The housing market is on the verge of another great financial crisis. Fortunately for millions of Americans this crisis won't have the same negative impact on the United States' economy as did the collapse of 2008. During this crisis the American public won't witness massive foreclosures or feel swindled by big corporation as Americans ante up for another greed driven bail out. In fact, this crisis will probably go unnoticed by the average American. The only time it will be mentioned will likely be in an occasional brief news broadcast as just an update to the current housing market. Now, if it's not first page news or effects the American public, then how is it a crisis?
In January 2014 the new Qualified Residential Mortgage rules proposed by the Consumer Financial Protection Bureau (CFPB) comes in effect. The Qualified Residential Mortgage rule will limit individuals from taking out a mortgage if the monthly payments causes his or her debt to income ratio to exceed 43 percent. The previous rule was 36 percent. A seven percent increase doesn't seem like much of a deal breaker, however, the new rule also takes into consideration students loans, property taxes, flood insurance, and any other fees associated with home ownership. These changes are designed to protect consumers and makes sure the buyer doesn't take on more then he or she can handle, however, these rules are make it hard to qualify for a loan. Every part of a person's finances are being scrutinized to prevent another mortgage collapse. Many would-be buyers will not qualify for loans and some individuals will be too discouraged to even try.
As a result of tougher lending practices, the Mortgage Bankers Association estimates that loan originations will drop by 10 percent this year and The National Association of Realtors predicts these changes in lending will result in 20 percent fewer loans in 2014. That's equivalent to over 600,000 less homes per year being sold. With the government agencies currently still in possession of 90 percent of all outstanding home loans, courtesy Freddie Mac and Fannie Mae, this large inventory will take well over 10 years to decrease the even the slightest. The only hope for a better outcome is if private sector bails them out and assume a portion of these outstanding loans.
Meanwhile the best course of action for potential buyers is to continue working on improving his or her credit score, increase savings, and stay tuned for possible changes to come.
Qualified Residential Mortgage Rule
& National Realtors Association
It is interesting to know how the slight changes in percentage can effect the big number of people to own or buy a house. It is understandable that government is trying to reduce the impact that people may not get trouble for handling too much finance which they can not pay back. However,600,000 less homes per year being sold? can that brought down the prices of the houses as well?
ReplyDeleteThis is a *really* interesting post! From what I can see now, and after this post prompted me to keep reading (that's how good it was, by the way), it seems to me, and correct me if I'm wrong, but the move from the ratio to 43 from 36 benefits realtors and the mortgage industry in that more buyers will be eligible, but they'll be at greater risk. And now if there is no required down payment. So my main question is: how will this create a *drop* in loans taken out?
ReplyDeleteYour audience now includes investors like me who are considering getting real estate investment property!
Or is it that the numbers are basically the same, but they're just adding those other costs that are usually not included?
ReplyDelete