Skip to comments.Ability To Repay Rule - A Lesson In Removing Personal Responsibility
Posted on 12/18/2013 4:07:44 AM PST by LD Jackson
There are some things in this life that are more important than others. Through my 51 years on this earth, I have learned that personal responsibility is one of those things. If we refuse to take responsibility for our actions, we are apt to go through this life with an attitude of entitlement. If we perform an action, knowing full well it is wrong, we will then expect someone else to take the blame, to bail us out, and to fix the problem.
I have seen this first hand. The automotive shop I work at installs a device to prevent people from driving after they have been drinking alcoholic beverages. Some of the clients are older, but many of them are teenagers. To be sure, the device we install is meant to be inconvenient. It costs a lot of money and it is totally aggravating to drive a vehicle with one of them installed. The device has to be re-calibrated once each month, but many times the client has to return earlier than their original appointment because they have done something to cause the device to start counting down the days before it locks up and prevents the car from starting. Almost invariably, the parents of these teenagers are the ones who undergo the inconvenience and the cost of returning to the shop to have the service performed. We have noted many times that the person who was convicted of driving under the influence was learning only one thing from the experience. They became fully aware of just how far their parents would go to protect them from their own actions.
My apologies for the long story, but it serves the purpose to highlight how important personal responsibility is in America and just how lacking it is. Another case in point is the new rules that were issued this past January by the Consumer Financial Protection Bureau. They are set to take effect January 10, 2014. The new rules are supposed to protect home buyers from the unscrupulous lending practices that supposedly led to the crash of the housing market that caused so much grief toward the end of the Bush administration.
To be sure, there were some very bad loans issued. Some of that was because of bad lending practices, but some of it was also due to people not taking personal responsibility for the loans they obtained and the government's unwillingness to let these people suffer the consequences. At the time, there was a major push by our government to make sure low-income borrowers were able to purchase a home. It was considered to be of the utmost importance. Supposedly, these new rules will prevent all that from happening again. However, when you look at one of the new rules in particular, something troubling comes to light.
This new rule is called the Ability to Repay Rule. I want to share with you a description of exactly what the rule establishes. I have added emphasis to point out what you should pay attention to.
The Heritage Foundation - The cornerstone of the mortgage regulations finalized on January 30 by the CFPB is a lender obligation to make a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan according to its terms. This ability-to-repay provision is more than a procedural requirement. It is the basis of an expansive new consumer right to sue lenders for miscalculating their financial fitness for a loan.What this rule does is simple. A prospective home buyer can apply for a loan. They are tasked with supplying the documents to prove they have the ability to pay back the loan. The lender is responsible for making sure their documents substantiate their claim, thus laying a foundation for the loan. If that is established, the loan will probably be granted. Up to three years after the loan is made, the borrower can sue the lender for failing to make sure the borrower would be able to pay back the loan. Thus, much of the personal responsibility is removed from the back of the borrower and placed directly on the institution that was unfortunate enough to grant them the loan. They will also be able to use this defense to prevent foreclosure of said loan and property.
Under the new regime, a borrower may sue a lender within three years of an alleged violation, such as improperly documenting income or assets, or incorrectly calculating the borrowers financial obligations. Those who prevail may recover damages equal to the sum of all finance charges and fees paidpotentially tens of thousands of dollars.
A borrower may also assert a violation of the ability-to-repay requirement as a defense against foreclosureeven if the original lender sold the mortgage or assigned it to a servicing firm. (The lawsuit may ensnare an assignee or holder of the mortgage, as well.) If successful, the borrower may recover all mortgage finance charges and fees paid in addition to actual damages; damages in an individual action or class action; and court costs and attorney fees.
The obvious consequence of this new cause of action will be more litigation and less credit availability. No longer will borrowers who wish to contest foreclosure have to initiate a lawsuit against the lender. This will reduce borrowers legal costs and thus increase the incentive to claim a violation of the ability-to-repay requirement in the event mortgage payments become burdensome. A new prohibition on pre-dispute arbitration also is expected to dramatically increase the litigating of disputes which would have otherwise been resolved by arbitration.
Someone a lot smarter than I am is going to have to explain how this does anything but enable the same kind of practices that brought the housing market to its knees in 2008. Anyone care to take a shot?
This simply ensures that fewer loans will be written. (Which would be racism under other laws as one group will be more adversely affected than others.)
Probable outcome: a) banks won’t make anymore loans to ANY individual, preferring to lend money to the feds; b) mortgage companies will spring up, make loans for a short period of time, declare bankruptcy and open somewhere else under another name; c) feds are going to get stuck with the bill; and d) our taxes will go up, inflation will go up, spending will go up and the GOP-e will capitulate to Commie demands.
AH! But that is precisely what the law is intended to do. It institutionalizes bad practices. Liberals are fond of decrying the law of unintended consequence whenever one of their exotic dishes turns sour. This is quite the reverse. This creates an environment in which the mortgagee is rewarded for fraud.
Some anonymous person on the internet, posting on a conservative forum (you), understands market based economics and American politics as they are practiced today better than anybody in Washington.
I can speak to this with some knowledge. For 14 years, I’ve been a “volunteer” loan officer at a credit union. I don’t get paid for it, because all our officers are volunteers. We have paid staff, but that’s all.
In all those 14 years, I’ve reviewed thousands of loans. Not once did we force anyone into the office and make them sign the loan application.
and the GOP-e will try to hide their enthusiasm for the Commie demands.
“.....If we refuse to take responsibility for our actions, we are apt to go through this life with an attitude of entitlement.”............
Without a doubt a PERFECT statement of odumbo.
By discouraging lenders to lend $$$. So they make less home loans.
I recall having to submit pay stubs and savings account information to get a good interest rate , and I did the 20% down payment to avoid paying the mortgage insurance, that requirement was done away with under Bush admin so those with poor credit and no $$$ could buy houses, then lose them.
Under the new regime, a borrower may sue a lender within three years of an alleged violation, such as improperly documenting income or assets, or incorrectly calculating the borrowers financial obligations. Those who prevail may recover damages equal to the sum of all finance charges and fees paidpotentially tens of thousands of dollars.Thanks LD Jackson.