GSEs Update Seller Guidelines to Comply with Ability-to-Repay Rule

""Fannie Mae"":http://www.fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ have both updated their seller guides to incorporate the ""Consumer Financial Protection Bureau's"":http://www.consumerfinance.gov/ ""Ability to Repay"" rule under the Truth in Lending Act.

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The rule will go into effect January 10, 2014.

The Federal Housing Finance Agency (FHFA) worked with the GSEs to update their respective seller guides in alignment with one another.

The basic goal of the ""Ability to Repay"" rule is to ensure lenders act in good faith that a borrower can repay his or her loan before offering the loan.

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After January 10, 2014, Fannie Mae and Freddie Mac will only purchase loans that are fully amortizing, have terms of 30 or fewer years, and have points and fees that equal no more than 3 percent of the total loan amount.

The GSEs will not accept loans with prepayment penalties. Freddie Mac explains that it will continue to accept them until January 10, 2014 if they have settlement dates are on or before July 31, 2014.

The GSEs are also revising their rules regarding relief refinances for ""higher-priced mortgage loans."" These loans must have a maximum debt-to-income ratio of 45 percent, and lenders must verify the borrower's income source and amount.

The GSEs note that it will be the seller's responsibility to ensure compliance with the CFPB's rules before selling loans to the GSEs.

""Freddie Mac will not make the determination of whether a Mortgage is exempt from, or complies with, the CFPB final rule or whether a Seller's designation of the status of a Mortgage under the CFPB final rule is correct. These determinations of compliance with the CFPB final rule and other applicable laws are the Seller's responsibility,"" Freddie Mac explained in its announcement.