Thursday, January 10, 2013
New Mortgage Rules - 804 pages
These are so meatily delicious, yet so entertaining with all the exclusions!
Translation - GSE involvement cannot be phased out as intended, or housing market will crash again on paucity of new borrowers. The good news is that there is a seven year exclusion for certain non-compliant loans:
The Bureau also believes that there are many instances in which individual consumers can afford a debt-to-income ratio above 43 percent based on their particular circumstances, but that such loans are better evaluated on an individual basis under the ability-to-repay criteria rather than with a blanket presumption. In light of the fragile state of the mortgage market as a result of the recent mortgage crisis, however, the Bureau is concerned that creditors may initially be reluctant to make loans that are not qualified mortgages, even though they are responsibly underwritten. The final rule therefore provides for a second, temporary category of qualified mortgages that have more flexible underwriting requirements so long as they satisfy the general product feature prerequisites for a qualified mortgage and also satisfy the underwriting requirements of, and are therefore eligible to be purchased, guaranteed or insured by either (1) the GSEs while they operate under Federal conservatorship or receivership; or (2) the U.S. Department of Housing and Urban Development, Department of Veterans Affairs, or Department of Agriculture or Rural Housing Service. This temporary provision will phase out over time as the various Federal agencies issue their own qualified mortgage rules and if GSE conservatorship ends, and in any event after seven years.Details matter hugely for here - if the creditors have to buy them back, does the exemption still hold?
Heard about this on the radio so details were almost non-existent. One thing mentioned was Interest-Only loans were banned. Is that true? WHY??
I realize the shrinking intelligence of the populace makes interest-only loans somewhat dangerous, but that makes it just as dangerous for the lender as the borrower. And to think almost all mortgages prior to the depression were Interest-Only. Self-amortization isn't a panacea, as the current housing bust has shown. It's the equity, stupid!
Seems like it would be a lot cheaper and a lot less work to just let the insolvent banks go bankrupt and make the depositors whole up to a certain dollar amount. Oh, I forgot - the government idea of "progress" is creating more unnecessary work not eliminating it.
If discount rates are used, the ability to repay must be assessed based on the fully-indexed rate.
There is a balloon loan exemption for some small rural banks, but it is very tight.
Also no low-doc or no-doc loans. Points and fees cannot be more than 3%, but there is an exemption for small loans.
I'll write about some of the high points and implications once I get done with this. The rule is relatively complex as it will affect the mortgage market going forward. One big issue is buybacks.
As it currently stands, many banks are not originating the riskier classes of loans that Fannie will buy because they are afraid of pushbacks (getting the loans back). If you get the loan back and higher liability then pertains, banks will have no choice but to be far more cautious in their underwriting than the GSE standards.
I haven't figured out the liability implications yet, so....
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