In the aftermath of the 2008 financial collapse, Congress put safeguards into the banking system, to both protect consumers and banks from another meltdown.  Senator Christopher Dodd and Congressman Barney Frank headed up legislation which came to be known as Dodd / Frank.  Within that bill, a new agency was formed called the Consumer Protection Financial Bureau (CPFB).  This agency is designed to protect consumers by regulating certain aspects of lending, from credit cards, to mortgages.

Among it’s rules, is a guideline which is intended to protect consumers from themselves when obtaining credit.  The rule put simply is this; any loan (in this case mortgages) in which the lender lends money to a borrower whose debt to income ratio exceeds 45%, that loan does not fall under any government protection (for the lender) and therefore leaves the lender exposed to possible lawsuits brought by the consumer, who can charge that they did not fully understand the terms of the loan and how much it would actually cost.

While the intent of the rule is certainly admirable, the truth is this will limit access to credit for millions of people nationwide.  In fact on average, the typical Florida borrower  has a debt to income ratio of 48%.  Coupled with rising interest rates, and mandatory reductions in allowable debt to income ratio’s, a borrower who could afford $250,000 under the new rules can only qualify for $175,000.  This is detrimental not just to the perspective borrower, but the homeowner who is hoping to sell his house in a rising housing market.  Which brings the next point of, how does this effect the housing market?  While many industry insiders from mortgage bankers to builders are concerned with the fee cap requirements under the new rule, in actuality, it is the debt ratio cap which will diminish the borrowers ability to obtain credit.  Suddenly, refinancing becomes out of reach.

Millions of Florida homeowners have home equity lines of credit (HELOC).  These lines of credit typically have a draw period of 10 years, with balloon payments coming due.  Most homeowners have no idea this is coming due.  Consumers who wish to refinance by rolling that debt in, will be left on the outside, looking in because of the strict debt to income ratio guidelines.

While I realize the sky will not fall and the earth will still revolve around the sun, this rule can have an opposite effect on that which it is trying to accomplish, which is consumers having healthy access to the credit markets at fair cost.

At Ace, we have earned our reputation as “relationship bankers” by keeping our clients in the loop of new regulatory procedures.  This allows us to keep our clients interests first, which in doing so, allows for our own success.  With any questions about this or anything mortgage related, please do not hesitate to call us, seven days a week, up to 9pm nightly.

-Scott Osher

President and Founder of Ace Mortgage Loan Corporation

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