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Will new mortgage rules make it tougher?

Posted by Scott Van Voorhis January 8, 2013 06:52 AM

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Yes, and that's exactly what we need!

Enough already with lenders being allowed to artificially stoke their profits at everyone's expense by recklessly doling out hefty mortgages to buyers without a clue or two dimes to rub together.

The newly minted U.S. Consumer Financial Protection Bureau is poised to take center stage this week, unveiling new rules for government standard mortgages, with plans to hold a public hearing on Thursday, Bloomberg reports.

The new consumer agency - the brainchild of Lizzie Warren - sets out some common sense debt limits for borrowers.

For a mortgage to be deemed "qualified" by the new agency, the borrower's total debt payments can't exceed 43 percent of pre-tax income.

Pernicious interest-only mortgages, and loans whose principal can grow over time, leaving a homeowner even more in debt, would not be eligible for the consumer bureau's stamp of approval.

Lenders, under the new rules, also have to document that their borrowers truly can repay their mortgages. Things like verifying assets and income. Imagine that!

All sounds pretty common sense to me, but the banks' reaction, as typical, defies common reasoning.

Seven regional banks are lobbying to have a year to adjust to the new rules. Really? After all, it does make you wonder what they are doing right now if they aren't already carefully scrutinizing potential borrowers.

As noted by Calculated Risk it is a pretty low bar as it is - after all once you factor in taxes it is allowing a borrower to shelling out half or more of monthly pay on various debt payments, including the mortgage.

But even with the misgivings about the high debt limits, the influential economics blog is all for the new requirements.

In an industry that for years operated in a relatively lawless environment, it sets a few basic standards.

We are all paying for the misdeeds of the financial services industry - foreclosed homes, once a rarity but for a few, hard-hit urban neighborhoods, are now a dime a dozen, even in the suburbs. I have one down the street from me in Natick - it's been empty for years, dragging down the value of all the homes around it.

Here's what Calculated Risk has to say.

In the long run this is an important step. This will insure that most loans are made to a somewhat reasonable standard (43% of pretax income is pretty high) - and no stated income or Alt-A loans will meet these standards (Great news!).

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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