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Ability to repay, according to the CFPB- Here to protect consumers

Posted on January 10, 2013 by Ray Williams.

I came across the CFPB release on the Ability-to-repay rule adopted by the CFPB and released today. Now, this won’t go into immediate effect, but hold on to your seats. Some will completely agree, others will disagree. A new hot word will be “Qualified Mortgage”, and what it means to all of us consumers, and lenders like myself.

One key component you should read into, is that your debt ratios (sum of all debts including house payment will not be able to exceed 43% of your income), which will go into effect Jan 2014 folks. Start saving money and paying down debt, and trade in that car for a lower car payment if you are effected you will have more trouble getting a loan approval to potentially refinance that higher rate loan, shorten the term of your mortgage, buy an investment property, buy your first home, help your children co-sign for a home….

Here are some excerpts and my opinions from the Prepared Remarks of Richard Cordray Director of the Consumer Financial Protection Bureau Ability-to-Repay Rule Field Hearing Baltimore, Maryland January 10, 2013

Please know my comments are layered in with direct quotes from Mr Corday’s statements.

“As a result, we experienced the worst financial crisis since the Great Depression. The collapse of the housing market destroyed businesses and jobs across every economic sector and in communities all across the country. The American dream of home ownership was shaken to its foundations. Household wealth shrank by trillions of dollars. The stock market plummeted. People’s life savings were devastated. People lost their jobs. People lost their homes. People lost their hope and confidence in the future.”

Good to know we lenders alone were responsible for the collapse of the economy; that maybe people shouldn’t have been allowed to use their houses as ATMs and think it is an asset when they cashed out, bought boats, cars, took vacations, and then defaulted because they had no equity

” During the overheated years, a lender had sold him a mortgage for more than half a million dollars – far more than he could afford on his annual salary of less than $50,000. And despite various provisions in the original loan, he was now arriving at the point of financial ruin. Henry said that when he got the mortgage, he assumed that the lender knew what it was doing by qualifying him for such a large loan. When he wrote to us, he was worried not only about losing his home, but about losing his family’s entire future.”

Poor Henry…… Maybe Henry should have known as an adult he couldn’t afford a $500K house being as he was living a champagne taste on his beer budget…. Was this a refinance/ purchase? Did Henry take equity out of this house? What was his credit profile? Did he make a down payment when he bought the house? Did he commit loan fraud to obtain the approval?

I didn’t say it, the CFPB did:

“The consumer’s total monthly debts – including the mortgage payment and related housing expenses such as taxes and insurance – generally cannot add up to more than 43 percent of a consumer’s monthly gross income”

“Anthony from New York contacted us earlier this year to describe how after years of building a strong credit report, he now finds that even with a solid credit score and money saved for a substantial down payment, he cannot get approved for a mortgage. After all those years of carefully managing his money, he has found that the current market has become so tight that he cannot get the approval he needs”

Fahgetta about it, Anthony….. How does capping DTI to 43% give our friend in NY the ability to qualify for his mortgage? I am trying to comprehend how tightening debt ratios to 43% from where they are will help someone qualify who can’t now?

“Our Ability-to-Repay rule will restore more certainty to a market that was deeply destabilized by the financial crisis. By providing commonsense discipline in the housing market, this rule creates a level of assurance for all participants that will open up more access to credit for consumers.”

How do you say… Malarky? Riddle me this batman. DTIs are reduced to 43% on loan applicants, and more people will have access to credit. Sounds like a political add, I think I am going to throw the BS flag on this one.

“This proposal also contains measures to ensure that nonprofit groups and state housing agencies that lend to low- and moderate-income families can continue to play a vital role in the housing market. These groups offer a valuable range of financing and support, from down-payment assistance to first-time home buyer programs to construction programs that build up communities one beam at a time.”

Explain to me how lower to moderate income families will better qualify for mortgages with lower debt ratio standards? FHA is built off the base that families will dedicate more money to housing.

This is only my opinion, but everything in quote is directly from the CFPB, get used to it folks. This is what happens when politicians with intention and self-interest make up the rules.

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