Last week I discussed the new Dodd-Frank regulations and how they will impact home buyers, as well as what a Qualified Mortgage will be per the Dodd-Frank regulations. On Tuesday, we discussed the Dodd-Frank Ability to Repay Rule as it relates to the new DTI hard cap of 43%. And today, I would like to discuss the lender fee cap portion of the Dodd-Frank Ability to Repay Rule.

The rule sets a hard 3% cap on all lender fees, regardless of loan size or circumstance, meaning there will be more of an incentive for lenders to focus their efforts on larger loan sizes. And the reason for this is that many of the fees associated with loans are set; an appraisal, for instance, will cost the same thing regardless of the size of the loan. The same can be said of title fees and attorney fees. So there is now a clear and defined higher profit margin for larger loans, as these set fees will take up a smaller portion of that 3% cap in larger loans.

Similarly, it will make lending on smaller loans almost impossible for some lenders. On a $100,000 loan, the maximum fees will be $3,000. If $1,500 are set fees which are not scalable, then there is a potential profit of $1500. Subtract any commissions if the mortgage is initiated by a third party broker, subtract the scalable fees, and subtract any cash reserve requirements, and that is a very difficult loan to write, as it could actual be unprofitable to the bank.

So as I have been saying all month, it is important to find the right lender for your mortgage going into next year. If you have any questions about buying a new house next year and how these changes might affect you, please contact me. And if you have anything to add about the new 3% lender fee cap from the Dodd-Frank Ability to Repay Rule, please leave a comment.