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
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.
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?
High tech feudalism.
It might give them more places to stick the homeless.
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.”
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.
The problem the leeches in charge have with lower house prices is not that they are “racist.” That’s just obfuscation.
Instead, their problem with it, is that excessive house prices is how much of the useless, idle leeching classes’ rent seeking is ultimately funded. If the leeches couldn’t sit on their rears while the various organs of the totalitarian state forced productive working people to overpay for cheap shacks, how else could their idle, incompetent, worthless selves live large off of the backs of their superiors?
When do the rating agencies start giving junk mortgage debt AAA ratings, again?
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.
Dare I mention that Fair Isaac (FICO) recently changed their methodology to make it easier for borrowers to get a better credit score?
10 years ago Republicans were frothing to downsize / spin off Fannie and Freddie … of course, that went NOWHERE.
They were going to repeal obamacare…. then they got in power
Exactly
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??
That car is going to increase in value! Better yet they can use that car to drive for uber. Boom now your making money. Heck might as well buy a fleet
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?
Scraping the barrel trying to get every last bit of stupidity out.
It is not stupidity if someone other than the lenders is being set up to take the loss. (It is theft.)
I am fine with taxpayer bailouts as long as everyone in Washington DC who signs that piece of legislation has to pay in almost everything they have before they can go to the taxpayers who have no direct say in the matter.
There is never, under any circumstance, anything even remotely “fine” with any taxpayer bailout.
If for no other reason, then simply as a necessary side effect of there never, ever, being anything even remotely fine about anyone being in a position to collect enough taxes to bail anyone out with.
You are probably right, Stuki. My point really was that lawmakers should have some skin in the game when it comes to making the citizenry suffer under their poor decisions. Over the years I have actually heard some lawyers argue that lawmakers must be protected from the consequences of their decisions so that their decisions will be objective; and what did that get us? Here we are on the road to hell.
To what passes for “great” “legal minds” these days, protecting Vegas gamblers from their losses, no doubt doubt result in them them being more objective wrt to their decisions regarding how much, and whether, to gamble…..
Heads I win, Tails you lose, always achieve great results like that, in the mind of someone with grandness of intellect sufficient for such extraordinary undertakings as chasing ambulances and benefiting from totalitarian states shaking down others over arbitrarily written and interpreted, mindless “laws.”
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.
Great post!
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?
“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.
Because student loan indebted millennials need homes too, you heartless bastards.
Colleges and universities are not held accountable for price gouging. There is no student debt problem. We all know the historical reasons for universities, but the modern versions are set up to exploit people from the moment a young person applies (wit a paid application fee of course!!!).
Universities don’t pay income taxes. They don’t pay property taxes.
Universities don’t share TV revenue with their athletes who “graduate” with no ability to read or write — the NCAA is an entertainment conglomerate and should pay its workers, and pay tax on the billions in profits.
No one questions when a “professor” abuses their position to indoctrinate students. Its illegal when a cult does it, but not when the cult is run by someone with a PhD.
No one questions when “professors” make students buy books written by that professor (or his cronies) as a condition for passing the course (bundling is illegal when others do it).
Tax evasion. Operating a cult. Illegal product bundling. Exploiting entertainment workers for profit.
So why is it a surprise that universities are not charged with price gouging either?
There is truth in your comment.
These student loan burdened millenials will have to be able to somehow become “homeowners” (mortgage debtors) or property prices will eventually crash.
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.
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.
The CFPB has gone completely Orwellian with this move. Nobody is protected if DTI level are eliminated from the mortgage approval list.
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?
Agree. My no-recession predictions are off the table if stuff like this gets passed.
“no recession”??Seriously?
Well by the classic definition of two quarters of negative growth. We will get rate cuts to stave anything off. If NINJA loans and debt grows so quickly then there will be a crash like 2008. Right now we are on the path to 1% growth for a decade.
The policy is not idiotic when the fix is already in. Don’t you just love Fascism??
2006 was different; there was a semblance of rules still hanging around. We don’t have any stinking rules anymore, and the FED has all the powers it can think of. This time is different!
But our economy is booming.lol
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.
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.
Exactly —> ” I guess they think the government would bail them out again.”
It gives the banks and insiders freedom make off with other people’s money. Insiders get paid bonuses for the volume of loans forwarded, and this will increase the volume. By the time the bubble bursts they will have made their escape and who knows who will be carrying the bag at that point.
Securitization
Lenders hold the loan only briefly before packaging them into securities which are passed off to institutional investors, endowments, insurance companies, etc.
Naturally, the lenders get their cut up front … the potential loss someone else’s problem.
Righto! And the securitizers bundle the mortgages up and sell them to widows and orphans funds, and other dupes. Bribe the rating agencies. And take out CDS against the dreck. And in the case the CDS issuer can’t pay up, a corrupt banker is elected head of the Treasury, who gets the taxpayer to pay off all bets.
The only requirements lenders care about are those imposed on the GSEs/FHA/VA because nowadays just about all mortgage loans are guaranteed by one of those entities. So in reality what they are asking for are for the rules to be relaxed on the government entities providing the guarantees. As long as the banks then follow those same underwriting standards when they write mortgages then they are golden and have very little to risk. It then falls on the taxpayer if the housing market goes belly up (unlike in the previous crisis where a significant amount of home loans were completely private – i.e., not goverment guaranteed).