With a variety of indicators showing the housing market finally seems to be rebounding from the last decade’s boom and bust, home buyers and lenders have a chance to get it right this time.
Smart new mortgage rules coming into effect on Jan. 10 could keep buyers from getting in over their heads and protect responsible lenders. That could sustain a return of the market to normalcy and prevent another downturn.
Essentially, the qualified-mortgage rules prohibit lenders from selling houses to buyers who can’t afford them. Lenders must verify incomes, and borrowers must have a low enough debt-to-income ratio to both afford a mortgage and pay their other bills. Fees and points can’t exceed 3 percent of the loan. Mortgages can’t last more than 30 years.
The most toxic of mortgages can’t be written under the new rules, including loans whose principals increased even though a borrower was making payments, and loans with an interest-only period during which no money went to principal.
The new sensible rules reflect how many in the mortgage industry operated before the market went on its roller-coaster ride. Such practices were whittled some in the years leading up to the crash. With the new rules, the new housing market may not be as thrill-packed as the old one, but it should be sustainable.
Unfortunately, the fledgling agency that wrote and would enforce the more conservative borrowing rules is still under attack by those in the financial industry who want to pull out the Consumer Financial Protection Bureau’s fangs. They’re getting the Republican congressional caucuses to do their dirty work.
Many of the Senate Republicans blocking confirmation of Richard Cordray as the CFPB’s director say they don’t have a problem with the former Ohio attorney general, but they don’t want the agency to wield so much power over consumer borrowing. They plan to stand in Cordray’s way until they weaken the 2010 Wall Street Reform and Consumer Protection Act, which was written to ban the reckless practices that caused the 2008 recession.
Meanwhile, a legal challenge to Cordray’s interim appointment and others made by President Barack Obama during Senate recesses has put the CFPB’s regulatory powers in a state of uncertainty.
These hits on efforts to protect consumers could derail the progress being made to restore the housing market.