By Christopher Matthews | TIME
Big Wall Street banks and consumer advocacy groups like the Center for Responsible Lending don’t agree on much. But recently, these strange bedfellows have been brought together by their opposition to new rules governing mortgage-underwriting standards that have already been issued or are set to be issued by the Consumer Financial Protection Bureau (CFPB) in the coming months.
Ever since the passage of the Dodd-Frank financial reform legislation was passed 2010, these once-and-future foes have been fighting the so-called “qualified mortgage” (finalized in January) and ”qualified residential mortgage” rules (which is soon to be finalized). Basically, these rules say that if the loans they make don’t fit a certain profile — 20% down and a debt-to-income ratio no more than 43% — the banks won’t get certain legal protections from borrower lawsuits, and they’ll have to retain at least 5% of the loan on their books.
The logic here is pretty simple: One of the main causes of the financial crisis was that mortgage originators made loans with little regard for those loans’ quality because they quickly repackaged them and sold them to investors. So if these banks want to keep issuing loans without keeping some of the value on their books, those loans have to meet certain requirements.
The mortgage industry doesn’t like these rules because it doesn’t want restrictions on its business decisions. Consumer groups, meanwhile, are afraid that these rules will restrict lending to lower-income homebuyers. Of course, that’s the whole point of having mortgage standards in the first place: Some people aren’t going to be able to get mortgages.
And that’s not necessarily a bad thing. Ever since the financial crisis, the news media has been filled with negative-sounding headlines describing the state of homeownership in America, which has recently fallen to nearly twenty-year lows. More recently, we’ve heard tales of first-time buyers getting outbid by cash-rich investors looking to take advantage of cheap real estate.
If you’d like to discuss real estate matters, contact Rose Law Group founder Jordan Rose, jrose@roselawgroup.com
