THE new rules to streamline the mortgage application process might come into effect after this summer. By the end of August, regulators will release a “softer” version of rules overseeing how banks finance mortgages. The Dodd-Frank financial reform bill tasked regulators with writing rules that would force Wall Street to keep some skin in the game when they bundle mortgages into securities. Rather than letting banks pass all of the risk on to investors who buy the securities, the bill said banks must keep 5 percent of the deals on their own books.
“Qualified Mortgage.” That new regulation comes from the Consumer Financial Protection Bureau, which outlined certain underwriting standards that, if banks follow, will provide lenders with protection from consumer lawsuits. It also uses the 43 percent limit as a cutoff point. Now our maximum qualifying ratio can go up to 45 percent which means home borrowers and buyers will qualify for a little less especially with mortgage rates going up, that is why a lot of economist are very bearish about the real estate market. The consumers are gung ho about buying homes because of current short of supply but the economist see that the real estate is going up too fast not for the right reasons. So, still be cautious.
The proposed program I believe is clearer for banks. They can still make loans that don’t fit the standards, but those mortgages will likely be more expensive because banks will have to keep some of the risks on their books and will have greater potential exposure to lawsuits . It also means that borrowers who spend less than 43 percent of their income on debts will have an easier time getting loans.
Now, I like this because when banks starts to make their own rules and guidelines, that means they will try to figure out what will work for homebuyers who can afford the payments but just can’t shake off the restrictive guidelines that the government has now implemented. Yes, the banks will make the rates higher for consumers but if you want the house badly and will just be throwing away money by renting, you pay the piper!
Some critics are already predicting if this happens we will see another mortgage crisis. In a Forbes issue, this is what a contributor comments : Quote :
“Just when it appeared that our government could not reach a lower bar on the stupidity meter, the Federal Reserve, (that’s the one headed by Mr. Bernanke) and the FDIC have recently tendered the following idea. Under one of the few very sensible Dodd-Frank guidelines, banks would be required to hold on their balance sheets 5 percent of all loans that they originate. In the supposed interest of “making more credit available” to home buyers the FED and the FDIC propose waiving this rule, thus allowing banks to sell through 100 percent of all mortgages they originate…..banks would be left with no skin in the game.”
In my opinion, the government’s position I do understand completely, but the government’s responsibility is too large and their involvement in day to day mortgage related dealing are probably scarce to non. Therefore the banks deals with consumers everyday applying for home loans, refinancing, getting Pre-Approval letters to buy homes. Bank officers know what is most likely needed to work out programs to fit everyone. The banks did go overboard back in the mid 2000’s but that is beside the point, I don’t think those days will ever come back. I strongly believe the banks know now that when ever they start to loosen up guidelines, they have to take some kind of responsibility therefore they will design a program to try to help these homeowners.
Let’s see, at least its being proposed and its “News” so sooner or later as I have said mortgage lending guidelines will loosen up. A quick note, I also heard that if you had a Short Sale on your credit, the are proposing for these homeowners to be able to buy as early as one year after their short sale, of course with conditions and maybe more compensating factors.
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