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Political: Why does Obama think "ability to repay" matters but collateral does not?

http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf

So a borrower with $1 million in assets on a $500k loan with no job can't get a mortgage but a borrower for a $300k loan on a $150k home can if they have a job and debt ratio.

Makes sense to me!
by the voice of reason January 10, 2013 10:27 AM


The concept of ability to repay considers collateral along with debts and income. The other half of the time honored equation, willingness to repay, deals with the credit side and how an applicant has performed on other obligations past and present.

I take issue with whether or not Alt A loans "caused" the crisis and certainly that those "poor borrowers" were the victims of unscrupulous lenders. Everyone of them believed that home prices Always go up. Everyone of them knew they couldn't afford to pay beyond the teaser period but planned to sell and make a potful, just like my brother-in-law..

This Dodd/Frank regulation is a classic example of government intervention that doesn't solve a non-existent problem and, in fact, makes things worse. All for a big pile of taxpayer money.


by BuySide January 10, 2013 10:46 AM


So let's say you have a good job right now with a title company. You get a loan to buy a house. You started your job three years ago at the beginning of the low rates. In another year you lose your job because rates go up and title companies lay off thousands. Was that loan a qualified mortgage?
by the voice of reason January 10, 2013 10:52 AM


Buyside I totally agree with you on Alt A.

The concept may consider collateral but these Harp2 loans do not. If that was the case, a lender would have to verify the borrower had enough assets to offset their upside down ness. ($50k underwater with $50k in assets)
by the voice of reason January 10, 2013 10:56 AM


It's government at its finest "The appearance of action."


by MichiganTed January 10, 2013 11:08 AM


TVOR, you confuse prudent underwriting standards with "curtailing losses", "lesser of evils", "take my hit and move on", "crap, won't do that again".

Harp is a stupid attempt to get out of a bad situation as quickly, and cheaply, as possible.

People always act in what they perceive to be their own best interest. No different with lenders.
by BuySide January 10, 2013 11:18 AM


TVOR,

The first Mortgages I ever did were second mortgages. We called them Glorified note loans. I'm not going to foreclose on a $40k second when I would have to pay off a $200k first. Your typical 2nd mortgage is all about Credit history and the ability to pay.

People seenm to think that their mortgage payment is to pay off their house. You borrowed money, not a house. The people that built your house were paid off years ago.

Harp 2 is a bit of a gift. For both the lender/servicer and the customer. It is a much better idea than any program that would reduce a loan size because of the fact the collateral dropped in value.
by YATI January 10, 2013 11:19 AM


It's government at its finest "The appearance of action."
by MichiganTed January 10, 2013 11:08 AM

Exactly. Shout and preen and pat themselves on the back for doing something, which in reality is less than nothing. Simply add to the regulatory burden when a huge number of existing laws and rules continue to be unenforced. Douchbags, all.
by oldbe January 10, 2013 11:27 AM


Capping Harp2 at 95% LTV and 20 year amortization is what needs to be done. Create a second mortgage for the deficiency that can be transportable if they need to sell. YATI, collateral matters as much as ability to repay. All the focus is on ability to repay. What is the Cabela's worker going to do for work when they close the gun department due to regulation? How can they pay their mortgage?

A job is an over rated reason for ability to repay. Give me a shitty credit borrower with reserves twice the loan amount with no job at 60% ltv over a Harp2 200% LTV loan.
by the voice of reason January 10, 2013 11:33 AM


any of you guys nmls licensed ?

I agree with all comments made, but the ability to repay is paramount today per regs/rules.
by MikeM-NJ January 10, 2013 11:42 AM


It has always been risk based pricing and always will! I'll lend you money when you sign a collateral consideration of 2:1
by Sooner Nation January 10, 2013 11:42 AM


With all these rules MikeM, why oh why is collateral not part of ability to repay?

Right before Harp2 strategic defaults were prominent amongst underwater borrowers.
by the voice of reason January 10, 2013 11:55 AM


All your second mortgage would be is smoke and Mirrors. In a forclosure situation a 95% LTV is way under water. The Harp Loan would need to be at about 60% LTV to accomplish what yous seem to be getting at.

Again, You didn't borrow a house, you borrowed money. The value of the house dropped after you bought it, tough shit. You felt that the payment you were making was worth living in that house when you took the loan. Why should you feel any different when a few pieces of paper say it you couldn't sell it for what you paid for it?

Nobody is stepping up to return the profits they made from an over enflated housing market to the lender that lent them money. Why shouldn't those same people step up and take the losses instead of thinking making the lender eat the loss is cool.
by YATI January 10, 2013 12:00 PM


Very true YATI.

But if it is all about borrowing money, why don't we allow 200% cash out refinances if the homeowner can prove the ability to repay? :)
by the voice of reason January 10, 2013 12:35 PM


"With all these rules MikeM, why oh why is collateral not part of ability to repay?"
by TVOR

collateral - why should it be part of the qm equation ?
a niche market is out there for those not able to show income at a higher rate.

ie. a couple gets divorced today, there goes your collateral comfort.
many other reason TVOR.
it makes sense to me.



by MikeM-NJ January 10, 2013 12:36 PM


I get what you're daying TVOR, but my first question to the borrower would be, why don't you pay for it outright? If the assets are so illiquid that they can't pay for it, then how will they pay a mortgage?

If they are worried paying outright hurts their luqidity too much, then I'd worry about what else they are spending the assets on and what that would mean to the mortgage if they ran out of assets..

The only really positive answer I can think of is they make more income on the investments than the interest rate on a loan costs them ..

I'm not saying you ignore assets/collateral completely, but you can't use them in a stand-alone risk-based decision
by InnerChild January 10, 2013 1:12 PM


TVOR,

I have three credit cards in my wallet, One with a $33k limit, one with a $18k limit and the other with a $16k limit. That's $67k in potential non-secured debt. Why did these banks give me access to this money? There is no collateral involved.
by YATI January 10, 2013 1:45 PM


collateral - why should it be part of the qm equation ?
a niche market is out there for those not able to show income at a higher rate.

ie. a couple gets divorced today, there goes your collateral comfort.
many other reason TVOR.
it makes sense to me.



by MikeM-NJ January 10, 2013 12:36 PM


The government is buying Harp2 loans above the value of the collateral. The government thinks they have fixed the problem by issuing qm definition based on ability to repay. The problem is those that owe more than the value of the property may be more likely to default than a borrower with equity based on today's values that are much lower than five years ago.

The focus on a "job" as ability to repay really frustrates me. As you said, the borrower can lose their job and join the 99 week unemployed crowd. I think credit analytics should involve all the C's of lending. Are you telling me a 800 Fico 200% LTV Harp2 loan with a borrower two years at a job tied to the real estate market is a good risk? One step further. A government worker with this fiscal cliff getting a Harp2 loan is a good risk?


by the voice of reason January 10, 2013 1:53 PM


Damn YATI! Let's go fishing in the Gulf!!

Are you saying YATI the future of mortgage lending disregards collateral?
by the voice of reason January 10, 2013 1:55 PM


Only on govt programs tvor. Mostly because they are clueless.
by BuySide January 10, 2013 3:10 PM


TVOR,

No I'm not saying that at all. I kinda agree with Buy Side. Only the Gov't could get away with this.

HARP is a bailout more than it is mortgage lending.

If government owned mortgages scare you, Government backed student loans should really scare the hell out of you. Talk about zero collateral.
by YATI January 10, 2013 4:53 PM


TVOR I'm addressing what a 'qualified mortgage' is.
you are comping a gov give-away aimed at keeping the underwater Smith family in their home and not bailing.
-two different animals
by MikeM-NJ January 10, 2013 5:30 PM


That's just it MikeM. The government regulates and defines what a qualified mortgage is but then turns around and buys all these unqualified mortgages.
by the voice of reason January 11, 2013 12:20 PM


CFPB are a bunch of morons the Obama adminitration had to come up with something on QM since Romney called them out in a debate. At least they didnt make it loans at 80% or less. It excludes Fannie/Freddie and FHA/VA if its approved in DU. Youre all right not looking at LTV or willingness to pay is stupid. You can have someone with a 680 with lates on credit are they a better risk than someone with a 620 and no lates?


Its all about reserves in my opinion. The 43% dti limit virtually asures no private or Wall Street money will ever do loans again. All we have now is govt run mortgage industry. Why did they target interest only loans? Many people in sales who get commissions or bonuses use the IO loans Merrill Lynch was the one who started them. I can see the no doc loans being non QM but not stated income. As long as borrower has high credit score and 6-12 months reserves they should be able to get a mortgage loan. Millions of creditworthy self employed people out there cant get a mortgage loan now.
by sfranny January 12, 2013 12:47 PM


Obama is without question the most inept president on the economyi in our history. All these regs have assured his voters will largely not qualify for a mortgage loan especially if house is under $75,000. Urban minority areas will now be ghost towns.
by sfranny January 12, 2013 12:50 PM


Obama is without question the most inept president on the economyi in our history. All these regs have assured his voters will largely not qualify for a mortgage loan especially if house is under $75,000. Urban minority areas will now be ghost towns.
by sfranny January 12, 2013 12:51 PM


Obama is without question the most inept president on the economyi in our history. All these regs have assured his voters will largely not qualify for a mortgage loan especially if house is under $75,000. Urban minority areas will now be ghost towns.
by sfranny January 12, 2013 12:59 PM


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