US News: New Consumer Protection Bureau Could Dampen Housing Market

Thursday, 05 Sep 2013 07:48 AM

By John Morgan

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Efforts in Washington to tame the loose mortgage lending practices that helped spark the 2008 housing meltdown may be backfiring, according to U.S. News & World Report.

The new Consumer Financial Protection Bureau (CFPB), in its zeal to stop unsound lending practices, may actually be nailing the door shut for some would-be homebuyers who are qualified, the magazine said.

Editor’s Note:
New Video: Obama Plans to Redistribute Seniors’ Wealth

New lending rules would bar people from obtaining a mortgage or refinancing if it puts their household borrowing over 43 percent of their income. The new rules would also make it easier for lenders to be slapped with consumer lawsuits when loans go bad.

Private research firms estimated that from 10 percent to 50 percent of potential borrowers who qualify for real estate loans now would lose out under the new regulations, U.S. News reported.

"The pendulum has swung from way too crazy to too conservative," said Sam Khater, senior economist at CoreLogic. "That's human nature. The rules are aimed at protecting consumers from hurting themselves."

U.S. News said its interviews with mortgage lenders, real estate trade groups and market research firms showed some key groups might find borrowing harder when the rules take effect in January 2014.

One disadvantaged group would be first-time homebuyers, especially those who have college loans, since those loans would count toward the 43-percent household debt threshold.

Also, those who lost jobs during the recession or who otherwise have had career disruptions in the past five years may find it difficult to get a real estate loan. That's because verification of job history and employment standing are key criteria in the regulations from the CFPB.

In addition, small business owners and independent contractors whose incomes are volatile, and recently divorced or widowed people could all have a tough time getting mortgages or refinancings, the interviews found.

Retirees with adequate savings to finance home purchases or refinances might also have trouble, U.S. News reported, because lack of current income is another red flag under the CFPB guidelines.

The CFPB acknowledged that "there are many instances in which consumers can afford a debt-to-income loan above 43 percent." The agency also conceded banks "initially" may be reluctant to lend because of uncertainty about implementing the new federal rules, according to U.S. News, but it said it is carrying out its Dodd-Frank legal mandate.

Last week, six federal regulatory agencies released a reworked proposal requiring lenders to keep a stake in the loans they bundle and sell as securities, part of the efforts to limit the type of underwriting practices that caused the housing bubble, Reuters reported.

In the years heading into the 2007-09 financial crisis, banks used questionable underwriting standards under the belief that they could sell loans while avoiding consequences if the borrowers defaulted.

Editor’s Note: New Video: Obama Plans to Redistribute Seniors’ Wealth

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