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Thread: New US Mortgage Lending Regulations take effect on January 10th

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    Default New US Mortgage Lending Regulations take effect on January 10th

    from

    (snip)"New regulations governing home loans take effect Jan. 10, but it's likely to take a few months to see how much they really alter a prospective borrower's ability to get a mortgage.

    Combined with other tweaks made in the past few months, the changes will mean new terminology and revamped paperwork for lenders to understand and then explain to borrowers in 2014. They also could lead to less lending, experts say. ***

    The goal of the new mortgage rules from the Consumer Financial Protection Bureau is to better protect borrowers from the lax underwriting that wreaked havoc on people and the housing market. The regulations are designed to ensure a borrower's "ability to repay" a mortgage while also offering lenders protection from borrower lawsuits so long as they make safer so-called qualified mortgages. ***

    The rules bar some loan products that all but disappeared during the housing crisis — interest-only loans, balloon-payment loans and mortgages with terms that extend past 30 years — from being considered qualified mortgages.

    Under another part of the rule, a borrower's overall debt can make up no more than 43 percent of gross income. The effect of that provision will be muted, however, because, at least temporarily, it does not apply to loans that will be purchased by Fannie Mae or Freddie Mac or backed by the Federal Housing Administration. Those agencies continue to account for the overwhelming majority of new mortgage loans.

    However, Fannie Mae, Freddie Mac and the FHA all are looking to limit their exposure, and thereby the taxpayer's exposure, in the housing market.

    The FHA last month decreased its maximum loan limits for 2014. The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, this month said it was considering reducing the maximum loan size it may buy.

    Also, points and fees can't amount to more than 3 percent of the loan amount.

    Housing experts say one effect of that rule could be that consumers looking for loans in the $100,000 to $150,000 range may find fewer lenders from which to choose. That's because a loan has to go through the same amount of paperwork and underwriting, regardless of whether it's for $100,000 or $400,000.

    "Lenders may not do those loans," said Ken Perlmutter, president of Perl Mortgage. "It's just as much work, and you can't change the fees. ***

    That 3 percent cap also could affect a borrower's ability to buy down their interest rate by paying points upfront, as well as restrict the ability of people with lower incomes and risky credit, who typically have paid higher fees, to receive a mortgage."(snip)


    also, from

    (snip)"The agency that oversees Fannie and Freddie, the FHFA, has announced another increase in their guarantee fees or g-fees and increases in their loan-level price adjustments or LLPA.

    The former are charges to lenders for guaranteeing mortgage backed securities and the latter are risk based adjustments to pricing on mortgages. The new increases in both will be charged to borrowers and will increase mortgage rates as much as .375% for many borrowers.

    The FHFA has stated the reason for these increases is to encourage private money, non-Fannie or Freddie, to return to the mortgage market. While that is a good idea and many in the industry would like to see that happen, it's hard to see that happening with the new Qualified Mortgage (QM) rules issued by the Consumer Finance Protection Bureau CFPB starting on January 10, 2014."(snip)


    Take-aways of particular interest to 'self-employed' DD readers ...

    The new 43% debt service limit to qualify for a FHA / Fannie / Freddie mortgage creates both a requirement for official 'income verification', as well as a disclosure requirement for all existing debt i.e. student loans, auto loans, credit card and other consumer debt etc. If your officially reported income is X, and if the total of your existing debt service monthly payments exceed 43% of X, these new regulations will bar the approval of a new home mortgage loan. And payments toward the 'gap financing' portion of any new mortgage loan ( i.e. principal and interest payments going towards financing of additional monies borrowed in the absence of coughing up a 20% down payment plus closing costs ) will be counted toward the 43% calculation.

    As implied in the above news blurb, there are significant new costs involved for mortgage lenders to perform the 43% investigation and analysis, new costs which don't vary with the amount of the requested mortgage loan. Thus, as actually stated by the above news blurb, it's possible that mortgage lenders will avoid new FHA / Fannie / Freddie mortgage applications where the amount of the requested mortgage loan, thus potential lender profits over the life of the mortgage loan, is relatively low ( i.e. below $100-150k per the news blurb ).

    Additionally, long term bond thus mortgage interest rates have been rising since the FED first announced a future 'taper' policy last May have already increased mortgage interest rates by 0.5% or so. Plus new regulations also now impose higher 'mortgage insurance' fees on mortgage lenders, which are estimated to raise 'all in' mortgage interest rates by an additional 0.375%.

    Finally, the new 3% cap on points and fees will have an adverse effect on the approval rate for would-be mortgage borrowers who are considered to be 'high risk' ... i.e. the self-employed, those with less than ideal credit ratings, etc. Whereas in the past it was often possible for a 'high risk' mortgage applicant to obtain approval in exchange for agreeing to pay higher points and fees, under the new regulations there is no longer much of a mechanism available to mortgage lenders to extract a 'risk premium' from 'high risk' mortgage borrowers, making mortgage approval less likely.

    As speculated by the above news blurbs, it is somewhat expected that non FHA / Fannie / Freddie mortgage lending will ( again )emerge from the private sector to cover the mortgage market segments which these new regulations will 'suppress' ... i.e. comparatively low cost homes, self-employed / 'high risk' applicants, applicants with a less than ideal credit rating, applicants with a high debt to income ratio etc. However, it is likely that interest rates, points and fees associated with private sector mortgages will be significantly higher than with a FHA / Fannie / Freddie guaranteed mortgage.


    For any DD readers 'on the fence' about purchasing a house, there are still three weeks before the new regulations take effect !!!
    Last edited by Melonie; 12-24-2013 at 09:04 AM.

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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    Mortgage applications are already low...

    From its peak in October 2012, mortgage applications have collapsed 66% and this week printed at new 13-year lows
    http://www.zerohedge.com/news/2013-1...ew-13-year-low

    All-cash purchases accounted for 42% of all sales of residential property in November 2013, up from 39% during the previous month, according to data from real-estate data firm RealtyTrac released Friday.
    http://www.marketwatch.com/story/nea...ash-2013-08-29

    The last article draws a conclusion about the stats that I dont. When I look at those numbers it tells me that our housing market sales are being driven by investors, banks, and hedge funds. Families do NOT have the money to pay cash for houses.

    I see a day coming when it is common to purchase a house from the same bank you have a loan with. Neo Feudal!
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    mortgage applications have collapsed 66% and this week printed at new 13-year lows
    ^^^ rigorous 3rd party income verification plus rising interest rates have a way of doing that ...

    (snip)Treasury bond yields rose notably all day with the 10Y at its 2nd highest closing yield of the year +5.4bps to 2.98% today(snip).

    Since the 10 year treasury bond yield interest rates paid is most closely tied to mortgage interest rates charged, this 'cost' increase will quickly be passed on to new mortgage borrowers ... on top of the increased 'mortgage insurance' fees ... on top of increased imputed mortgage origination 'costs !


    I see a day coming when it is common to purchase a house from the same bank you have a loan with.
    Actually I don't see this as likely. The banks don't want to be saddled with the potential double whammy loss risk of REO houses potentially losing market value on top of high debt low net worth variable income mortgaged buyers going 'belly up' on their mortgage. The banks actually have strong motivation to sell off REO houses to investors with 'cash' in hand, even if it means booking a deeper loss on declining market value. While in an entirely different 'sphere' there are also new higher bank reserve requirements going into effect soon, which strongly motivates banks to dump illiquid holdings for cash ... from

    (snip)"The introduction of the “liquidity coverage ratio," or LCR, marks the first time U.S. regulators have required banks to have a specific amount of liquid assets in order to withstand a run on the bank or a credit crunch. U.S. financial regulation for years has focused on capital, or the ratio of equity-to-debt that a bank uses to fund its loans and securities.

    It follows lessons learned from the 2007-09 crisis, during which big banks’ ability to provide liquidity, or cash on demand, was severely impaired as financial institutions grew distrustful of one another’s strength, even when banks’ capital levels suggested they were healthy institutions.

    The result -- reduced lending and a system-wide move to hoard cash and safe securities such as U.S. government debt"(snip)



    The last article draws a conclusion about the stats that I dont. When I look at those numbers it tells me that our housing market sales are being driven by investors, banks, and hedge funds. Families do NOT have the money to pay cash for houses.
    Indeed, as the result of banks wanting to 'dump' REO properties in exchange for 'cash', and deep pocket investors seeking high yield low risk investment options, a number of hedge funds have recently bought up 'distressed' REO houses by the 1000's as rental units ... and in turn have repackaged the rent revenues into private bonds which can be sold to those deep pocket investors. See

    This reallocation of the supposedly 'smart' money is most probably based on the conclusion you have just drawn ... i.e. that fewer and fewer Americans are / will be able to afford to buy their own homes, translating into a significant increase in demand for rental homes ... thus rising rent prices ... thus rising rental income earnings for the hedge fund 'corportate landlords' and for their private rent revenue bond investors. THIS is the true Neo-Feudal economy !!! And the new FHA / Fannie / Freddie regulations, plus new bank reserve regulations, will only help to accelerate this trend.

    Circling back on topic, it appears that self-employed dancers and camgirls will be facing an even more uphill battle in the near future in regard to obtaining mortgage financing. I'll add that dancers and camgirls typically wind up receiving a 'high risk' classification because loan officers are smart enough to realize that very few dancers and camgirls will still be capable of the same level of dancing and camming earnings 20 years in the future, while the mortgage payments must still be made every month !!!

    Maybe I'll be proven wrong, but the 'tea leaves' tend to point to two feasible scenarios for these 'high risk' self-employed borrowers ...

    - 100% cash purchase

    - 20% down money plus closing costs in cash, leading to a non gov't guaranteed 'private sector' 15 year mortgage with an elevated interest rate which reflects the higher risk factors that the 'private sector' lenders will be assuming in the absence of FHA / Fannie / Freddie 'guarantees' against loan defaults.

    As such, if anybody has been 'sitting on the fence' in regard to buying a house, there are still a few weeks available to apply for mortgage financing under the 'old' rules and regulations.
    Last edited by Melonie; 12-25-2013 at 09:10 AM.

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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    Vamp, here's the arguable 'true story' regarding declining home sales to individuals ...





    When home prices are expressed as a percentage of average net income ( instead of just raw dollars ), things look pretty ugly at today's record high 6.7x multiple !!!

    And, of course, there are other consequences of renting versus owning ... with the most notable probably being that the person's monthly payments wind up increasing the 'net worth' of the ( corporate ) landlord and the 'deep pocket' investors instead of building 'net worth' for the person. And this is likely to become even more the case as fewer people are able to purchase their own houses under the new gov't mortgage lending regulations, thus forcing more people to become renters, thus driving up future rent price levels even higher than they already are. But that's arguably off-topic.
    Last edited by Melonie; 12-25-2013 at 09:34 AM.

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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    Quote Originally Posted by Melonie View Post
    Actually I don't see this as likely. The banks don't want to be saddled with the potential double whammy loss risk of REO houses potentially losing market value on top of high debt low net worth variable income mortgaged buyers going 'belly up' on their mortgage. The banks actually have strong motivation to sell off REO houses to investors with 'cash' in hand, even if it means booking a deeper loss on declining market value. While in an entirely different 'sphere' there are also new higher bank reserve requirements going into effect soon, which strongly motivates banks to dump illiquid holdings for cash ... from http://www.huffingtonpost.com/2013/1...n_4158388.html

    (snip)"The introduction of the “liquidity coverage ratio," or LCR, marks the first time U.S. regulators have required banks to have a specific amount of liquid assets in order to withstand a run on the bank or a credit crunch. U.S. financial regulation for years has focused on capital, or the ratio of equity-to-debt that a bank uses to fund its loans and securities.

    It follows lessons learned from the 2007-09 crisis, during which big banks’ ability to provide liquidity, or cash on demand, was severely impaired as financial institutions grew distrustful of one another’s strength, even when banks’ capital levels suggested they were healthy institutions.

    The result -- reduced lending and a system-wide move to hoard cash and safe securities such as U.S. government debt"(snip)

    Indeed, as the result of banks wanting to 'dump' REO properties in exchange for 'cash', and deep pocket investors seeking high yield low risk investment options, a number of hedge funds have recently bought up 'distressed' REO houses by the 1000's as rental units ... and in turn have repackaged the rent revenues into private bonds which can be sold to those deep pocket investors. See http://www.bloomberg.com/news/2013-1...ing-spree.html

    This reallocation of the supposedly 'smart' money is most probably based on the conclusion you have just drawn ... i.e. that fewer and fewer Americans are / will be able to afford to buy their own homes, translating into a significant increase in demand for rental homes ... thus rising rent prices ... thus rising rental income earnings for the hedge fund 'corportate landlords' and for their private rent revenue bond investors. THIS is the true Neo-Feudal economy !!! And the new FHA / Fannie / Freddie regulations, plus new bank reserve regulations, will only help to accelerate this trend.
    Holding a foreclosure vs the purchase of a property are totally different entities from a banks financial perspective.

    My grapevine tells me that the reason why banks are buying up each other's forclosures is because of the liquidity issue. It is a way to create paper liquidity by changing their ratio of loss/ gains.

    Either way a new world is coming!
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    ^^^ true that a bank holding a foreclosed property as REO has pros and cons. However, under the upcoming new regulations, holding an REO's benefit of avoided booking a loss is now offset by the new costs of the increased requirement for setting aside bank capital reserves against the value of the illiquid REO property / defaulted loan. Agreed that banks can also benefit by 'tweaking' their loss ratio via acquiring or liquidating foreclosed property to minimize regulatory effects, but this is highly 'technical' and varies widely from bank to bank based on the types and duration of the bank's loan portfolio and asset holdings.

    Totally agreed that a 'new world is coming' in regard to credit / loans / mortgages ... and especially so for would-be borrowers whom the regulators and lenders categorize to be 'high risk', i.e. those who work in 'cash' businesses with sketchy paper trails, those who work in 'adult' businesses subject to potential legal changes, those with less than great credit histories, etc. As the existing gov't ( = US taxpayer ) guarantees for various mortgages and other loans are 'scaled back' for future loans, banks and other 'private sector' lenders will ( again ) face large potential financial losses stemming from defaulting borrowers. If the US taxpayer can no longer be saddled with ( as much of ) these losses, banks and other 'private sector' lenders will then have little choice but to A. turn down would-be borrowers who represent a statistically higher risk of default, or B. write new loans and mortgages for 'high risk' would-be borrowers where the additional costs of higher default rate + repo / foreclosure costs + legal costs are passed on to the 'high risk' borrower pool via higher fees and/or higher interest rates on approved loans.
    Last edited by Melonie; 12-26-2013 at 08:08 AM.

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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    You are totally right Melonie , when it came time for me to buy a house back in 07 they were starting to change the guidelines , out of about 250 mortgage lenders, only one said yes.. I ended up with a 50 yr mortgage at 8% interest and a 13% interest on a 2nd mortgage which had a 17,000 balloon payment.. I kid you not! all because I am a high risk borrower being a cam girl or self employed, take your pick.. and my credit score at the time was about 640 with perfect payment history and 20 yrs of credit...LOL.. so umm so thankful this recession afforded me to get into a loan modification.. So now I have a 2% mortgage with about 30 grand knocked off the top of my loan.. and I get pay for performance for the first 5 yrs of my 24 yr loan.. not to mention??? it is unheard of that ANY of your money goes toward principal the first decade or so .. and I get over 200 a month paid off on the principal.. to sweeten the pot even more?? 28 grand of my loan is principal only to be paid back NO INTEREST!... so in my case things worked out in this recession.. now the bad part is?? I am still underwater by about 25 grand.. but my mortgage payment is HALF what it was.. very sweet deal I have..

    Quote Originally Posted by Melonie View Post
    ^^^ rigorous 3rd party income verification plus rising interest rates have a way of doing that ...

    (snip)Treasury bond yields rose notably all day with the 10Y at its 2nd highest closing yield of the year +5.4bps to 2.98% today(snip).

    Since the 10 year treasury bond yield interest rates paid is most closely tied to mortgage interest rates charged, this 'cost' increase will quickly be passed on to new mortgage borrowers ... on top of the increased 'mortgage insurance' fees ... on top of increased imputed mortgage origination 'costs !




    Actually I don't see this as likely. The banks don't want to be saddled with the potential double whammy loss risk of REO houses potentially losing market value on top of high debt low net worth variable income mortgaged buyers going 'belly up' on their mortgage. The banks actually have strong motivation to sell off REO houses to investors with 'cash' in hand, even if it means booking a deeper loss on declining market value. While in an entirely different 'sphere' there are also new higher bank reserve requirements going into effect soon, which strongly motivates banks to dump illiquid holdings for cash ... from http://www.huffingtonpost.com/2013/1...n_4158388.html

    (snip)"The introduction of the “liquidity coverage ratio," or LCR, marks the first time U.S. regulators have required banks to have a specific amount of liquid assets in order to withstand a run on the bank or a credit crunch. U.S. financial regulation for years has focused on capital, or the ratio of equity-to-debt that a bank uses to fund its loans and securities.

    It follows lessons learned from the 2007-09 crisis, during which big banks’ ability to provide liquidity, or cash on demand, was severely impaired as financial institutions grew distrustful of one another’s strength, even when banks’ capital levels suggested they were healthy institutions.

    The result -- reduced lending and a system-wide move to hoard cash and safe securities such as U.S. government debt"(snip)





    Indeed, as the result of banks wanting to 'dump' REO properties in exchange for 'cash', and deep pocket investors seeking high yield low risk investment options, a number of hedge funds have recently bought up 'distressed' REO houses by the 1000's as rental units ... and in turn have repackaged the rent revenues into private bonds which can be sold to those deep pocket investors. See http://www.bloomberg.com/news/2013-1...ing-spree.html

    This reallocation of the supposedly 'smart' money is most probably based on the conclusion you have just drawn ... i.e. that fewer and fewer Americans are / will be able to afford to buy their own homes, translating into a significant increase in demand for rental homes ... thus rising rent prices ... thus rising rental income earnings for the hedge fund 'corportate landlords' and for their private rent revenue bond investors. THIS is the true Neo-Feudal economy !!! And the new FHA / Fannie / Freddie regulations, plus new bank reserve regulations, will only help to accelerate this trend.

    Circling back on topic, it appears that self-employed dancers and camgirls will be facing an even more uphill battle in the near future in regard to obtaining mortgage financing. I'll add that dancers and camgirls typically wind up receiving a 'high risk' classification because loan officers are smart enough to realize that very few dancers and camgirls will still be capable of the same level of dancing and camming earnings 20 years in the future, while the mortgage payments must still be made every month !!!

    Maybe I'll be proven wrong, but the 'tea leaves' tend to point to two feasible scenarios for these 'high risk' self-employed borrowers ...

    - 100% cash purchase

    - 20% down money plus closing costs in cash, leading to a non gov't guaranteed 'private sector' 15 year mortgage with an elevated interest rate which reflects the higher risk factors that the 'private sector' lenders will be assuming in the absence of FHA / Fannie / Freddie 'guarantees' against loan defaults.

    As such, if anybody has been 'sitting on the fence' in regard to buying a house, there are still a few weeks available to apply for mortgage financing under the 'old' rules and regulations.

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    Default Re: New US Mortgage Lending Regulations take effect on January 10th

    ^^^ very nice outcome for you ... which unfortunately isn't likely to be repeated for others.

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