According to an article published on Bloomberg News people who are moonlighting with second jobs to qualify for mortgage loans are being adversely impacted by the Ability to Repay ("ATR") rule adopted by the Consumer Finance Protection Bureau ("CFPB"). The ATR rule became effective this past January and requires lenders to closely scrutinize a person's ability to repay a mortgage loan for which they apply. The ATR rule allows a lender to consider income from a second, part time job if the intended borrower has been at that job for at least two years or for a period less than two years if there is a reasonable explanation. The ATR rule also allows several second jobs to be strung together to get to the two year requirement if the string of second jobs held by the intended borrower are within the same industry.
It is reported that lenders are interpreting the ATR rule rather strictly and narrowly as the rule has not been in existence very long and lenders are concerned about the enforcement of the rule. Potential penalties against lenders for violating the rule are uncertain and are feared to be severe. This is an explanation offered by the Senior Vice President of the Mortgage Bankers Association, Peter Mills.
People who rely on the income from their second jobs to qualify for a mortgage loan are losing the benefit of that income if they have not had the job or second jobs in the same industry for at least two years. This problem is further complicated by the fact that their employers are hesitant to sign any kind of statement that indicates that there is any expectation that the employment will continue. According to Keith Binsfield, a loan officer at Huntingdon Valley Bank in Warminister, PA, “Second jobs, by their nature, aren’t long-term engagements. The guy who owns the gas station where you’re moonlighting may not know how many people he’s going to need next month.” According to Binsfield, income from second jobs could be established by showing bank statements with steady deposits for a period of one year before the ATR rule was enacted.
Another complicating factor is that wages are shrinking rather than growing. The article in Bloomberg cited figures indicating that the U.S. median income was $53,940 in June of this year, which is 7% below the median income in January 2008 when adjusted for inflation.Low3er wages are affecting first time home buyers who only accounted for 28% of buyers this year as opposed to comprising an annual average 41% of buyers over the past ten years. According to the National Association of Realtors, sales of existing homes in 2014 will most likely declined by approximately 3%.
Potential home buyers are facing an uphill battle. The clash of regulations imposed on the lending industry and generally poor or negative wage growth could slow the housing recovery. People are going to need to work harder and longer to realize the American dream.
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