Posted on | January 10, 2013 | 7 Comments
. . . low-income minorities would have a harder time getting approved for mortgages — and they were right!
The Consumer Financial Protection Bureau on Thursday will roll out the first of several far-reaching changes to the nation’s mortgage market, limiting upfront fees and curtailing practices such as interest-only payments that can leave homeowners stuck with unsustainable loans. The agency also will set standards for how much income a consumer must have to obtain a mortgage.
This marks the first time the government has spelled out what constitutes a “qualified mortgage,” an effort to prevent the widespread toxic loans that hurt millions of Americans during the housing crisis.
Banks that offer qualified mortgages will be protected from lawsuits if they adhere to the criteria. The consumer agency hopes that will drive the entire industry to live by the tighter standards that have taken hold since the crisis, ensuring safer loans but potentially limiting the number of people who can qualify to buy a home.
“Credit is going to be restricted, at least a little,” said Cristian deRitis, a senior director at Moody’s Analytics. “The debt-to-income cap, for instance, is going to affect some folks at the lower end of the income scale.”
Your key phrase there: “Banks . . . will be protected from lawsuits.” The Community Reinvestment Act (CRA) was a government-issued invitation to a lot of class-action litigation and mau-mauing of banks, which led in turn to a deliberate lowering of lending standards, which in turn led to a rising default rate, which in turn eventually triggered the collape of the mortgage bubble.
Liberals have tried to blame the bubble exclusively on Wall Street and the dubious business of trading mortgage-backed securities without adequate regard for the obvious risks of “subprime” loans. In truth, there is plenty enough blame to go around, but (a) the involvement of FHA, Fannie and Freddie in the lending market had the effect of conveying the impression that U.S. mortgages were guaranteed by the feds, and (b) the role of the CRA was crucial to what happened. Easy credit as a civil right was an Idea that had Consequences.
Dodd-Frank and the CFPB are nightmares that ought to be repealed, but Ed Morrissey is slightly encouraged by this move:
In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them.
C’mon, let’s be honest: They’ll probably find a way to screw it up again.