or charging fees in other ways.

Large portions of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 went into effect on January 10, 2014.  The legislation purposefully rains in the mortgage industry.  Important elements include:
  • The Act establishes the Consumer Finance Protection Bureau (CFPB) to oversee real estate loan activity.
  • It creates regulations to oversee financial institutions that are involved in selling mortgages on the secondary market.
  • The Dodd Frank act assigns unprecedented legal liability to lenders when borrowers default on their loans.  Yes, lenders can be sued if they failed to evaluate the ability of a borrower to repay the loan.

Requirements for Loans on Fredericksburg TX Real Estate

Documentation is the name of the game.  Lenders must document several pieces of information provided by loan applicants.  Then the information must be verified through independent third parties.  Gone are the days of "no-doc" loans.  According to research economist James P. Gaines with the Texas A&M Real Estate Center's Terra Grande Magazine (October 2014), the following information is absolutely essential for a qualified mortgage (QM):
  • current are reasonably expected income or assets;
  • credit history;
  • current employment status;
  • monthly payment on the mortgage;
  • monthly payment on any simultaneous loans (such as a second mortgage);
  • monthly payment for mortgage -related obligations (taxes, insurance, H away fees);
  • current total debt obligations (alimony, child support, student loans); and
  • monthly debt-to-income ratio and any other income.

What is a Qualified Mortgage?

Dodd-Frank defines a QM in detail.  These loans provide the best legal protection for lenders but limit the interest rates.  Interest may be only 1.5 percentage points above the prevailing average prime offering rate.  Otherwise the loan is considered a high-risk product.  Upfront fees may not exceed 3 percent of the loan.

Borrowers in the Fredericksburg TX real estate market desiring a qualified mortgage must meet specific requirements.  For example, the total debt to income ratio must be 43 percent or lower.  

Lenders will play it Safe

Expect more restrictive home loans into the future as lenders reduce the risk of default.  We are hoping banks in Gillespie County will continue to be able to make residential mortgage loans.  Some smaller communities as surveyed through the Independent Bankers Association of Texas will reduce the number of residential loans or limit lending activity to Q M loans, explains Dr. Gaines.

Sage Premium Texas Real Estate

For more information about Texas Hill Country homes and building lots, including Fredericksburg TX real estate, please contact Dale Cook of Sage Premium Texas Real Estate in Fredericksburgat 830-997-1035.

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Dale E. Cook, MBA, Broker/Owner

Sage - Premium Texas Real Estate
405 N. Llano St.
Fredericksburg, TX 78624

830-997-1035 office
830-992-0056 cell

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