Did getting a non-traditional loan become harder?

I don't think it'll have much effect. Neg-am, IO, balloon, >30yr, and no verification loans are largely products that become widely available well into RE bubbles, so they weren't going to come back any time soon and, given how badly lenders/investors got burned the last time, I think there wouldn't be much of a market to provide them. I think that CFPB went with these is that they didn't get much pushback on them and they get to look tough. As for the DTI "limit", 43 percent is pretty ridiculous. Another place where CFPB gets "tough" without really doing anything.

The real problem was fraud largely arising from the use of STATED DOC loans, and brokers not reccomending mortgage products in line with the borrowers needs. And the single largest predictor of default is LTV, and that wasn't addressed at all.

Here is link to the new regs for anyone with serious interest in the topic: http://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/

Riversider - Any chance you can post on DC site "talk" in addition to NYC site "talk?" I have found that now that I am out of NYC real estate market, I am drawn to your topics more than the NYC real estate topics (although this thread is serious real estate topic). I wonder if your topics would get more play on the DC site; only way to know would be to post both places.

Totally agree with riversider. All of those products function well for the correct borrower, but were largely pushed on consumers based lazy loan officers selling stated because they didn't know how to put together a real loan package and greedy loan officers that were selling neg am loans that were paying three points in yield spread. Very few people default when they have 20 percent or more of equity in the property, because who wants to lose their down payment...

NYCNovice, Riversider's topics would get much more play on a politically partisan economics discussion board than on any SE board.

For all you fans of pumps that inflate bubbles at the fastest possible pace, I just found out about a nifty feature from your friends at Fannie Mae. "HomePath" is a mortgage program for properties FNMA has foreclosed on.

It allows owner-occupants to buy at 3% down (but even that doesn't have to come from you) with no PMI (it's wrapped into the hefty interest rate, permanently ... "the program is designed with the assumption that you'll refi as soon as home value rises to 20% equity", a broker told me) and -- wait for it -- NO APPRAISAL!!!

But wait, that's not all ... *investors* can take advantage of the same terms, but 10% down is required, and presumably the interest rate is even higher. And instead of the normal limit of five investment mortgages that FNMA has long imposed, this program is still available up to a much higher number (11? 20? I forgot. I was in shock as the broker was splainin.) LLC? No plobrema!

The broker explained that this allowed other people to compete fairly against the all-cash out-of-state investors who are driving up prices rapidly in the sand states. okehhhh.

http://www.homepath.com/financing.html

because who wants to lose their down payment..

---
jimmcp, I could not have voiced it better. Yes!

AH - additional thoughts on the Homepath Renovation Mortgage program?

Down payment? What down payment???

Homepath Renovation Mortgage? They should just go ahead and roll a new F150 into the mortgage and an all-inclusive Caribbean vacation, while they're at it.

I know, right? The regular Homepath Mortgage raises enough eyebrows, but the Homepath Renovation Mortgage takes the insanity to a new level. To me it looks like getting a non-traditional loan is easier than ever. Does anyone know of any RE investor who is using the program? Does anyone think this is sound public policy?

I do not think that it got that harder. It is all about people. It is just our personal finance became even more vulnerable. Even though I cannot afford to take out a mortgage at this point of my life, I am totally fine with new regulations. Because here is how it used to be: a person would apply for a mortgage that he can't afford, got approved and when payment time came he would either skip this part or go to online cash advance, which would make him go into a bigger debt. With this new system we will get better chances for people to stay away from additional borrowing in order to make monthly payments. I think that it is great!

RE HomePath. What's the problem? A natural next step for a society that fueled the housing bubble.

The homes are already owned by Fannie. No appraisal -- of course, why would Fannie want a lower appraisal? No down payment -- better to have someone paying a mortgage rather than sitting on an empty foreclosed property.

Funny .... Blame it on the loan officer not the borrower ..
Classic

Borrowers are not the primary party who needs to conduct credit analysis on a mortgage. In fact in many states borrower can't be held to a deficiency judgment in the event of a default. That role goes to the lender/broker. While borrowers can and should be be blamed for exercising bad judgment and buying too much house or borrowing irresponsibly it's not their money they are playing with(it's actually someone else's)

Agree RS... But in a free market, the market will put those lazy, greedy loan officers out if business.

The taxpayers are the lenders: 9 of 10 mortgages are guaranteed by the govt. Voters elect officials who back Freddie / Fannie because messages of "making home-ownership affordable" and "ownership society" and "help you invest in your home" resonate. Freddie / Fannie's questionable underwriting standards are a reflection of what society demands. Their very existence is predicated on voters' desire for a free lunch, not natural market forces.

I agree with inonada.

Fannie's questionable underwriting standards are a reflection of what society demands.

---
No, not really. It's more of Democrats(let's face it Republicans are about oil and Democrats about Housing) getting votes and election money in exchange for a tax payer subsidized lending system. And it's not just realtors, builders and mortgage brokers who are benefiting but the big money center banks who have learned to extract around half the profit of a mortgage up front, while saddling the tax payer with the eventual credit risk. And yes minorities and those who qualify for non-economic loans also promise to vote Democratic. It's hardly Democratic and quite similar to what we see with unions bargaining in the public sector.

I disagree with Riversider.

RS, I don't think this is a Democrat vs Republican thing. Recall Bush's pandering of an ownership society.

The demand for govt subsidies goes beyond Freddie / Fannie. Look no further than the mortgage tax deduction, which regressively favors the affluent.

>which regressively favors the affluent.

?

Regressive tax benefit, resulting in more affluent homeowners getting a higher benefit percentage-wise than less-affluent homeowners.

Ah, benefit = lower tax.

So if we had free(private) markets this would be fair to all. Without government intervention the less affluent would benefit more than the more affluent.

Why did the less affluent vote for Obama?

Recall Bush's pandering of an ownership society.
--------------
An exception more than the rule

... Are benefiting in the current government subsidized system

GOP long ago noted the correlation between home ownership and tendency to vote Republican, and thereafter sought to skew the nation, states, etc. more in that direction.

And Still Obama got elected

Very much so, with a LOT of help from the GOP, I might add.

Home Path properties are a pass. By definition we're talking conforming mortgage which exludes the more desirable properties and locations. Worse they come as is and have most likely been neglected and not maintained for some time.

Agree RS... But in a free market, the market will put those lazy, greedy loan officers out if business
---
Brooks. Came across an interesting article this morning, dating back to 2007. It seems lenders were discouraged from doing full doc loans by the investment banks. The lenders earned more money, the borrowers paid higher rates and the whole system broke with the Fed asleep at the wheel.

http://www.nytimes.com/2007/05/08/business/08lend.html?pagewanted=1&_r=2&ref=business

William D. Dallas, the founder and chief executive of Ownit, acknowledges loosening lending standards but says he did so reluctantly and under pressure from his investors, particularly Merrill Lynch, which wanted more loans to package into lucrative securities.

He recalls being asked to make more “stated income” loans, in which lenders do not verify the information provided by borrowers and brokers with tax returns, pay stubs or other documentation. The message, he said, was simple: You are leaving money on the table — do more of them.

Mr. Dallas, a trim 51-year-old who has been in the mortgage business for more than 25 years, said he disagreed, but complied.

“If I can sell it at a profit,” he said, “why would I not do it?”

Yes .. CW loosened underwriting standards too ... No longer in business..