ABA Banking Journal - March 2013 - (Page 36)

compliance clinic NEW MORTGAGE REGS The ’70s are back Post-crisis regulatory overhaul remakes how American home finance works—and how many lenders will work BY LUCY GRIFFIN, CONTRIBUTING EDITOR 36 | ABA BANKING JOURNAL | March 2013 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 variablerate 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 phoTo: MaTes/ shuTTersTock.coM T here 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.” http://www.SHUTTERSTOCK.COM

Table of Contents for the Digital Edition of ABA Banking Journal - March 2013

ABA Banking Journal - March 2013
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
Don’t let Trojans infiltrate your customers
Pass the Aspirin
Tech Topics
Working smarter, harder, and right
Mobile Banking: 7 keys for success
Compliance Clinic
Compliance Inbox
ABA At Your Service
First Person

ABA Banking Journal - March 2013

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