Playing Fast and Loose With Credit?
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- Bias in Automated Valuation Models - February 28, 2022
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.