Examining How the Dodd-Frank Act Hampers Home Ownership (Allow MORE Subprime?)

Confounded Interest ^ | 06/18/2013 | Anthony B. Sanders

[whitedog57]

The Subcommittee on Financial Institutions and Consumer Credit held a hearing today on “Examining How the Dodd-Frank Act Hampers Home Ownership.” The hearing was about the Consumer Financial Protection Bureau (CFPB) and Qualified Mortgages (QM).

The fear of Dodd-Frank and the CFPB is that the rules are so severe that it could hamper home ownership. Even though the current rate of home ownership remains above the 1994 rate of 64.2%.

On May 29, 2013, the CFPB adopted a number of amendments to the QM rule that were proposed concurrently with the final rule in January. The amendments would (1) exempt from the final rule certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing; (2) extend qualified mortgage status to loans made by certain small creditors who hold these loans in portfolio, provide a two-year transition period during which certain small creditors may issue balloon loans, and allow them to charge a higher annual percentage rate for first-lien loans while maintaining a safe harbor; and (3) exclude from the 3 percent points and fees cap compensation paid by a mortgage broker to a loan originator employee. These amendments will take effect with the ability to repay rule on January 10, 2014.

Is Dodd-Frank so severe that it hampers home ownership?

First, it is important to understand that a Qualifying Mortgage is NOT a prime mortgage. A prime mortgage is defined by The Fed (or at least their economists) as 20% down payment or higher and credit score above 660.

Prime mortgages (or their borrowers) performed far better than their subprime counterpart over recent years.

But the QM amendments debated today in the House of Representative was about watering down Dodd-Frank to allow the return of the low down payment / subprime mortgage by exempting from the final rule certain nonprofit and community-based lenders that work to help low- and moderate-income consumers obtain affordable housing. Here are the current ATR and QM rules.

So, non-profits and community-based lenders want a carve out to pursue lending to households that were nearly destroyed with the housing crash and rise in unemployment.

Hint: we already have the FHA doing low down payment insurance. Do we really need carve outs for the non-profits and community-based lenders? Only if Congress thinks repeating the same credit expansion to fragile households (again) is a good idea, like the National Homeownership Strategy adopted by Clinton and HUD in 1995. nhsdream2

Exactly where the homeownership bubble began.

The QM debate is misplaced. It should be a prime mortgage (PM) debate with no carve outs.

Here is a chart of Enterprise purchases and how they performed. 20% down and higher and credit scores of 660 and higher are boxed in the upper right hand corner. Notice the deteriorating performance once the down payment is less than 20% and credit scores are below 660.

And remember, the government mortgage giants still have a 90%+ market share of mortgage insurance and purchases. So, the faceless taxpayer is taking the risk … once again.

Moral to the story: Replace QM with PM (prime mortgage). Unless we want to repeat the housing and homeownership bubble … again.

[whitedog57]

More insanity from Congress.

[upchuck]

This is EXACTLY what this country needs: More people with mortgages they can/will never afford.