Are you in the market for a house and worrying about whether it will be harder to get a mortgage after Jan. 10, when new federal rules kick in? Don’t fret. For most people the rules won’t make much difference. Looking back at 2013 about 5% of the loans we did would not meet the qualified mortgage standard.
The rules put out by the Consumer Financial Protection Bureau require lenders to make “a reasonable, good-faith determination” that borrowers can repay their loans. For so-called qualified mortgages, there are additional standards which give their issuers legal protection against charges of inappropriate lending. Qualified mortgage loans are no longer than 30 years and have fees and points totaling no more than 3 percent of the loan’s value. Lenders managed to win a reprieve on another piece of the standard, which is that a borrower’s total debt payments (including credit cards and student loans) can’t exceed 43 percent of income. Loans eligible for purchase by Fannie Mae (FNMA) or Freddie Mac (FMCC) or for insurance by federal agencies don’t have to meet that debt-to-income standard until 2021.
The conservative Heritage Foundation argues that the rules “unleash predatory regulators” and unfairly restrict borrower's choices without dealing with what it says are the real causes of the housing bubble and bust—namely, loose monetary policy and various rules promoting home-ownership for low-income families. On the whole, though, the rules won’t make a huge difference for most families—simply because lenders have already tightened lending standards drastically. The best evidence for that is the Mortgage Credit Availability Index published by the Mortgage Bankers Association. According to the association, the index would have stood at around 800 in 2007 if it had existed at the time. It’s around 110 now, meaning it’s much harder to get a mortgage than before the housing crash. Lenders can still make loans that do not fit the new guidelines, but they open themselves up to get sued if the the borrower defaults. So with enough skin in the game via down payment or reserves lenders will still lend.