The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

They Told Me If I Voted for Romney …

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Dodd-Frank and the CFPB are nightmares that ought to be repealed, but Ed Morrissey is slightly encouraged by this move: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.




7 Responses to “They Told Me If I Voted for Romney …”

  1. Mike G.
    January 10th, 2013 @ 10:14 am

    Ya know, back in the day, you had to have good credit, a page full of references and a twenty percent down payment to get a loan for a house. That made sure you had a reason to pay off the loan…you had skin in the game. Plus, a “good” interest rate back then was in the neighborhood of ten or eleven percent.

    Oh yeah, you also had to have had the same job for at least three years.

  2. Bob Belvedere
    January 10th, 2013 @ 1:25 pm

    I don’t trust this Administration. So…what’s the real reason for making this move?

  3. nontonite
    January 10th, 2013 @ 1:50 pm

    I still think those qualifications are too stringent. If we want to really be a free market, why not let mortgage companies qualify borrowers on their own terms, whether it be lower down payments, higher interest, etc.?
    I think the above is an example of moving the pendulum back in the other direction too far.

  4. Finrod Felagund
    January 10th, 2013 @ 3:10 pm

    I haven’t worked at the same job for 3 straight years since I left graduate school, and I’ve bought two houses in my lifetime so far.

  5. Finrod Felagund
    January 10th, 2013 @ 3:11 pm

    With any luck this will turn out to be one less thing that Republicans have to fix come 2017.

  6. Adjoran
    January 10th, 2013 @ 4:57 pm

    The rules are perverse incentives. The Feds are telling banks, “If you want to avoid being sued or indicted, and to remain eligible for future bailouts, you must follow these guidelines.” The guidelines, years in the making, are yet unfinished.

    So banks and other lenders are adopting a predictably conservative approach, lest any liberality in loan standards run afoul of future restrictions. The result is in fact an even tighter screen on borrowers than existed before the CRA and other government saber-rattling forced looser lending practices beginning in the late ’90s.

    The rules – written and unwritten – are not the only reason it is tougher to get a loan now. In another perverse phenomenon, it is the low interest rates themselves which make lending tighter. “Easy money” is one thing between federally insured banks and for the best corporate customers, but low rates mean lower profits for lenders, so their standard MUST be stricter – bad loans are not so easily covered by the profits made on good loans now.

  7. SDN
    January 11th, 2013 @ 11:33 am

    The government will force lenders to stick to those rules until the first “disparate impact” lawsuits hit, or NAACP / La Raza / GLAAD asks for a waiver. Kind of like Obamacare. Only you Hobbits have to follow the rules.