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AEI Resident Fellow Ed Pinto and Fmr. Fannie Mae Exec. VP Rick Sharga on new rules surrounding mortgages and homeownership.
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-- financial protection bureau rolling out new mortgage rules today.
And as we do whenever the government issues new regulations we take a look at the true impact on you.
The promises here -- the basics on today's new rules they prohibit a borrower's total loan payments from exceeding 43% of income.
And -- no more of those high risk mortgages like no income verification loans have played a part in the housing bust.
Skeptics ask whether these new rules hurt the very people they're trying to protect and damage the delicate housing recovery.
Joining me now at -- -- resident fellow at the American enterprise institute and a former executive vice president Fannie Mae.
And Julia Gordon director of housing finance and policy for the Center for American Progress progress Julia I'll start with you.
You -- these rules are crucial.
Why and do they go far enough from your point of you.
-- it seems like common sense that if your mortgage lender and make a mortgage.
First are gonna check to see if the borrower can afford that mortgage.
But that's precisely what didn't happen during the run up to the housing crisis and that's why we need a rule that says to lenders.
You've got to make sure the borrower has the ability to pay the -- back.
-- is this just common sense.
I think that problem here is that FHA -- and other government agencies and making that.
Loans that are irresponsible for.
Years and years.
Including loans are very I had debt ratios they'll continue -- make them under these rules.
Yet the CF TV says they're gonna prevent irresponsible lending FHA is one of the most is irresponsible lenders out there.
Are -- what we agree -- disagree here.
A -- talk about this issue of a one size fits all mortgage because it's clear that's what's gonna happen in this marketplace because of the world new rule making.
Is that banks will be more in -- -- just offered the thirty year fixed mortgage.
-- is that a good thing.
Some I don't think that's true I think you can still make a fifteen year mortgage under this and you can still make adjustable rate mortgages.
What you can't make -- mortgages that are so risky.
That most people.
All can't possibly handle them well -- jump -- here because I think there's a whole slew of other mortgages that.
People who watch this program are fairly well to do -- fairly responsible citizens might want to see I know that there were big problems for example with this so called ninja loans.
But those are the very loans that -- to say.
Small business owners who have uneven streams of income.
Do you think they get ourselves in the situation where we're really limiting the options -- consumers.
I think the ninja loans then the loans for ourselves -- are going to be difficult to get.
They were severely abused during crisis the route to the crisis.
The government again was promoting a lot of those loans and they led to a tremendous and I have abuse.
They were supposed to be used for small business owners and they ended up being used.
For many many times that millions and millions of people the problem that these new rules present.
Is that the CF TB has set up a definition of a prime loan.
Yet this long can have a zero down payment.
Can have a 580 Michael -- -- the average chef spike was worth about 700 in this country.
And you can have a debt ratio of over 50%.
And as long as it goes through a government sanctioned.
-- automated underwriting system by Fannie Freddie or FHA.
It clear to prime loan and I get -- Harbor that actually what about that so no skin of the game I've put down no down payment and under this scheme.
I don't think alone is that right below that that's not what this role as a -- you know first of all bring alien in the text of the role there is no you don't have to make a down payment necessarily.
All what you're talking about is that.
Under a certain.
Definition called the qualified mortgage which is a special definition within a much larger rule.
There is no particular down payment requirement although there are bunch of other down payment requirements all this world does is set a floor for responsible lending.
It doesn't.
Prescribed to lenders exactly how they should do until the winners and let him this way so let's say that there's a lender out there and he decides the -- -- wants to -- gonna require no down payment.
Is that a good policy.
For the consumer protection.
Bureau that is trying to make everybody be more responsible.
I don't think it makes us the sense for a regulator.
To prescribe the down payment first of all in.
In an America where everybody was required to have a 20% down payment.
We would frankly not have much of -- mortgage market because the vast majority of families cannot possibly do that.
But lenders make decisions for all kinds of reasons there are credit enhancements there's mortgage insurance -- all sorts of reasons.
That a lender -- are able to do safe low down payment lending.
And you know one -- the.
Interesting things about this is it seems to me.
That it -- the government even more tightly into the mortgage market instead of saying OK hey we're gonna change the rules -- to mix this up and we're gonna make.
The private sector take it over and really run this thing instead the government's getting even more involved what do you make of that.
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- Yeah on one hand we have Federal Housing Finance Agency the regulator for Fannie and Freddie.
Trying to reduce their footprint.
By raising their guarantee fees to make them less competitive.
On the other hand we've got the CF TV saying for the next seven years or as long as feigning freighter in conservative shift.
Anything they do under there automated underwriting is acceptable.
Well that's really gonna locked Fannie Freddie and then they say the same thing for FHA.
That's gonna -- all of them end.
To a system that relies on the government I think you're gonna see more reliance on government rather less under these rules which I believe this is probably what CF PB wants.
All right -- what do you -- Well honestly right now you couldn't have more reliance on government because -- you -- over 90% of the market is is backed by the government but then that not yeah that's -- in -- long run doesn't this doesn't -- this new rule making would seem to make the government even more important in this marketplace and lock it down for years to come.
-- this this rule is separate from the need for overall housing finance reform.
I would love to see some GSE reform I would love to CS figure out what to do about Fannie and Freddie and I don't say conservatives should -- be -- -- -- -- -- -- -- one time.
Well it hasn't been handled the -- the time to handle it was when Dodd-Frank was passed it was conspicuously accent.
And so we've -- things out over the last four years three years.
And it's continues to dribble out I think that's what's gonna happen I think this is again -- step in the wrong direction.
Because it's really going to.
Entrenched and the government -- now the government's hold on the markets actually decreasing slowly less statistics I saw.
Was that 16%.
Lending was not guaranteed by the government that's up from 10%.
I think with these rules it's gonna push things back through.
Fannie Freddie and even FHA.
Now the beat goes on and Julia thanks for coming on tonight breaking -- for both of you thank you so much for your time thank.
