Bay Area to feel impact of new
mortgage lending rules
By Pete Carey , Mercury News
Tighter rules for mortgage lending
announced Thursday will go a long way toward protecting consumers against the
worst excesses of the housing bubble, but could hit some Bay Area homebuyers in
the pocketbook.
The rules are designed to prevent
the types of toxic loans that allowed people to buy homes they couldn't afford.
Those mortgages eventually collapsed, leading to the housing and financial
crash.
The Bay Area, where housing prices
are among the nation's highest, may feel the impact of one key guideline that
limits the size of the loan payment compared with the person's monthly income
and other debt. That will make getting a mortgage harder for some potential
homebuyers.
"We do have a more expensive
market, so for those people who are prevented from really stretching
themselves, it will have an impact," said Chris Thornberg of Beacon
Economics.
Under the new guidelines, the
monthly mortgage payment plus all other monthly debt payments cannot be more
than 43 percent of the borrower's monthly gross income.Bill Godfrey of Mason McDuffie
Mortgage in San Ramon said that could make it difficult for some high-income
homebuyers in the Bay Area to get a loan that meets the new standards.People who make enough money to live
on but don't qualify under the 43 percent standard could have a hard time
getting a mortgage. "It could mean some people in high-cost areas are not
going to get their mortgage," he said.
Announced by the federal Consumer
Financial Protection Bureau, the long-awaited guidelines will take effect next
year but should begin shaping lenders' practices immediately.Lenders applauded the consumer
bureau for establishing clear standards, which may help ease credit in the
future by encouraging banks to begin lending again.
"At least now we know what the
rules are," said Rob Hirt, CEO of RPM Mortgage in Walnut Creek.
"Most
of the industry is applauding" because the rules will probably not slow
down mortgage lending, he said.
"The fact that we have a rule
focused on making banks make sure people are able to repay their loans shows
how absurd things were in the last few years," said Kevin Stein of the
California Reinvestment Coalition.
"This rule-making is setting
some important new standards for insuring those kinds of practices do not
re-emerge," said Paul Leonard of the Center for Responsible Lending in
Oakland.
The new rules give lenders a
"safe harbor" that limits their exposure to lawsuits from borrowers
when they make what is called a "qualifying mortgage," which protects
the borrower from some of the risky practices that helped cause the crisis.
"The safe harbor will give
lenders the confidence to make qualified mortgage loans," said Dustin
Hobbs of the California Mortgage Bankers Association. "That should help
loosen credit."
For qualified loans, lenders must
verify the borrower's financial information and establish that the borrower can
repay the loan over the long haul. They can't use low "teaser rates"
to determine whether a borrower has the ability to repay. Points and fees are
limited to 3 percent of the loan.
The loan cannot have some of the
tricky features of the housing bubble's toxic loans, such as negative
amortization, excessive fees, balloon payments or 40-year terms.
Those types of loans can still be
made by lenders, but they aren't qualified mortgages.
Loans that meet the guidelines of
the government-controlled entities Fannie Mae, Freddie Mac and the FHA are
presumed to be qualifying loans. Currently the three agencies account for most
of the mortgage market.
The new rules, and others now
governing the housing industry, will create a more standardized national
mortgage market, said Hobbs of the CMBA. "For years, there has been more
of a regional character and color to the industry. You're going start to see a
more uniform nationalized look to lending."
