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• W69025476 abstract "[ILLUSTRATION OMITTED] There was a time in the last century when mortgage lending was a relatively stable and predictable business. In 1975, lenders used clear, sometimes rigid, underwriting standards and strict front- and back-end ratios. If an applicant fell outside those ratios, that applicant was a renter, not a homebuyer. Clear standards on credit history also ruled. Mortgage lenders looked for clean histories. Better yet, a history of managing a loan the size of the mortgage applied for really counted. Proven ability to pay a loan was a prize quality. Not only was underwriting stable and consistent, so was the mortgage product itself. Adjustable rates didn't exist in 1975. Neither did all those special features that caused so many problems later. Indeed, in 1975, the fact that a mortgage could be made for as long as 30 years was still a relatively new concept. As Archie Bunker would have said, Those were the days. Changing times for mortgages Mortgages changed, and further evolution awaits in the wake of new Consumer Financial Protection Bureau (CFPB) regulations. First, lenders invented variable rates to protect lenders from rapid changes in the cost of funds and the rate risk accompanying a long-term asset. After an experimental period, variable-rate mortgages became popular. For lenders, they addressed rate risk. For borrowers, the initial rate was usually lower than for a fixed-rate mortgage. As rates rose, this common-sense balance morphed. With high rates, homebuyers often didn't qualify for the payment amounts. Lenders then invented discounted variable-rate loans. Originally, these were offered only to applicants who were relatively certain to have significant income increases. They were a way to get young people into homeownership without getting priced out of the market. The original idea was fairly reasonable. What happened next wasn't. Players in the mortgage market used this concept, and other methods for lowering initial payments, to make loans to applicants who did not reasonably expect a sufficient increase in income to manage the loan. This type of hit-and-run lending worked as long as the loan originator could keep moving on to other customers or refinancing the loan so the applicant only had to make reduced initial payments. To keep the mortgages in the air, like a juggler, creative mortgage players invented more ways of refashioning loans with ideas like skip-payments and negative amortization. And some lenders played the serial-refinancing game to keep fees coming in. Then came the crash. The big fix After the 2008 mortgage debacle, Congress and regulators got into the mode of fixing and preventing. The tsunami of regs began. Each fix aimed at an identified abuse or problem. Together, they present a daunting challenge to compliance and lending. They effectively change how lending will be managed and executed within the bank. In some ways, the new mortgage-lending regime is similar to 1975. We are returning to making loans only based on the borrower's current ability to repay. Loans based solely on the underlying property value are out. Appraisals are required. There needs to be an appraisal that is appropriate to the property's value and amount of the loan. In short, underwriting is back, and the current standards and ratios aren't much different from 1975's. On top of this, there are customer fairness and customer service rules. From contract restrictions to improved disclosures and service, the change seems to be a total overhaul of lending compliance. But how different is this, really? Lending is a two-way street Let's not lay all this at the feet of lenders. In the 1970s, consumers--particularly Baby Boomers--objected that banks were too paternalistic, substituting the judgment of the banker for that of the consumer. If a consumer wanted to purchase a big home but do without furniture, the consumer argued that was a choice for the consumer, not the banker. …" @default.
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• W69025476 date "2013-03-01" @default.
• W69025476 modified "2023-09-28" @default.
• W69025476 title "The '70S Are Back: Post-Crisis Regulatory Overhaul Remakes How American Home Finance Works-And How Many Lenders Will Work" @default.
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