WASHINGTON, D.C. – January 23, 2014 – (RealEstateRama) — The housing market was at the heart of the 2008 recession, and now a new era is being ushered in to remediate the risks. In the recovery period, there has been a focus on protecting homebuyers as well as minimizing the existence of risky loans.
A recent development in the regulation model is a new class of loans termed as the qualified mortgages (QM). These loans are been overseen by a newly created regulatory body, Consumer Financial Protection Bureau (CFPB).
However, as was the case with the health insurance law (ObamaCare), certain confusion and uncertainty prevails when reforms are brought in. New reforms also impact existent structures, such as the VA loan model for veterans and calls for the need to understand qualified mortgages and how they conveniently coexist with VA loans.
The Qualified Mortgage reform and the VA loan program have some things in common. Both of them have the attributes of being safe and affordable. The QM reform comes to protect home buyers from falling prey to risky loans, as they did before the recession. QM loans are devoid of any risky feature that puts the credit rate of the home buyer at risk.
Another hallmark of these loans would be that they would shield the borrower from the lender’s claim or fooling a borrower into a faulty or bad loan. QMs are free from negative amortization, meaning that the principal balance would not increase if the payment fails to cover all the due interest.
A major impact of QMs is that they have a defined credit and underwriting requirement, which ensures only eligible borrowing. The reform is based on the ‘Ability to Repay’ model, introduced in early 2013.
Impact on VA loans
Military borrowers don’t need to about their finance options when it comes to real estate. Firstly, the QMs eligibility criteria wouldn’t hinder any qualified veteran. Secondly, in lieu of regulations, VA loans have seemed to prosper. This has also been mentioned in a post on VA loans in 2013, which reached a record high during the year. Loans procured under the program amounted to 630,000: an astonishing number.
The success of the VA loan program has been wide spread, allowing veterans to capitalize on low VA rates and ensure affordable home buying. Also, the terms and conditions are not stringent, making VA loans one of the safest financing options available with respect to home buying.
The QM reform further augments the VA loan model because their eligible criteria has a similar pattern for consumers. Since VA lenders also use the ‘Ability to Repay’ requirement, there shouldn’t be any problems. It is also expected that the VA program would inform its members of the QM regulation and release guidance information.
The Consumer Financial Protection Bureau has determined that nearly 92% of loans already meet the criteria of QM. Furthermore, loans under the VA program completely meet the program’s requirement.
The veteran community enjoys a well-deserved real estate benefit in the form of VA loan program. The QM regulation brings much needed stringency to the loan lending procedure. The model of QM is pretty much derived from the VA program, and helps make it affordable.