January 10, 2014 ushers in a new era of regulatory reform. I know, “hurray,” right? But two of the new requirements that affect real estate investors who finance their properties will want to know about the new QM, or qualified mortgage requirements. Previously, we talked about the new rules, primarilyability to repay rules mean more portfolio lending the statute directed at how much debt a borrower can have in relation to their monthly income. This debt ratio limits monthly obligations to 43 percent of a borrower’s gross monthly pay.

 In addition to the 43 limit, lenders who wish to approve a loan without fear of being on the wrong end of a lawsuit must also avoid interest only loans, loans that don’t fully amortize and limit terms to a maximum of 30 years.

Mortgage lenders across the country have been wringing their hands of these new requirements, specifically as it relates the self-employed borrower or those who have sporadic income. Interest only loans allow a borrower to make a smaller payment then make up the principal owed when a big check hits the bank or an annual bonus rolls around. Lenders could still make such a loan it’s just that it won’t be sold in the secondary markets because of so-called “safe harbor” provisions of a QM loan wouldn’t apply. It was thought that banks would avoid making a non-QM mortgage.

Yet that may not necessarily be the case. While banks have always had a “private” bank for their wealthier clients, some banks are establishing their very own non-QM brand and approving loans that will stay in their portfolio, never to be sold.

The rates will likely be higher than what a conventional loan might be priced for a rental property, but loans that in the past that have been made just “outside the box” may continue to be issued. Anytime there appears to be a lending void, you can bet a bank somewhere will find a way to fill it.