Consumers want homes not mortgages. They get on line to look at pretty pictures and dream not look at APR’s. However in today’s’ market a mortgage in most cases is a necessity. In past markets mortgages were easy and fast. In 2006-7 the real estate bubble burst. We were told the pop was from “sub-prime” loans. Actually it was because we forgot the four principles of lending (credit, income, assets, and collateral). You simply can’t argue that when lending money it makes sense to see if the borrower has shown the propensity to repay his debt (credit). Do they earn enough (income) to be able to pay their proposed housing expense (principle, interest, taxes and insurance) and other bills? Does the borrower have any money saved (assets) in the event there is an unforeseen hardship like job loss of sickness? Is the home (collateral) they want worth what they are paying for it?
In effect in an effort to boost profits banks looked the other way and lent money to anyone and everyone with little or no regard to the aforementioned pieces to the puzzle. What grew from the mortgage mess created from the banks was the Consumer Financial Protection Bureau. Again, can’t argue with the theory behind that. Protect consumers from entering into a bad financial decision. Here in lies the rub. Through in some aggressive politicians and some wealthy banks and their lobby’s and we get the new CFPB.
Welcome to 2013. You are not the only one that needs to qualify. You mortgage apparently needs to qualify today. Yes the CFPB just announced the “qualified mortgage”. The announcement was last week but I had to wait to stop laughing before I could write about it. Here are some of the rules that they instituted: (1.) Income and assets must be sufficient to repay the loan; (2.) Borrowers must be able to document their jobs; (3.) Monthly payments must be affordable; (4.) Borrowers must be able to afford all housing expenses like property taxes and insurance; (5.) Lenders must consider the borrowers other obligations. Now here comes the punch line. If the banks follow these “new” guidelines the borrower will be unable to sue the bank if they in turn lose their home to foreclosure.
Really? So now the banks need protection from us. Maybe we should give them a toaster when we apply for the loan.