It appears the fallout from the housing collapse of 2008 is not over yet. Richard Satran wrote an article in U.S. News & World Report titled, â€œTighter Mortgage Rules Will Soon Squeeze These Groups Even More.â€ on August 30th in which he details new rules emerging from the Consumer Financial Protection Bureau which will restrict lending for a new mortgage, or refinancing for those buyers whose overall borrowing rate would be more than 43% of their income.
These new restrictions will include in their calculations factors like student loan debt, fees and points related to a home purchase and property taxes that had been exempt from the debt-to-income ratio previously. Strong credit scores will no longer overcome a higher debt-to-income ratio as in years past.
In interviews conducted by Satran of mortgage lenders, real estate trade groups and research firms, first time homebuyers, those unemployed, under-employed or with spotty work history in the past five years, small business owners, buyers in high-end housing markets, retirees or those whose homes have lost a substantial amount of equity due to the crash will be most effected by these changes in rules. These experts predict the new lending rules will eliminate between 10 and 50% of borrowers.
The Consumer Financial Protection Bureau has addressed these concerns stating, â€œvery marginally qualifiedâ€™ borrowers or wealthier ones with private lending alternatives, and exclusions amount to less than 10 percent of those currently eligible.â€
Despite the response from the CFPB, brokers and agents maintain that these rules will negatively affect an already delicate real estate environment throughout the entire country. Citing continuing low loan originations, $500 billion in 2013 compared to $1.5 trillion pre-collapse and the fact that mortgages are still eight times harder to get post-collapse.
Satran goes on to explain that while the housing market has shown some signs of recovery throughout the past year, this improvement is largely due to the fact that 50% of all home purchases are paid for in cash. And while some wealthy individuals are sweeping into the market with money they have held in reserve throughout the Great Recession, many of these cash purchases are actually foreclosure properties.
While the CFPB, Congress and the Federal Reserve have all promised to regulate these new rules, housing experts agree that qualified borrowers will be rejected. Furthermore, these rules were created to address problems prevalent pre-Recession, many of which do not exist within the economy now. Americans have tightened their purse strings across the board and are more responsible than in many years about repaying debt, according to S&P/Experian.
Qualified borrowers will be forced into expensive, stringent loans as interest rates on mortgages continue to rise. Satran fears a new crisis of default could emerge under these circumstances, quoting CoreLogicâ€™s Khater who stated, â€œThe pendulum has swung from way too crazy to too conservative now. Thatâ€™s human nature. The rules are aimed at protecting consumers from hurting themselves. Â Now there is a hard-and-fast rule used in place of traditional underwriting standards, ironically, the market will not be deciding (who is creditworthy). No one knows what the impact will be.â€
The clear lesson from this article and the actions of the CFPB is that while the market looks as though it is improving, we are not out of the woods yet. Buyers must rely on their agents and lenders to guide them through the latest complication to emerge from the housing bubble.
To see if these rules affect you or your purchasing ability, get in touch with Greg Rulon and Stacey Kelly. Their combined experience and knowledge about the market within Aspen and Snowmass Village will be critical as you and your family negotiate these new lending rules.