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Author: CCinOC Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127235  
Subject: Re: Mortgages w/o risk--at least for banks Date: 12/2/2013 10:04 PM
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It took 1.5 years for the CFPB (Consumer Finance Protection Bureau] to define what a mortgage is.

It has taken them two years to finesse the concept of "qualified mortgage;" now QM is right around the corner (effective January 10, 2014).


[quote] The spirit of these guidelines is to define a residential mortgage lending platform that is reasonable and prudent for consumers and lenders, that will keep the world safe from the wild-west lending frenzy that led to the financial collapse of 2007-2008. Mortgage people will tell you that QM and QRM guidelines were written by intellectual academics with no real world mortgage financing experience, thus the “overly” restrictive nature of the limits. CFPB advocates will tell you that mortgage people need clearly defined boundaries with clearly defined consequences attached; otherwise another catastrophic mortgage meltdown is inevitable.

So after hundreds of pages of proposed rules, comments, debate, amendments to proposals, industry lobbying, endless volleying, requisite fear mongering and judgmental assumptions, guess what? We have an industry standard that already exists. The CFPB is in fact late to the game with QM and QRM. Remember those titanic financial consequences that came from the way things used to be? It is the natural order of things in a market economy, that Adam-Smith-invisible-hand corrective forces emerge, and have in fact already changed the way mortgage lending is done. The mortgage approval process is an exercise in information vetting rivaled only by top secret government security clearance background checks. Credit, employment, income and assets are double and tripled checked to within an inch of an applicant’s financial life. If a guideline exception is needed for approval, justification and compensating factors are dissected for proof far beyond a reasonable doubt.

Mortgage lenders have no appetite for loans that may go bad, the consequences are too far reaching, and the sins of the past are still warm and steamy.

Enter the great debt ratio argument. The CFPB through the new QM and QRM underwriting guidelines, have decided that the absolute maximum debt ratio for any borrower should not exceed 43%. That means that the proposed mortgage payment, including real estate taxes, homeowner’s insurance, mortgage insurance and if applicable, common area fees (Homeowner’s Association Fees, Maintenance Fees, Co-op fees, etc.), along with all other recurring monthly consumer debt (auto loans/leases, student loans, alimony/support payments, personal loans, credit card payments, etc.), cannot exceed 43% of a borrower’s gross monthly income. [quote]

After January 10, don't even bother applying if your DTI is even a fraction over 43%.
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