When I first meet with a client, I always ask, “How comfortable do you feel paying a monthly housing obligation … including a mortgage payment, home insurance and mortgage insurance?” This is a different approach to the mortgage process and gets them talking in real numbers about their family finances. Typically, we wind up “backing” into the size of a house they can buy and the amount of a mortgage they can afford. I can’t remember when I’ve ever had an issue with a buyer’s “Ability to Pay.”
For everyone else, the Dodd-Frank Act created the Consumer Finance Protection Bureau which in turn created the proposed Qualified Mortgage. The CFPB’s QM regulations are meant to assure residential borrowers that their mortgage loan is right for them. Included in the regulations is the provision that the highest debt to income ratio on all mortgages is 43%. The 43% would be the total of the proposed housing expense, plus any, installment, credit card debts, alimony and/or child obligations as a percentage of the borrowers’ gross monthly income. Sounds like a good idea? … Right!
Now I am giving you a very simplistic overview here as there are many factors that affect a impact a families ability to pay. But, presently I am getting Conventional mortgages approved up to 45%: FHA and the USDA are insuring some loans with 49% to 55% ratios. These are very rough numbers, but you get the idea. What all this means is that many families will not be able to become homeowners or refinance when these regulations go into effect on January 14, 2014.
From everything I keep reading, there will be new players coming into the market to fill in the gap. This will be the new “Subprime Mortgage Market.” I can assure you, when private investors enter the market and cannot sell their loans through normal channels; it will cost the consumer much more money.
The Dodd-Frank Bill has created more jobs in Washington than any other government body to put these regulations together. I’m just not sure that it should be called the Consumer Financial Protection Bureau.