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Federal Government Releases Qualified Mortgage (Ability to Repay) Guidelines

In January, the Consumer Financial Protection Bureau (CFPB) released its long-awaited federal Qualified Mortgage (QM) standards. The new federal guidelines, which are required by the Wall Street Reform and Consumer Protection Act (commonly known as the Dodd Frank Act), establish minimum requirements for all mortgage loans.

Under the QM standards, lenders are required to prove borrowers have the financial resources to pay mortgage principal and interest, insurance premiums, property taxes and association fees. Lenders that extend mortgage credit without fully documenting a borrower’s income and assets and ensuring the borrower has the ability to make all monthly payments will face stiff penalties and fines.

Fortunately, the QM standards consider community association fees as a key factor when determining if a borrower is qualified for a mortgage. Ensuring borrowers can afford to pay association fees will lead to stronger communities and prevent foreclosures.

Hopefully, these guidelines will create a greater degree of financial stability for community associations. However, lenders will have one year to implement the safeguards, with compliance being mandatory in January of 2014.

Lender documentation of association fees and special assessments required to meet the new ability to repay standard will be a key issue for our clients. It is very important for community associations to provide lenders assessment information in a timely manner.