Playing Fast and Loose With Credit?

CFPB Wants to Eliminate the Debt to Income Requirement - Not AGAIN

CFPB is moving forward with proposing to eliminate the Debt to Income requirement…

Appraisers, prepare yourself for what we are about to share. The short sighted proposal is simply nonsensical from every angle.

The Consumer Financial Protection Bureau wants to eliminate the Debt to Income requirement on Qualified Mortgages. You may recall this was proposed a while back and most of the profession objected strongly. Letters, emails and phone calls were made and this absurdity went away. Earlier today CFPB Director, Kathy Kraninger announced the CFPB is moving forward with proposing to eliminate the Debt to Income (DTI) requirement and shift to an alternative loan pricing threshold. This proposal compares the annual percentage rate of the loan to the average prime rate for a comparable transaction. Someone needs to spell out how comparing interest rates will determine if the borrower has enough money to pay the loan back. There is no obvious correlation between the two.

Guess who is behind this… the banks and large mortgage companies. Take a look here. Now think this through. The banks and mortgage companies are encouraging this change. Why? So they can close more loans without liability. Does this harm the consumer? Absolutely! Putting a consumer in a loan they cannot afford to pay back only sets them up for foreclosure. Does the bank care? Are we not in a pandemic in which over 36 million people have been/are out of work? Are businesses thriving now or are most struggling?

As of May 15, 2020 there were 4.7 million mortgages in forbearance which represents 8.8 % of all mortgages. Many of these forbearances are early payment defaults. Is now the time to being playing fast and loose with credit? It does not take a genius to figure out this is the ground work for the next housing crash.

The loans currently in forbearance total $1 trillion in unpaid principal, Black Knight said. Broken out by investor type, loans backed by Fannie Mae and Freddie Mac account for 7% of mortgages in forbearance, while loans backed the Federal Housing Administration and the Veterans Administration account for 12.4%, the report said.

Housingwire reported on this announcement and you can read the entire article here.

VaCAP Board
VaCAP Board

VaCAP Board

Coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth.

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5 Responses

  1. Tom Markoski on Facebook Tom Markoski on Facebook says:

    If you can pay monthly rent which matches the ML, then they should get a loan. That’s one of the many biases’s of the Mortgage industry

    • Avatar Advocate says:

      Not really. Maintenance, repairs, taxes, insurance and HOA fees cost more with ownership. Mortgage DTI should be lower for mortgages.

      • Baggins Baggins says:

        Not when you’re on a 15. Not when you’re more than half way through it. Sadly, something that most people never get to experience. And you get a credit extension boost, so it is appropriate for a more stringent qualification for owning with all that responsibility vs renting. Many although they try, simply can’t handle the responsibility of it and they do go under.

        What do the originators care anyways, they just pass it to the servicers and instrument holders, whom benefit from fdic insurability on all of it, being tied through the gse enterprises. A seasoned loan still does not compete with a 20% downpayment requirement. Skin in the game.

        The government is involved. The only constant you can rely on in that scenario, they’ll make it worse not better. One ponders if the over leveraged instruments would even be sellable without government insurance backing… It goes from the top down. They don’t have skin in the game with fractional available capital lending requirements, and gee, that’s unfair to not also offer that to the little guy. Credit extension for everyone! The dollar is failing, QE infinite is here, so the gloves are off. Don’t worry, with the inflationary trend on the horizon, you probably won’t even notice their over leveraging a year later. The beat skips on.

      • Avatar Bill Johnson says:

        Not really Advocate. Considering most home owners have loans and get to claim interest deductions at tax time while most renters do not, renters could simply apply what they will save at tax time toward such experiences.

        Seek the truth.

        • Avatar Advocate says:

          Well that may look good on paper, but In reality when the furnace or ac needs replacing, it is not something that can wait until a refund check appears. Many over extended borrowers do not Have the reserves. I cannot speak for others, but that interest deduction for the mortgage is smaller and smaller each year. In fact, I have had to pay for the last few years as did most people because of the tax law changes. So in theory your statement is correct. Reality is completely different.


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Playing Fast and Loose With Credit?

by VaCAP Board time to read: 1 min