Some lenders bypass tightened mortgage rules when dealing with wealthy clients who don’t otherwise meet government standards, reports The Wall Street Journal in a recent article.
Government regulations that took effect Jan. 10 set new qualification standards for all mortgages, including conventional government-backed loans and jumbo loans—those that exceed $417,000 in most areas and $625,500 in some high-price areas. At first, lenders backed away from loans that didn’t meet the new rules, but that’s beginning to change.
New Penn Financial, for example, introduced in September its first nonqualified jumbo mortgage product, which allows a debt-to-income ratio (DTI) up to 55%. The DTI looks at monthly debts as a percentage of gross monthly income.
However, under federal rules borrowers can’t have a debt-to-income ratio above 43%, which can put the lender at risk since “only those that offer qualified mortgages are protected from lawsuits filed by borrowers who default on the loans,” The Wall Street Journal says.
Another lender, New York-based Guardhill Financial, is also issuing both interest-only jumbo mortgages and loans to some borrowers who exceed the 43% DTI limit. Interest-only loans are especially attractive to borrowers who receive substantial year-end bonuses, Alan Rosenbaum, the company’s CEO, tells The Wall Street Journal.
While the federal rules were meant to prevent consumers from taking on more debt than they could afford to repay, many lenders say the restrictions are constraining their ability to work with wealthy borrowers.
Written by Cassandra Dowell