After a year or so with all the hoopla and consternation surrounding the implementation of the QM and ATR rules under Dodd-Frank, we really don’t know where we stand (Mortgage Credit). Do these new rules have a negative impact on the accessibility of mortgage financing or a positive effect on loan quality? Maybe both. According to CFPB, the rules have not had a large impact in terms of access to credit and people getting loans. The real estate and lending industries do not agree with this position.
The reality is that we really can’t tell the full effects of the new rules at this point. No doubt they play some part in the recent generation of better quality loans with higher credit scores and larger down payments. But, are some people being blocked from homeownership because the rules are too restrictive? Maybe, it’s just that lenders are being a little too cautious to whom they are lending? Who can blame them after what they just went through?
Uncertainty plays a big role. For now, most lenders stay within the QM zones as this provides them some safe harbor against a potential ability to repay legal challenge. The reality is that the new law has yet to be tested. Recently originated loans under the new rules are performing well. Defaults and foreclosures are down, but many of these new loans were actually originated after the crash but before the new rules. That would seem to indicate that lenders had already made some adjustments in lending philosophy prior to enactment of Dodd-Frank and the new ability to repay rules.
The question then is: Did we need a law that requires a lender to ensure a borrower’s ability to repay? It seems to me that this is the basic rule of lending. How many lenders would provide money to someone who could not repay? Unfortunately it happened.
In the age of the “low-doc”, “no doc” and “Ninja” loans, many borrowers received loans that did not have the income to carry the debt. Why? I guess it seemed like a good idea at the time.
Money was plentiful, rates were low, and property values were constantly increasing, what could go wrong? I don’t think I need to answer that.
Maybe, we should be a little more patient this time around and let the new rules (with some minor tweaking) run their course for a while to get a feel for their true effects on access to credit. Let’s do this before we start looking for alternative ways to provide financing to those, who some now believe, do not have adequate access. After all, isn’t that some of what helped to lead us to the crash of 2007-08?
Although we may come up with ways and programs to qualify more people to buy homes, once they have them will they have the ability to continue to afford and maintain the home they purchase? Will they have the ability to repay?