Just in Time! Lenders Seek Congressional Approval for No Income Mortgages

Mish

Here we go again. The mortgage lending industry seeks to eliminate debt-to-income rules for home buyers.

At the peak of every boom comes one final act of repetitive stupidity. This may be it.

Please consider CFPB Moves to Eliminate Mortgage Debt-to-Income Rule for Borrowers.

In a letter CFPB Director Kathy Kraninger sent to Congress today, the CFPB asked to amend the Ability to Repay/Qualified Mortgage rule (ATR/QM rule) in order to remove DTI as a qualifying factor in mortgage underwriting.

This rule was created in response to the financial crisis of a decade ago as a way to prevent lending money to borrowers who might not be able to afford the loan.

The move by Kraninger is by request of a group of lenders and industry groups, including Wells Fargo, Bank of America, Quicken Loans, Caliber Home Loans, the Mortgage Bankers Association, the American Bankers Association, the National Fair Housing Alliance, and others.

The finance leaders want to remove the 43 percent DTI requirement on both prime and near-prime loans.

Specifically, current rules includes things like verification of income, credit history and DTI, among others. The only portion the CFPB is asking to amend is the DTI requirement.

One reason for the request is that GSEs Fannie Mae and Freddie Mac are not subject to this rule, under a condition called the “QM Patch.” This patch allows loans sold to Fannie and Freddie to exceed the 43 percent DTI requirement, which some lenders say is unfair for those loans backed by private capital.

Hey, why not? More importantly, why stop there? Besides, if one claims no income, there is no income to verify. It's all nice and clean.

NINJA (no income, no job, no asset) loans worked out so well the last time we tried them, it's clearly time for a repeat performance.

Mike "Mish" Shedlock

Comments (61)
No. 1-26
Scooot
Scooot

I don’t understand why the lenders would want to remove the DTI rules. Surly they help protect them from bad debts. If the rules are removed, peer pressure & competition would drive some to lend when they’d rather not. I guess they think the government would bail them out again.

TSPsmart.com
TSPsmart.com

Mish, don't forget how much the banks made on foreclosure fees and how much hedge funds made on buying up loans and kicking people out of their houses last time. They need more underwater borrowers in their supply chain for the next crisis.

Tengen
Tengen

Ninja loans are coming back? Time to party like it's 2006!

Jokes aside, this is a bit unsettling because it means the next major downturn is coming sooner than expected. Only sheer desperation could bring back a policy this idiotic. Should we expect the return of Bank Failure Fridays in another year or two?

Six000mileyear
Six000mileyear

The CFPB has gone completely Orwellian with this move. Nobody is protected if DTI level are eliminated from the mortgage approval list.

Casual_Observer
Casual_Observer

When bailouts got institutionalized all it would take was reducing lending standards for banks to get more bailouts. We essentially have a central bank the way the Soviet union did. These large banks are part of the Fed.

leicestersq
leicestersq

If they want to drop the borrowing requirements, it can only be because they have a mug somewhere who will take the resulting mortgages. Who is that mug?

Last time the pension funds must have taken a bit of a bath. It will probably be them again.

These rules about lending are not really there to protect the banks, but to protect the savings of ordinary people who otherwise might find that they have a lot of bad investments in their portfolios.

Sechel
Sechel

Well why not? Republicans and the President weakened the rules put in place after the financial crisis and the lenders know the don't have to hold it? As long as the securitization market exists and you have portfolios once again starved of yield or a risk less treasury return. What originator wants to hold onto trash and an unknown risk. Can't know the risk if the documentation isn't there!

I'm fine with mortgages from lower quality borrowers, what I'm not fine with is not doing the leg work. Would we be OK with a Boeing plane that wasn't inspected and subject to a review before going in the air? How about drugs not subject to studies or a review? How do I estimate the recovery and default risk of a pool of loans if there is no proper appraisal and the borrowers haven't fully disclosed their income and assets?

Blurtman
Blurtman

Because student loan indebted millennials need homes too, you heartless bastards.

JonSellers
JonSellers

"Apparently Fannie Mae is not subject to the requirement so the lenders cry about fairness."

The FNMA doesn't lend directly to potential mortgage owners. So this is BS.

Capn_Renault
Capn_Renault

A federal bureaucracy threatens to make a bad situation worse, and out come the critics to blame the banking industry instead of the bureaucracy.

Even if one believes the party line that the banks made them do it -- the CFPB could say "no". Actually that is the whole reason the CFPB was created in the first place.

We already had dozens of bank regulatory agencies (Fed, SEC, CFTC, OCC, and 50 different state agencies) -- so why did we need Yet Another Regulatory Agency?

How many redundant regulatory agencies is too many?

MaddisonMann
MaddisonMann

Great post!

CzarChasm-Reigns
CzarChasm-Reigns

I saw a Davos attendee on Bloomberg claiming that low interest rates & money printing were providing stability, effectively ending boom/bust cycles. And yet a return to normalcy appeared to be the desired goal.

It appears TPTB have donned their rose colored glasses & set their sites squarely on success. Side dishes of failure are off the menu. Bon appetit.

ksdude69
ksdude69

Scraping the barrel trying to get every last bit of stupidity out.

BillSanDiego
BillSanDiego

Why is the CFPB asking for Congressional approval? Congress created this bureau with the mandate that it create its own rules. Why does the CFPB now defer to Congress?

Tony Bennett
Tony Bennett

Not just mortgages.

WSJ ran a story a couple of weeks ago on the absolute sausage factory of making new vehicle loans. Auto loans now close to $1.5 trillion. Had to laugh at the chutzpah of one borrower who chose to sue. Her income ~ $600 / month. Her loan ~ $800 / month. No one forced you to buy a new vehicle. Pray tell, how did you think you could EVER make a $800 / month payment??

Tony Bennett
Tony Bennett

10 years ago Republicans were frothing to downsize / spin off Fannie and Freddie ... of course, that went NOWHERE.

Tony Bennett
Tony Bennett

Dare I mention that Fair Isaac (FICO) recently changed their methodology to make it easier for borrowers to get a better credit score?

Bam_Man
Bam_Man

We are now way past the "expiration date" of our 49-year old, debt-based, fiat monetary system, which requires constant credit growth to keep from imploding into a deflationary Black Hole.

The longer we continue under the current system, the more bizarre and surreal the lending policies will become.

AWC
AWC

Damn, this is almost as ethical as cramming ignorant retirement savers into passively managed ETF’s. Oh, well,,,,,got home builders in that there magic portfolio? I mean, FOMO, ya know?

RonJ
RonJ

When do the rating agencies start giving junk mortgage debt AAA ratings, again?

KidHorn
KidHorn

The problem isn't low income. The problem is houses cost too much. This is similar to the ACA. Politicians have convinced the american people that the problem with healthcare is insurance costs are too high. That's not the problem. The problem is health care costs are too high, which is causing high insurance costs.

If we eliminated the GSEs, housing prices would drop and more people could afford them. But that would be racist.

Mish
Mish

Editor

To JonSellers

"One reason for the request is that GSEs Fannie Mae and Freddie Mac are not subject to this rule, under a condition called the “QM Patch.” This patch allows loans sold to Fannie and Freddie to exceed the 43 percent DTI requirement, which some lenders say is unfair for those loans backed by private capital."

magoomba
magoomba

High tech feudalism.
It might give them more places to stick the homeless.

Herkie
Herkie

Isn't this just recognition that when (not if) it all collapses next time TPTB will just bail them out yet again? So, in that sense they are right the GSEs do have an advantage that is not justified by dint of them being wards of the government once another collapse comes. As we all know on that day all banksters will be rescued at our expense again so why not have the same rules?

Jackula
Jackula

Yup, another indicator this cycle peak is upon us...it never fails to amaze me how the braniacs that some how get to be in charge do the oppsite of what they should be doing.

Snow_Dog
Snow_Dog

“How many redundant regulatory agencies is too many?”

How many houses must be sold at ridiculous prices?


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